State R&D Tax Credits for Florida
Posted by William Mehi on 04.23.18
Companies performing research and development (R&D) activities in the state of Florida may be eligible to receive state R&D tax credits with certain qualifications. The R&D tax credit is administered through the Florida Department of Revenue (DOR). The Florida R&D credit is an outstanding opportunity for taxpayers to receive credit for qualified research expenses they are conducting within the state. This incentive is in addition to the federal R&D tax program, which Congress made permanent in 2015. The R&D tax credit encourages and rewards manufacturers who bring new or improved products to market; as well as companies which improve the manufacturing process.
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.
Summary of the Florida R&D Credit:
- Only qualified target industry businesses in the manufacturing, life sciences, information technology, aviation, aerospace, homeland security and defense, cloud information technology, marine sciences, materials science, and nanotechnology industries may qualify for a tax credit.
- A business applying for a credit shall include a letter from the Florida Department of Revenue (DOR) certifying whether the business meets the requirements of this subparagraph with its application for credit. The Florida Department of Revenue (DOR) shall provide such a letter upon receiving a request.
- The tax credit shall be 10 percent of the excess qualified research expenses over the base amount. However, the maximum tax credit for a business enterprise that has not been in existence for at least 4 taxable years immediately preceding the taxable year is reduced by 25 percent for each taxable year for which the business enterprise, or a predecessor corporation that was a business enterprise, did not exist.
- The credit taken in any taxable year may not exceed 50 percent of the business enterprise’s remaining net income tax liability after all other credits have been applied.
- Any unused credit may be carried forward and claimed by the taxpayer for up to 5 years.
- The combined total amount of tax credits which may be granted to all business enterprises during any calendar year is $9 million, except the total amount that may be awarded in the 2018 calendar year is $16.5 million.
- Applications may be filed with the department on or after March 20 and before March 27 for qualified research expenses incurred within the preceding calendar year. If the total credits for all applicants exceed the maximum amount allowed under this paragraph, the credits shall be allocated on a prorated basis.
Meeting the Four-Part Test
In order for an activity or project to qualify for the research credit, the taxpayer must show that it meets all of the requirements in Internal Revenue Code § 41(d). Similar to the federal R&D credit, in order to claim the Florida R&D tax credit the research activity must satisfy a four-part test:
- Elimination of Uncertainty: You must demonstrate that you’ve attempted to eliminate uncertainty about the development or improvement of a product or process. In other words, something that has been changed solely for aesthetic purposes would not qualify.
- Process of Experimentation: You must demonstrate – through modeling, simulation, systematic trial and error or other methods that you’ve evaluated alternatives for achieving the desired result.
- Technological in Nature: The process of experimentation must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
- Qualified Purpose: The purpose of the research must be to create a new or improved product or process, resulting in increased performance, function, reliability or quality.
Find Out if Your Activities Qualify
The R&D tax credit can be a lucrative incentive for innovative businesses in Florida. Given the new permanent nature of the federal tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving state tax credit opportunities.
Request a free assessment to determine qualifying R&D tax credit eligibility.
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, call us at 800-260-4138 or please leave us a message below.