R&D Tax Credit by State
Arizona offers an R&D Tax Credit for businesses incurring qualified expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. The state has both a refundable and a nonrefundable credit program. To qualify for the refundable portion of the tax credit the taxpayer must have less than 150 employees and must receive a certificate of qualification.
The AZ R&D Credit is equal to:
- 24% of the first $2.5 million in research expenses in excess of the AZ base amount PLUS
- 15% of research expenses over $2.5 million in excess of the AZ base amount.
To claim the AZ R&D Credit, taxpayers will need research expenses in the current year and gross receipts for the prior four years. Taxpayers must complete AZ Form 308 to be attached with AZ tax returns. The credit can be passed through for Partnerships and S-Corporations. To pass credits through to owners, taxpayers must complete AZ Form 308-S. Any unused credits can be carried forward for 15 years.
Arkansas’s credit is broken down into three categories which are described as follows:
Inhouse Research and Development: Allows business performing qualified R&D as defined by IRC Sec. 41 to claim a credit equal to 20% of QREs that exceed the base period amount. To calculate this credit, taxpayers will need: (1) current year QRE information, (2) QREs for the previous 5 years. This credit may be used to offset up to 100% of a company’s tax liability.
In-House Research by a Targeted Business: Allows business designated as “targeted business” by the state AEDC Executive Director to claim a tax credit equal to 33% of total QREs for up to five years. To apply for this credit, taxpayers must submit a project plan which includes:
- Description of the research
- Start dates and end dates for the research
- Planned expenditures
- Estimate of total project costs
Taxpayers that claim this credit may sell the credit with approval from the AEDC.
R&D in an Area of Strategic Value: Allows business that invest in either of the following two areas to claim an income tax credit equal to 33% of QREs:
- Research in an area of strategic value having long-term economic or commercial value to the state
- Projects offered by the AR Science and Technology Authority
Strategic value areas must be deemed as such by the state. The maximum credit that can be claimed by any taxpayer under this program is $50,000.
University-Based R&D: Allows eligible entities to that contract with any Arkansas college or university to claim an income tax credit equal to 33% of QREs.
California offers an R&D Tax Credit for businesses conducting R&D operations within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC and the credit can be used to offset franchise or income tax.. The credit can be calculated using the regular method or an alternative incremental method. The credit is equal to the sum of:
- 15% of CA qualified research expenses that exceed the base amount
- 24% of basic research payments for university-based R&D
To claim the credit, CA taxpayers must complete FTB Form 3523. The following information is needed to complete the form using the regular or incremental method:
Regular Credit
- Current year research expenses
- Research expenses and gross receipts from 1984-1988 OR research expenses and gross receipts for the first taxable year after 1994
Alternative Incremental Credit:
- Current year research expenses
- Prior four years gross receipts
The credit can be passed through to S-Corporations and Partnerships. A reduced credit election is available at varying rates for corporations, S corporations, and individuals estates and trusts. Any credits not used in the current year can be carried forward until exhausted.
Colorado offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the Colorado R&D Tax Credit included C-corporations, S-Corporations, LLCs, and Partnerships. The taxpayer must pre-certify to receive the Colorado R&D Tax Credit by submitting form DR 0074, DR 0076, DR 0077 to the zone administrator. The Colorado R&D Tax Credit once awarded can be carried forward for four years.
The credit is calculated as follows:
- Determine average of QREs from the two years prior to the credit year
- Subtract 2 year average from QREs in the credit year (excess QREs)
- Credit is equal to 3% of the excess QREs
The awarded Colorado R&D Tax Credit must be divided equally over a four-year period. The taxpayer may claim 25% of the credit expenditure for the first year and the 25% in each of the following three years. To file for the Colorado R&D Tax Credit, the taxpayer must complete and submit their FYI income 22 and from 1366.
Connecticut offers an R&D Tax Credit for C-Corporations in two forms, the incremental (RC) and non-incremental credit (RDC) for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Connecticut allows for the state R&D Tax Credit to be carried forward for up to 15 years for the RC and indefinitely for the RDC . Calculation for the Connecticut R&D is broken down into in to two categories:
Incremental-RC: Subtract qualified research expenses (QREs) in the base year period from QREs in the current year period then multiply by 20% to determine the credit.
Non-incremental-RDC: 6% of qualified research expenses (available for companies with less than $100 million in income in prior year)
To file For the Connecticut R&D Tax Credit the taxpayer needs to file two different forms. For incremental research and experimental expenditures (RC) taxpayers need to file form CT-1120RC. For the non-incremental (RCD) the taxpayer needs to file form CT-1120RDC.
Delaware offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities the include C-Corporations, S-Corporations, LLCs, and Partnerships. Each year, the state makes $5 million in credits available statewide for use by eligible companies. The credit can be calculated through various methods:
- Current Year DE QREs – Average QREs in base period x 10%
- 50% of Federal R&D Credits calculated using the Alternative Simplified Credit method
An additional program is available for small businesses with revenues less than $20 million. This credit is calculated as:
- Current Year DE QREs – Average QREs in base period x 20%
- 100% of Federal R&D Credits calculated using the Alternative Simplified Method
To file for the Delaware R&D Tax Credit the taxpayer needs to complete form 2071AC 0007. Total credits may not exceed 50% of the tax liability for each year. Any unused credits can be carried forward for 15 years.
Florida offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. The credit can only be claimed by C Corporations and is applied to FL corporate tax. However, the credit is limited to 50% of the total tax liability. The credit is calculated as
10% of QREs in the credit year that exceed the base-period amount
In order to calculate the credit, taxpayers will need:
- QREs for the year in which the credit is being claimed
- QREs for the prior four years (to calculate the base amount)
The state sets a cap for total R&D Credits for each year. Once that cap is reached, tax credits are allocated on a pro-rata basis. All FL taxpayers claiming the state R&D Credit must also claim a federal credit using Form 6765.
Georgia offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the Georgia R&D Tax Credit include C-Corporations, S-Corporations, LLCs, and Partnerships. In Georgia excess R&D credits can be used against state payroll withholding. The credit is calculated as:
10% of QREs in the credit year that exceed the base-period amount
To calculate this credit, taxpayers will need to determine QREs for the credit year as well as QREs and gross revenues for the prior three years.
The Georgia R&D Tax Credit can be carried forward by 10 years by eligible business entities. Credits can be used to offset up to 50% of income tax liability. To file for the Georgia R&D Tax Credit the taxpayer needs to complete and submit form IT-RD, (federal form 6765 must be attached).
Hawaii allows for a refundable credit for companies incurring qualified R&D expenses within the confines of the state. The state’s R&D credit closely follows the rules and definitions of the Federal R&D Credit as outlined in IRC. Section 41. Eligible entities include C-Corporations, S-Corporations, LLCs, and Partnerships. The tax credit expired in 2019 but was subsequently renewed through 2024.
The HI credit is equal to the federal credit on Form 6765 multiplied by the percentage ratio of HI QREs to total QREs. HI taxpayers must claim this credit 12 months after the close of the taxable year.
Idaho offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the Idaho R&D Tax Credit included C-corporations, S-Corporations, LLCs, and Partnerships. The Idaho R&D Tax Credit can be carried forward 14 years.
The credit is calculated as follows:
- Determine the base amount as defined by IRC Sec. 41(c)
- Subtract base amount from QREs in the credit year (“excess QREs”)
- Credit is equal to 5% of the excess QREs
Idaho taxpayers may elect to be treated as a start-up company under IRC 41(c)(3)(B), regardless of whether the taxpayer meets the requirements of IRC 41(c)(3)(B) or IRC 41(c)(3)(B)(i)(l) or 41(c)(3)(B)(i)(ll). If a corporation is a member of a unitary group, it must use up all credits allowable against the state income tax before electing to share credits with other members. To claim the ID R&D Credit, taxpayers must complete Form 67.
Illinois offers an R&D Tax Credit for businesses incurring qualified expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the include C-Corporations, S-Corporations, LLCs, and Partnerships. To calculate the credit, Illinois businesses will need to identify QREs for the current tax year as well as the three prior tax years..
The credit is calculated as follows:
- Determine IL QREs for credit year
- Determine then average IL QREs for prior three years
- Subtract average QREs from prior 3 years from QREs in current year
- Multiply by 6.5%
To claim this credit, taxpayers need to complete Form 1299-I, 1299-D, or 1299-A and file along with corporate returns. Any unused credits can be carried forward for up to five years.
Indiana offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the Indiana R&D Tax Credit include C-Corporations, S-Corporations, LLCs, and Partnerships. The Indiana R&D Tax Credit can be applied against the state’s income tax liability. The credit is calculated as a percentage of the qualified research expense:
- 15% of the increase in QREs over the base amount up to $1 million
- 10% if the amount is in excess of $1 million
- Alternative incremental credit method: 10% of the excess of Indiana QREs in excess of 50% of the average of the preceding three years QREs
To file for the Indiana R&D Tax Credit, the taxpayer needs to complete and submit form IT-20REC with the Indiana tax return. Any unused credits can be carried forward for 10 years.
Iowa offers an R&D Tax Credit for businesses incurring qualified expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with that federal credit outlined in IRC. Section 41. Eligible entities include C-Corporations, S-Corporations, LLCs, and Partnerships. Iowa does not allow the R&D Tax Credit to be carried forward. However, any R&D Tax in excess of tax liability can be refunded or credited to tax liabilities for the following year. There are two methods for calculating the Iowa credit:
Regular Method: Subtract Base Year* QREs from current year QREs then multiply the difference by 6.5%
Alternative Simplified Method: Subtract 50% of the average of QREs from the prior three years from QREs in the current year then multiply by 4.55%
*Base amount is calculated according to federal definitions in Sec. 41.
To file for the Iowa R&D the taxpayer needs to complete and submit form IA-128 with their Iowa tax returns.
Kansas offers an R&D Tax Credit for businesses incurring R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. The credit is limited to C-Corporations only and can be carried forward indefinitely.
The credit is calculated by subtracting the average of research expenses in the prior two years from research expenses in the current year then multiplying the difference by 6.5%.
Kansas does impose limitations on use of the credit, allowing for 25% of the credit plus any carry forwards to be used in the current year. All unused credits can be carried forward and used in 25% increments until the credit is exhausted. To claim the credit, corporations must complete Form K-35.
Kentucky offers an R&D Tax Credit for businesses that incur qualified costs associated with constructing a “qualified research facility.”. This nonrefundable credit is equal to 5% of the qualified cost of construction of research facilities that may be applied against income taxes imposed by KRS 141.020 (individual income tax), or KRS 141.040 (corporate income tax), and the KRS 141.0401 (limited liability entity tax).
Kentucky classifies construction of research facilities as; constructing, remodeling, and equipping facilities in this state or expanding existing facilities in this state for qualified research. This includes only tangible and depreciable property. It does not include any amounts paid or incurred for replacement property. Kentucky allows the for the state R&D Tax Credit to be carried forward for up to 10 years. To for the Kentucky R&D Tax Credit the taxpayer needs to complete and submit form KRS 141.395 as well as a copy of the Schedule QR attached to the filed income tax return.
Louisiana offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities include C-corporations, S-Corporations, LLCs, and Partnerships. The Louisiana R&D Tax Credit calculation varies depending on a business’s number of employees. These calculations are provided as follows:
- For LA companies with less than 50 employees = 40% of LA QREs
- For LA companies with more than 50 employees
- Base amount is 70% of the average of QREs from the 3 prior years
- Subtract current year QREs from the base amount = excess QREs
- Companies with 50-99 employees, multiply excess by 20% to compute credit
- Companies with 100 or more employees, multiply excess QREs by 8% to compute credit
In Louisiana, the taxpayer must claim the R&D Tax Credit within one year after December 31 in which the expenditure was incurred. To file for the Louisiana R&D Tax Credit the taxpayer must complete and submit form 6765, R-6135, and R-6140.
Maine offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. Coinciding with the federal definition for qualified research expenses (QREs), Maine’s description for QREs is based on Section 41 of the IRC. The state R&D Credit is accessible to C-Corporations, S-Corporations, LLCs, and Partnerships, and can be forwarded up to 15 years. The allowed credit is limited to 100% of a corporation’s first $25, 000 of tax due before the allowance of any credits, plus 75% of the corporation’s tax due, as determined in excess of $25,000.
Additionally, the State of Maine provides a Super Credit for substantially increased R&D expenses beginning before January 1, 2014. Found in Title 36 Section 5219-L of Maine’s tax statutes, the Super Credit is based on QREs that exceed 150% of the three-year average before the effective date of the applied credit. However, the credit allowed is limited to 50% of taxes due after the allowance of any other credits applied by the taxpayer to the tax year. This credit is allowed to be carried over for up to 10 years by the taxpayer. To claim the state R&D Tax Credit as well as Maine’s Super Tax Credit, the taxpayer will need to complete the following forms: form 5219-K (State Tax Credit) and form 5219-L (Super Tax Credit).
Maryland offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. The credit is for C-Corporations, S-Corporations, LLCs, and Partnerships. Maryland does not allow the taxpayer to carry forward their awarded Tax Credit any years. The QRE claim period for Maryland allows the taxpayer to claim QRE’s for the prior four years. There are two Maryland R&D Tax Credits available for companies:
- The Basic R&D Credit is 3% of eligible Maryland R&D expenses that do not exceed the Maryland base amount. The Basic tax credit is prorated if the total credits applied for exceed $ 5.5 million.
- The Growth R&D Credit is 10% of eligible Maryland R&D expenses in excess of the Maryland Base Amount. The Growth Tax Credit is prorated if the total credits applied for exceed $ 6.5 million.
To calculate the credit, taxpayers will need gross receipts and QREs as defined by Section 41 for the four years preceding the credit year, as well as QREs for the credit year. The taxpayer will also need to answer basic questions regarding its business. To apply for this credit, MD businesses must complete an online application no later than November 15 of the calendar year following the tax year for which a credit is being claimed.
To file for the Maryland R&D Tax Credit the taxpayer needs to complete the Maryland Department of Commerce R&D Tax Credit application.
Massachusetts offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Massachusetts allows for the state R&D Tax Credit to be carried forward for up to 15 years. Credits can be applied against 100% of the first $25,000 of corporate excise tax liability and 75% of such liability over $25,000.
The Credit is calculated by multiplying the new fixed based ratio by the average annual receipts from the four taxable years preceding the credit year. Corporations conducting defense-related activities on or after January 1, 1995, can calculate the research credit separately for their defense-related activities. Massachusetts defines defense-related activities as any R&D and producing for sale equipment for NASA or certain military arms, pursuant to a contract or subcontract. To claim MA R&D Tax Credits, taxpayers need to complete Schedule RC form. No prior years QREs are needed to calculate the minimum credit, however, calculating QREs from the three years prior to the credit year will allow for a higher credit award.
Michigan offers an R&D Tax Credit for businesses conducting R&D operations within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of include C-Corporations, S-Corporations, LLCs, and Partnerships.
The Michigan R&D Tax Credit is equal to 1.9% of QREs incurred in state and is limited to 75% of the taxpayer’s liability. Any commercial outsourced research expenses are limited to 69% of the taxpayer’s liability. The Michigan R&D Tax Credit cannot be carried forward into future years. To file for the Michigan R&D Tax Credit the taxpayer needs to complete and submit Part 4 of form 4570.
Minnesota offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities include C-Corporations, S-Corporations, LLCs, and Partnerships. Minnesota allows for the state R&D Tax Credit to be carried forward for up to 15 years. The credit is calculated as follows:
- Find the base amount by identifying QREs and/or gross receipts from the base year periods defined on MN Schedule RD
- Subtract the base period amount from current year QREs
- Credit equals 10% of the first $2 million of QREs in excess of the base period and 2.5% of any QREs over $2 million
In Minnesota QREs can include contributions to qualified nonprofit organizations that make grants to small, technologically innovative businesses in Minnesota during their early development stages. To file for the Minnesota R&D Tax Credit taxpayers need to complete and submit form MN, Schedule RD, Credit for Increasing Research Activities.
Nebraska offers an R&D Tax Credit for businesses incurring qualified expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the Nebraska R&D Tax Credit include C-Corporations, S-Corporations, LLCs, and Partnerships. Nebraska allows for the state R&D Tax Credit to be carried forward for up to 20 years. The credit can be applied against the taxpayers income tax liability and can be used to obtain a refund for state sales and use taxes paid. For pass through entities the credit can be used to offset individual shareholder’s taxability.
The credit is calculated as a percentage of the federal credit. Taxpayers must calculate current year research expenses as defined by Section 41 of the IRC. The Nebraska credit is equal to 15% of the federal credit amount OR 35% of the federal credit if the R&D is performed on the premise of a University.
To claim the Nebraska R&D Tax Credit, taxpayers must complete Form 3800N and attach it to state returns. Companies are required to verify the work eligibility status of all personnel newly hired in the year for which the credit is being claimed.
New Hampshire offers an R&D Tax Credit for businesses incurring qualified research expenses associated with manufacturing R&D within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Of important note is that the state’s R&D Credit is only available for businesses conducting qualified manufacturing research and development.
Under New Hampshire guidelines, the state R&D Tax Credit can be carried over for up to five years. Generally, the New Hampshire Credit is calculated as 10% of the taxpayer’s NH qualified expenses not exceeding $50,000. To claim the State R&D Tax Credit for New Hampshire, the taxpayer are required to fill out form DP-165 and attach any R&D award letter to form DP-160 and/or the BET return. In an additional note of importance, as of 2017, the state of New Hampshire increased the annual award limit to $7,000,000.
New Jersey offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities for the New Jersey R&D Tax Credit are limited to C-Corporations only, however, S-Corporations are allowed to use the credit against NJ Corporate tax liability. Credits cannot be passed through to S-Corporation shareholders and the credit is not available for partnerships or sole proprietorships. Any unused credits can be carried forward for up to seven years.
In general, the credit is calculated as follows:
Current year QREs – average base year QREs x 10%.
For select industries such as advanced computing, advanced materials, biotechnology, electronic device technology, and medical device technology, the credit can be carried forward up to 15 years. For tax years prior to January 1, 2018, credit calculations adhere to the guidelines in form NJAC 18:7-3.23. For taxes filed after January 1, 2018, changes to the New Jersey Tax Credit resulting from the amendment of section 6 of PL 2018, c. 48, by NJSA 54:10A-5.24., altered how the state Tax Credit is calculated.
Under the new amendment, new methods allow the New Jersey Fixed-Base Percentage to be calculated using Payroll and Property fraction (form NJ-NR-A), making it easier for the taxpayer to qualify for the credit. In addition, the amendment also made it clear that though the state R&D Tax Credit was coupled to section 41 of the current Federal IRC, any subsequent changes made to the Federal credit would not have any impact on the New Jersey credit.
New Mexico offers an R&D Tax Credit for businesses incurring R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. This credit is known as the Technology Jobs Tax Credit. Eligible entities of the New Mexico R&D Tax Credit include C-corporations, S-Corporations, LLCs, and Partnerships. New Mexico allows the awarded credit to be carried forward for only three years.
The credit is equal to 4% of QREs (8% for companies in a designated rural area). The tax credit may be applied against NM compensating tax, gross receipts tax, or withholding tax. Taxpayers who meet the requirements for Additional Technology Jobs credit may utilize credits against personal or corporate income tax.To claim this tax credit, NM taxpayers must complete Forms RPD-41385, 86, and 87.
North Dakota offers an R&D Tax Credit for businesses that incur qualified research expenses within the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the North Dakota R&D Tax Credit include C-Corporations, S-Corporations, LLCs, estates, trusts, and Partnerships. North Dakota allows for the state R&D Tax Credit to be carried forward for up to 15 years, and backward up to three years. In North Dakota the taxpayer can use the regular method or alternative simplified method to calculate the credit. These methods of calculation are broken down as follows:
Simplified method-
- Determine average of QREs for the three years prior to the credit year (base period)
- Subtract base period amount from current year QREs (“excess research and development expenses”)
- Credit is equal to 17.5% of the first $100,000 of excess R&D expenses and 5.6% of any excess R&D expenses over $100,000
Regular method–
- Determine the base period amount as defined by IRC Sec. 41(c) Subtract base period amount from current year QRES
- Credit is equal to 25% of the first $100,000 of excess R&D expenses and 8% of any excess R&D expenses over $100,000
North Dakota allows qualified R&D companies to sell or transfer up to $100,000 of its unused tax credit to another taxpayer. To file for the North Dakota R&D Tax Credit the taxpayer must complete and submit Schedule ND-1TC.
Ohio offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible include C-Corporations, S-Corporations, LLCs, and Partnerships. The Ohio R&D Tax Credit can be Applied against the states commercial activity tax (CAT). Ohio allows for the state R&D Tax Credit to be carried forward for up to seven years. The credit equals 7% of the amount of QREs in excess of the taxpayers average investment in QREs over the preceding three taxable years. The credit is calculated:
- QREs for the current year
- Average investment in QREs for the three preceding years taxable years
- 7% of the difference between A and B
To claim this credit taxpayers simply need to complete this calculation and file it with their return.
Pennsylvania offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Each year the state makes $55 million available in R&D Credits, with $11 million set aside for qualified small businesses.
The PA credit calculation requires taxpayers to provide QREs for the current credit year as well as the prior four years as defined by IRC Sec. 41. The credit is equal to 10% of the difference between QREs in the credit year and the base year period (20% for qualified small businesses).
Eligible entities of the Pennsylvania R&D Tax Credit include C-Corporations, S-Corporations, LLCs. Pennsylvania also allows for the state R&D Tax Credit to be carried forward for up to 15 years. To file for the Pennsylvania R&D Tax Credit the taxpayer needs to file Federal form 6765 and REV-545A. This information must be completed within the state’s online portal.
Rhode Island offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC and is available to corporations, sole proprietors, and passthrough entities. The Credit is calculated as follows:
- Determine base period amount as defined in IRC Sec. 41
- Determine qualified research expenses (QREs) incurred within the State
- Subtract Current year QREs from base-year average to determine excess QREs
- Credit is equal to 22.5% of excess QREs up to $111,111 and 16.9% for any excess QREs.
To file For the Rhode Island R&D Tax Credit the taxpayer needs to complete form RI-7695E. The credit is only applicable to 50% of the income tax due. Any unused credits can be carried forward for 7 years.
South Carolina offers an R&D Tax Credit for businesses incurring qualified R&D expenses. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the South Carolina R&D Tax Credit include C-Corporations, S-Corporations, LLCs, and Partnerships. The South Carolina R&D Tax Credit can be Applied against Corporate License Fees, Bank Tax, Savings and Loans Tax, or Insurance Premium Tax.
The SC R&D Credit is equal to 5% of QREs incurred within the state. Credits taken in any one year cannot exceed 50% of the tax payer’s liability. Any unused credits can be carried forward for 10 years.
To claim the credit, SC taxpayers only need QREs for the year in which the credit is being claimed. However, taxpayers must also claim a federal R&D Credit using Form 6765 to be eligible for the SC Credit.
Texas offers an R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the Texas R&D Tax Credit included C-corporations, S-Corporations, LLCs, and Partnerships. The tax credit acts as an offset to sales and use tax or franchise tax. Texas allows the credit to be carried forward up to 20 years. The Texas R&D Tax Credit is calculated as follows:
- Identify QREs for the prior three years
- Determine 50% of the average of prior three years QRE (base amount)
- Subtract base amount from current year QREs
- Multiply the difference by 5%
If a company has no QREs in one or more of the three years prior to the credit year, the credit is equal to 3.125% of QREs in the current year. To file for the Texas R&D Tax Credit, the taxpayer needs to complete and submit form TX 05-178.
Utah offers an R&D Tax Credit for businesses conducting R&D operations within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC and can be used to offset corporate franchise tax. The credit can also be passed through to offset individual income taxes for S-Corporation and Partnership shareholders.
The Utah R&D Credit can be calculated using two different methods:
Method 1: 5% of qualified research expenses in excess of the Utah base amount PLUS 5% of payments made for basic research to qualified organizations
Method 2: 7.5% of qualified research expenses in Utah for the current year
Method 1 requires research expenses for the 3 years prior to the credit as well as gross receipts for the prior 4 years. If using this method, any unused credits can be carried forward for 14 years. Method 2 only requires research expenses for the current year to make the calculation. However, any unused credits cannot be carried forward if not used. To claim the credit, taxpayers must complete Part 4 of TC-40A.
Vermont offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. The Vermont R&D Tax Credit can apply to personal income taxes or corporate income taxes. In general, the state credit is equal to 27% of the federal credit allowed in the taxable years.
Taxpayers must identify qualified research expenses as defined by IRC Sec. 41 which are incurred in Vermont to calculate the credit. Any unused tax credits can be carried forward for up to 10 years. Taxpayers can claim the Vermont R&D Tax Credit by completing form IN-112 from the Vermont Department of taxes.
Virginia offers a refundable R&D Tax Credit for businesses incurring qualified R&D expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities include C-Corporations, S-Corporations, LLCs, and Partnerships.
Each year the state allocates a pool of R&D Credits to be distributed ($7 million for 2019-2020, $7.77 million for 2021-2024). If credits claimed exceed this amount, then the state grants each company a credit on a pro-rata basis. In 2019, the pro-rata amount granted was $45,000. There are two methods through which taxpayers can calculate their credit
Primary Method – 15% of the first $300,000 Virginia QREs paid or incurred by the taxpayer during the credit year or 20% of the $300,000 Virginia QRE, if the research was conducted in conjunction with a Virginia university or college.
Simplified Method – 10% of the difference of VA QREs for the taxable year and 50% of the Average VA QREs incurred for the three preceding taxable years.
Virginia also has a Major Research and Development Expenses Tax Credit (MRD) available for companies with Virginia QREs in excess of $5 million for the claimed tax year. To file for the Virginia R&D Tax Credit, the taxpayer needs to complete and submit form RDC.
Wisconsin offers an R&D Tax Credit for businesses incurring qualified research expenses within the confines of the state. The state’s definition of qualified research expenses (QREs) is aligned with the federal government’s definition of QREs found in section 41 of the IRC. Eligible entities of the Wisconsin R&D Tax Credit include C-Corporations, S-Corporations, LLCs, and Partnerships. The credit is used to offset WI income and franchise tax.
The WI is calculated as follows
- Subtract 50% from the average QREs from 3 years prior to the credit year from the current years QREs
- Multiply the difference by 5.75%
To file for the Wisconsin R&D Tax Credit the taxpayer needs to complete and submit Wisconsin form schedule R. Any unused credits can be carried forward for 15 years.