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A majority of states offer an R&D tax credit. State R&D tax credits can be taken in conjunction with or independently from the federal R&D tax credit. Each state has a different set of requirements and filing deadlines, but our team has an expertise in all states and will help your company maximize your R&D credits in all applicable states.

Arizona R&D Tax Credit

Qualified research expenses (“QREs”) occurring in Arizona for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  The amount of the credit is based on the federal regular credit methodology for Arizona QREs.  Taxpayers cannot use the federal Alternative Simplified Method.  There are two types of R&D credits in Arizona:  non-refundable and refundable.   If the current year’s credit exceeds tax liability and taxpayer did not elect to receive a refund of 75% of the excess, the credit may be carried forward for 15 years.  To be eligible for the refundable credit, the taxpayer must have less than 150 employees and apply to the Arizona Commerce Authority and receive a Certificate of Qualification.

Calculation – Non-refundable credit:  If Current year QREs – Base amount = $2.5 million or less, then the credit is equal to 24% of that amount.  If Current year QREs – Base amount exceed $2.5 million, then the allowable credit is $600,000 + 15% of the amount of expenses over $2.5 million.  If a taxpayer has less than 150 employees, it may elect to receive 75% of excess credit refunded and waive the remaining 25% instead of carrying all excess credit forward.

  • Application Due Date – Due with Arizona Tax Return
  • Does it apply to all entity types?  Yes.  An S corporation may claim the credit against income taxed at the corporate level, or it may make an irrevocable election to pass the credit through to its shareholders.  A partnership must pass the credit to its partners.

Arkansas R&D Tax Credit

Arkansas offers several different types of research related tax credits.  Below is a brief overview of a few of the available credits.

In-house Research in Area of Strategic Value Income Tax Credit – If an Arkansas taxpayer invests in in-house research in an area of strategic value or a project under the research and development programs offered by the Arkansas Science and Technology Authority and approved by its Board of Directors, it is eligible for an income tax credit equal to 33% of its qualified research expenses.  The credit may be earned for the first 5 years following the signing of a financial incentive agreement and the maximum amount of the credit is $50,000 per year.  The credit can be carried forward 9 years.

In-House Research by Targeted Business Income Tax Credit – To qualify as an eligible business for this credit, a taxpayer must fit within the six business sectors classified as “targeted businesses” and it must enter into a financial incentive agreement for income tax credits.  An eligible business may be approved for a tax credit each year equal to 33% of the qualified research expenses incurred each year for the first five years of the financial incentive agreement.  These credits may be sold.  Any unused credits may be carried forward 9 years.

In-House Research Income Tax Credit – New or existing eligible businesses that conduct in-house research in a research facility operated by the business and that qualify for federal R&D credits may qualify for a tax credit equal to 20% of the eligible expenses.  The credit may be used to offset 100% of an eligible business’s annual income tax liability.  Unused credits may be carried forward for 9 years.

Research and Development with Universities Tax Credit – If a business contracts with one or more Arkansas colleges or universities in performing research, the business may qualify for a 33% income tax credit for qualified research expenses.  The credit may be carried forward for 9 years.  The credit can be used to offset up to 100% of the net tax due after all other credits.  To qualify, the business must submit an application and project plan to the Arkansas Economic Development Commission.

  • Does it apply to all entity types?  Yes

California R&D Tax Credit

Qualified research expenses occurring in California for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  The credit can be carried forward indefinitely.  There is no carryback.

Calculation – If the taxpayer is using the regular base methodology, the credit is 15% of the excess of the qualified research expenses for the taxable year over the base period research expenses.  If the taxpayer elects to use the Alternative Incremental Research Credit methodology, the base amount is computed using a smaller three-tired fixed-base percentage and a reduced three-tiered credit rate (1.49%, 1.98%, and 2.48%).

  • Statute of Limitations – Generally four years from the original due date of the return, or one year from the date of the overpayment, whichever period expires letter.
  • Does it apply to all entity types?  –  Yes.  The credit can be used to offset the qualified taxpayer’s income or franchise tax.

Colorado R&D Tax Credit

To claim the credit, a business must pre-certify with their local Enterprise Zone (“EZ”) Administrator by filing form DR 0074.  Pre-certified taxpayers must complete a certification application and receive approval from the local EZ Administrator.  Once a company has gone through the pre-certification process, a company performing R&D activities in an Enterprise Zone can claim the Enterprise Zone Research and Development Tax Credit.  Once the credit is calculated, it is divided evenly over four tax years. If a company is unable to use the credit in a given year, the business may carry forward the remaining amount to subsequent tax years.  There is no limit on the number of years a business may carry forward the credit.

Calculation – 3% of the amount by which a taxpayer’s research and experimental expenses in an enterprise zone exceed the average of the taxpayer’s research and experimental expenses in the same enterprise zone over the two preceding tax years.

  • Application Due Date – Credits must be claimed on the return filed for the tax year in which the taxpayer earned the credit.
  • Does it apply to all entity types? – Yes.  The credit can be used to offset the qualified taxpayer’s income or franchise tax.

Connecticut R&D Tax Credit

Qualified research expenses occurring in Connecticut for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  There are two types of credits:  Incremental and Non-incremental.  The Incremental R&D Credit can be carried forward 15 years and is partially refundable for a small business with no tax liability and whose gross income for the previous year does not exceed $70 million.  The non-incremental credit can be carried forward indefinitely and is partially refundable for a small business with no tax liability and whose gross income for the previous year does not exceed $70 million

Calculation – The incremental R&D Credit is equal to 20% of the incremental increase in Connecticut R&D expenses.  The non-incremental credit is equal to up to 6% of the current year’s Connecticut R&D expenses and is dependent on the amount of spend on R&D expenses in a given year.

  • Application Due Date – Due with Connecticut Tax Return
  • Does it apply to all entity types? – No.  Only C Corporations are eligible and the credit may be applied against the tax imposed under Chapter 208 (Corporation Business Tax).

Delaware R&D Tax Credit

Qualified research expenses occurring in Delaware for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  The eligible taxpayer must submit an application by September 15 after the end of the taxable year during which the R&D expenses were incurred.  Once approved, the taxpayer must update Delaware Forms 700 and 2071AC. If a taxpayer cannot use the entire amount of the approved R&D credit, such unused credit is refundable.

Calculation – There are two calculation options in Delaware:  1) 10% (20% for a small business) of the excess of the taxpayer’s total Delaware qualified R&D expenses for the taxable year over the taxpayers Delaware base amount; or (2) 50% (100% for a small business) of Delaware’s apportioned share of taxpayer’s federal R&D credit calculated using the Alternative Simplified Credit method.

  • Application Due Date – Eligible taxpayers must submit an application by September 15 after the end of the taxable year during which the R&D expenses were made.
  • Does it apply to all entity types? Yes, C-corporations, S-Corporations, and Partnerships are all eligible.  The credit shall be applied against the taxpayer’s qualified tax liability.  In the case of partnerships, the credit shall be allocated among the partners.

Florida R&D Tax Credit

Qualified research expenses occurring in Florida for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  Any unused credit can be carried forward up to 5 years.

To be eligible, the taxpayer must apply for and receive a certification letter from the Department of Economic Opportunity.  Additionally, the taxpayer must be in one of the following targeted industries: manufacturing, life sciences, information technology, aviation and aerospace, homeland security and defense, cloud information technology, marine sciences, materials science, and nanotechnology.

Calculation – 10% of the excess of the current year qualified research expenses over the base amount. The maximum tax credit for a business that has not been in existence for at least 4 taxable years is reduced by 25% for each taxable year for which the business, or predecessor corporation, did not exist.

  • Application Due Date – There is a one-week application period that begins on March 20th and ends on March 26th.
  • Does it apply to all entity types? Only C-corporations are eligible.  The credit cannot exceed 50% of the taxpayer’s remaining net income tax liability after all other credits have been applied.

Georgia R&D Tax Credit

Qualified research expenses occurring in Georgia for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  Any unused credit can be carried forward up to 10 years, or the excess R&D tax credits can be used against state payroll withholding.

Calculation  – 10% of the qualified research expenses in Georgia in a taxable year exceeding the base amount.

  • Application Due Date – Due with the Georgia tax return.
  • Does it apply to all entity types?  Yes.  The credit can be used to offset up to 50% of net Georgia income tax liability after all other credits have been applied.  For pass-through entities, the tax credit is first applied at the entity level, and is then apportioned to shareholders or partners.

Iowa R&D Tax Credit

Qualified research expenses occurring in Iowa for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.

Calculation – Iowa offers two methods of calculating the R&D Credit:  1) the regular credit and 2) the alternative simplified credit. The regular credit is 6.5% of qualifying research expenditures that exceed the base amount or 50% of qualifying research expenditures, whichever is lower. Iowa’s alternative simplified credit is 4.55% of the difference between the current year qualifying expenses and 50% of the average amount of qualifying expenses for the prior 3 years.

  • Statute of Limitations – 3 years from the due date of the return or the date the return was filed, whichever is later.
  • Does it apply to all entity types?  –  Yes.  The credit can be used to offset the taxpayer’s income tax liability. Any research credit in excess of the tax liability may be refunded to the taxpayer or credited for the following year.

Massachusetts R&D Tax Credit

Qualified research expenses occurring in Massachusetts for qualified activity are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.

Calculation – For tax years 2018-2020, the credit is equal to 7.5% of the excess of the qualified research expenses for the current year over the base amount.  For 2021 and beyond, the tax credit is equal to 10% of the excess of the qualified research expenses for the current year over the base amount

  • Statute of Limitations – 3 years from the due date of the return or the date the return was filed, whichever is later.
  • Does it apply to all entity types? – Yes. However, flow-through entities must apply it to their corporate excise tax under MGL Chapter 63. Pass through of this credit to shareholders or partners is not permitted.

Minnesota R&D Tax Credit

Qualified research expenses occurring in Minnesota for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.

Calculation – The credit amount is equal to 10% of qualified research expenses up to $2,000,000 and 2.5% for qualified research expenses above $2,000,000. The credit cannot exceed 50 percent of the business’s research expenditures.

  • Statute of Limitations – 3.5 years from the original due date or 3.5 years from the date the taxpayer filed the return, whichever is later.
  • Does it apply to all entity types?  –  Yes.  The credit can be used to offset the qualified taxpayer’s corporate franchise tax or individual income tax (if pass-through entity).

New Jersey R&D Tax Credit

Qualified research expenses occurring in New Jersey for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  The credit can be carried forward for 7 years in most instances, or 15 years if certain parameters are met.

Calculation – The credit is equal to 10% of the excess of qualified research expenditures over the base amount, plus 10% of basic research payments.  The base amount must follow the same method used for the federal calculation (Regular Credit Method or Alternative Simplified Credit Method).

  • Statute of Limitations – 3 years after the return is filed or two years after the tax is paid, whichever is later.
  • Does it apply to all entity types? –  C corporations and S corporations are eligible.  Pass through of this credit to shareholders is not permitted.

Ohio R&D Tax Credit

Invested qualified research expenses occurring in Ohio for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  Any excess credit not used for the taxable year in which it is earned may be carried forward for up to 7 years.

Calculation  – The credit equals 7% of the amount of QREs in excess of the taxpayer’s average investment in Qualifying Research Expenses over the 3 preceding taxable years.

  • Statute of Limitations – The deadline to file an amended return and refund claim in Ohio is four years from the date the return was filed or required to be filed, whichever is later
  • Does it apply to all entity types?  Yes.  The credit is nonrefundable and used to offset the Commercial Activity Tax (“CAT”).

Pennsylvania R&D Tax Credit

Qualified research expenses occurring in Pennsylvania for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  The credit can be carried forward for 15 years.

Calculation – The credit is equal to 10% of total Pennsylvania qualified expenditures (20% for “small businesses”) over the average qualified expenses from the 4 prior years.

  • Application Due Date – September 15
  • Does it apply to all entity types? – Yes.  The tax credit must first be applied to the entity’s corporate tax liability, if any, for the year in which the tax credit was awarded before it can be passed through to its partners, shareholders or members.  The tax credit can also be sold or assigned.

Utah R&D Tax Credit

Qualified research expenses occurring in Utah for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code.  The Incremental credit may be carried forward up to 15 years, but the Flat credit cannot be carried forward.

Calculation – Utah provides two types of state tax credits – an incremental credit and a flat credit.  For the incremental credit, the credit is equal to 5% of qualified expenses over a base amount. For the flat credit, the credit is 7.5% of qualified expenses.

  • Statute of Limitations – 3 years after the return is filed.
  • Does it apply to all entity types? – Yes.  The credit can be claimed against individual or corporation income tax.

Virginia R&D Tax Credit

Qualified research expenses occurring in Virginia for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code. Virginia provides two types of state tax credits:  the Refundable R&D Credit and the Major R&D Credit.  The applicable type is determined by evaluating the amount of qualified expenses in a given year.    The Major R&D Credit can be carried forward 10 years.

Calculation – The Refundable R&D credit calculation is equal to 15% of the first $300,000 in qualified expenses over a base amount with a limit of $45,000.  The Major R&D credit calculation is equal to 10% of the difference between the current years qualifying expenses and 50% of the average amount of qualifying expenses for the prior 3 years.

  • Application Due Date – September 1
  • Does it apply to all entity types? – Yes.  The credit can be claimed against individual income tax, corporation income tax, and bank franchise tax.

Wisconsin R&D Tax Credit

Qualified research expenses occurring in Wisconsin for qualified activities are capturable.  Qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code. 

Calculation  – The credit is equal to 5.75% of the amount by which taxpayer’s qualified research expenses for the taxable year exceed 50% of the average qualified research expenses for the 3 taxable years directly preceding the current year the credit is claimed. If the taxpayer had no qualified research expenses in any of the 3 prior tax years, the taxpayer may claim 2.875% of the qualified research expenses.

  • Statute of Limitations – 4 years from the due date of the return or the date filed, whichever is later.
  • Does it apply to all entity types?  Yes