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For this month’s “What’s Happening in Your State?” series, we’re excited to talk about a state that just reintroduced its R&D credit – Missouri!

Missouri’s R&D Tax Credit is being reintroduced! What do you need to know about it?

Missouri’s R&D tax credit expired in 2005 and we’re so excited that this valuable tax benefit is back! Starting with tax years beginning on or after January 1, 2023, taxpayers may be eligible to receive a tax credit against its corporate income tax or financial institution tax.

Qualified research expenses occurring in Missouri for qualified activities are capturable towards the Missouri R&D credit. The qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code, but there are a few nuances that a taxpayer should be aware of.

First, if the tax year for which the credit is being claimed does not have adequate tax liability for use of the credit, the credit can be carried forward for twelve years. The credit cannot be carried back. The Missouri R&D credit is equal to 15% of a taxpayer’s additional qualified research expenses, which is defined as the difference between qualified research expenses for the current year and the average taxpayer’s qualified research expenses for the three prior tax years. The credit is equal to 20% if the expenses are related to research conducted in conjunction with a public or private Missouri college or university. A taxpayer’s credit cannot exceed 200% of its average qualified research expenses for the three prior years, and the highest credit a single taxpayer can claim in one year is $300,000.

The credit must be applied for, but the state has yet to issue guidance on the application process. The aggregate of all tax credits shall not exceed $10 million in one year, with $5 million being reserved for minority-owned, women-owned, and small businesses.

Additionally, the credit may be transferred, sold, or assigned with approval from the state. All entities (C-Corps, S-Corps, LLCs, Partnerships, etc.) can claim the Missouri R&D Credit. For pass-thru entities, Partners and shareholders are allowed a credit in accordance with their share of ownership on the last day of the taxpayer’s tax period.

The Missouri R&D credit can be extremely beneficial, and as noted above, there are some significant differences, including the carryback and carryforward provisions. As such, it’s important to work with a consulting team that is well versed in the Missouri provisions to ensure that the company is maximizing its credit potential while considering its utilization.

Interested in learning more about how your company may be able to take advantage of the R&D credit? Submit your information here!