Posted by Jeffrey M. Feingold on 06.21.16
With a longstanding reputation for leadership in aerospace, agriculture, healthcare and manufacturing, Ohio remains one of the nation’s most innovative states. To further encourage innovation, the state provides incentives for certain research and development (R&D) activities that bring new ideas to market, promote economic growth, create jobs and help keep Ohio competitive.
In 2008, the state of Ohio established the R&D Investment Tax Credit for qualified research expenses (QRE) to encourage Ohio's corporations to boost investments in R&D activities. The tax credit can be taken to offset the Commercial Activity Tax (CAT) liability. This enables innovative businesses to continue budgeting ahead for long-term R&D projects. Just last year, President Obama signed the Protecting Americans from Tax Hikes (Path) Act, making the federal R&D tax credit permanent. Furthermore, beginning in 2016, the R&D credit can be used to offset Alternative Minimum Tax (AMT), and startup businesses can utilize the credit against payroll taxes.
The Ohio R&D Investment Tax Credit is a non-refundable tax credit which equals 7% of the amount of qualified expenses in excess of the taxpayer’s average investment over the three preceding taxable years. To qualify, the taxpaying corporation must invest in QREs as defined in Section 41 of the Internal Revenue Code (IRC). Eligible costs may include employee wages, consumable supplies and contract research expenses. Any unused portion of a tax credit may be carried forward for up to seven years. Qualified research must meet the following four criteria:
There is no special application and/or approval process for the Ohio R&D credit. Using the federal definition to determine QREs, businesses should calculate their credit based on 7% of the excess of their current year expenditures over their average expenditures on R&D for the three prior tax years.
Reporting the Ohio research credit is unique since reporting generally occurs on a quarterly basis with all CAT activity. Because of this, a company must either report quarterly activity contemporaneously, or must complete the CAT Credit Report as follows: In whichever quarter the credit is to be filed, the CAT Credit Report should be completed with zero credit earned during the credit reporting period and with all credit for year being reported as “credit claim” during the reporting period. A supporting schedule should be attached to the CAT Credit Report, which in turn should be attached to the quarterly CAT return.
To learn more about whether your industry and company activities qualify for the R&D tax credit, request our free assessment today. A tax professional with R&D tax credit expertise can assist your business with qualifying for and claiming the credit.
Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, please contact (800) 260-4138 or please leave us a message below.