Posted by Jeffrey Feingold on 01.31.19
CPAs and taxpayers familiar with the Federal R&D tax credit program may not be fully aware of the scope of state R&D credits available across the United States. About forty states have their own R&D tax credit programs, with some as or even more valuable than the Federal credit program. Unlike the Federal program, some of the state credits are refundable (refunds in excess of the amount of a taxpayer’s tax liability), some are transferable/salable by the taxpayer claiming the credits to other taxpayers in the same state, and still some are in states with attractive credit “buy back” opportunities.
Listed below are just a few of the interesting state R&D credit programs.
The Florida R&D tax credit reduces the income or franchise tax of those taxpayers who engage in qualified research activities in Florida. Qualified research expenses (QREs) generally include wages, supplies and contract research costs.
To learn more about Florida’s R&D tax credits, see related blog here: http://taxpointadvisors.com/blog/view/state-rd-tax-credits-for-florida
The state of New Jersey, which offers a tax incentive for R&D investment for both manufacturers and R&D companies, allows a qualified business enterprise to claim a state R&D tax credit for qualified research expenses (QREs). A tax credit for increased research activities is allowed based on qualified expenditures made in taxable years beginning on and after Jan. 1, 1994. To receive a New Jersey R&D tax credit, the corporation must be allowed a research credit for the taxable year against federal income tax for qualified research expenses under s. 41, IRC. Click here to view federal forms (https://www.irs.gov/forms-instructions). The New Jersey R&D tax credit closely resembles the federal credit program; however, it specifically offers qualifying New Jersey companies many unique features for doing business in New Jersey.
For tax years beginning on and after January 1, 2018, the state of New Jersey adopted Assembly Bill 4202 which amends the state R&D tax credit to allow taxpayers to calculate their R&D Tax credit using the ASC (Alternative Simplified Credit) calculation. The changes introduced by this bill are prospective only and can not be adopted on amended returns for previous tax years.
New Jersey provides a credit of 10% of the excess QREs over a base amount plus 10% of the basic research payments. The New Jersey R&D tax credit is allowed based on qualified expenditures made in taxable years beginning after 1993. If the research credit cannot be used because of tax liability limitations, it may be carried forward for either seven or 15 years as follows:
Property and expenditures included in the calculation of the R&D tax credit are not permitted to be included in the calculation of the following tax credits:
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.
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 R&D expenditures for the three prior tax years.
Ohio credits not utilized year may be carried forward for 7 years.
Administered by the Pennsylvania Department of Revenue, the state’s R&D tax credits are available to businesses incurring qualified expenses for R&D within the state of Pennsylvania. Qualified businesses, including pass-through entities, can apply the tax credit against personal income tax or the corporate net income tax liability.
Qualified expenditures may include:
Tax Point Advisors works with small to midsize businesses that may qualify for federal and state R&D tax credits nationwide. To learn more about whether your industry and company activities qualify for the R&D tax credits, call (800) 260-4138 or please leave us a message below.