We’re excited to continue our “What’s Happening in Your State?” series, where we provide information about the R&D credit in a different state each month. This month, we are talking about Wisconsin!
Like most state credits, to claim the Wisconsin R&D credit, a company must be performing R&D activities within the state. The credit calculation is very advantageous for companies, especially when compared to other states. Below, we highlight a few reasons why the Wisconsin R&D credit is so beneficial!
1. Who is eligible to claim the tax credit ? How can you use it ?
Beginning with tax years on or after January 1, 2013, individuals, partners, and shareholders are all eligible to claim the credit. Prior to this change, only c-corporations were eligible to claim the Wisconsin credit. Now, all tax-paying entity types are eligible!
Starting January 1, 2018, a portion of the credit is refundable! Prior to January 1, 2018, taxpayers had to carry forward any unused R&D credits. While taxpayers were permitted to carry unused credits forward for up to 15 years, this was not always beneficial for taxpayers, especially taxpayers who were in losses. However, this change now allows up to 10% of the R&D credit to be refundable. That means that even if your company is not paying tax, it may be eligible to receive a refund of up to 10% of the R&D credit calculated. There are specific rules that a taxpayer must apply, so be sure to contact an R&D tax expert to explore this option. Most states do not offer a refundable R&D credit, so if you are eligible for the R&D credit in Wisconsin, make sure you are taking advantage!
2. Credit Calculation in Wisconsin: Is It Different from the Federal R&D Credit calculation?
The activity qualification requirements are similar to the federal R&D Credit, but the credit calculation is different.
Like most states, the activity qualification requirements for the Wisconsin R&D credit closely mirror the qualification requirements of the Internal Revenue Code at the federal level; however, the credit calculation is slightly different. The Wisconsin credit is equal to 5.75% of the excess qualified R&D expenses over the base amount (50% of the QREs for the 3 prior years). If a company does not have QREs for at least 3 previous years, the credit is 2.875% of the excess QREs over the base amount.
The credit calculation does not require significant amounts of historical base information.
Several states require base documentation dating back to when the company started, which can be a burden on companies that have been around for several decades. In our experience, companies usually keep documents for about 10 years, so asking companies to provide documentation for the R&D credit that goes back any further is difficult. Thankfully, Wisconsin only requires a taxpayer to provide documentation for the three preceding taxable years.
Does your company perform activities related to internal combustion engines and energy efficient products? Then you may be eligible for a greater credit!
Starting in 2015, if a company designs internal combustion engines for vehicles or designs and manufacturers energy efficient lighting systems, building automation and control systems, or automotive batteries for use in certain hybrid-electric vehicles, the credits are equal to 11.5% of the excess qualified research expenses over the base amount. This doubles the R&D credit for eligible companies!
Interested in learning more about how your company may be able to take advantage of the Wisconsin R&D credit? Submit your information here!