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Jul

State Research & Development Tax Credits

The Federal Research & Development (R&D) Tax Credit can have a major impact on your federal tax liability. However, in addition to saving tax dollars on the federal level, several states provide their own R&D credit to help offset state tax liability and increase investment. Combined, these state and federal credits can significantly reduce the cost of doing business. To capture a state R&D credit, a company must be performing the qualified activities in that state; physical presence alone is not enough.  Note that effective tax planning and utilization of state level R&D credits requires specific knowledge of the nuances of each specific state’s rules and tax regulations.  Some state R&D information is below:

  • California
    • The credit is permanent.
    • You have the option to offset either income tax or franchise tax.
    • The credit can be carried forward indefinitely to apply to future tax years but cannot be carried back.
  • Ohio
    • The credit can be carried forward 7 years.
    • The credit is claimed on Form CAT CS (Commercial Activity Tax Credit Report).
    • The credit is non-refundable against Commercial Activity Tax (CAT).
  • Pennsylvania
    • The credit can be carried forward up to 15 years and is refundable.
    • Credits can be purchased or assigned to other companies. The purchaser or assignee must use the credit in the taxable year it is purchased.
  • Texas
    • The credit can be carried forward up to 20 years.
    • The credit cannot exceed 50% of the franchise tax.
  • Virginia
    • The credit can be carried forward up to 20 years.
    • The due date for filing for the credit changed from April 1 to July 1.
    • The cap was recently increased to $7 million for 2016.

State R&D credits offer meaningful value to help offset the cost of investment in your business.  However, a one size fits all approach to R&D credits could lead to significant missed opportunities, especially if not tied to company business objectives, and state specific tax liability and strategy. For more information about state level R&D credits and to see if your company can benefit, please contact HIREtech at 844.HIREtec or info@hiretech.com