R&D Tax Credit News

With the beginning of tax filing season starting at the end of January, many taxpayers and tax professionals are starting to prepare for the 2023 tax year and looking at the everchanging field of the research tax credit. Some of those changes start at a state level with several states enacting new legislation or changes to tax law:

Missouri – For tax years beginning on or after January 1, 2023, taxpayers may once again apply for the Qualified Research Expense tax credit. The research tax credit has not been available in Missouri since December 31, 2004. The maximum credit per taxpayer is $300,000 per year, with an aggregate cap of $10 million, with $5 million reserved for minority and women business enterprises and small businesses (businesses with 50 or fewer full-time employees). The application cycle is now open, and applications are due by September 30.

Pennsylvania – Starting July 1, 2023, the online application for the Research and Development tax credit for Pennsylvania moved to myPATH, an online portal where companies can file their credit. This is a change from the previous web application e-TIDES that performed the same function.

Kansas – For tax years beginning on or after January 1, 2023, the Research and Development credit increased from 6.5% to 10% of qualified expenditures in R&D performed in the state and is now a credit that all income taxpayers can capture instead of only corporate entities. Additionally, starting in tax year 2023 and all tax years thereafter the tax credit can be transferred by a taxpayer without a current tax liability to any person and be claimed by the transferee in the tax year it was transferred.

Minnesota – Minnesota currently has a permanent research credit, but lawmakers are looking to change the way in which the tax credit is calculated to align with the Federal Alternative Simplified R&D credit methodology. Bill S.F 2970 and H.F 3316 have both been introduced.

Michigan – Although no changes have been enacted yet, we are watching the House bills 5099-5102 and 4368 carefully as they would reinstate the research tax credit that expired as of January 1, 2012. The bills were passed in the House in November and propose a refundable credit of 3% of qualified expenditures in R&D performed in the state.

On the federal level, the payroll tax offset election cap increased from $250,000 to $500,000 effective January 1st, 2023. Taxpayers eligible for this election are small start-up businesses with revenues of less than $5 million, and no more than 5 years of receipts.

Additionally, we continue to monitor any additions to guidance for the amortization of section 174, which refers to research or experimental expenditures. Two IRS Notices were issued as interim guidance in recent months relating to section 174. Notice 2023-63 (see previous blog) was issued September 8, 2023 and Notice 2024- 12 was issued December 22, 2023. These notices are effective for tax years ending after September 8, 2023. Proposed regulations are expected sometime later in the year.

For assistance with your federal or state Research tax credit, reach out to us at Hull & Knarr.

Sources:

Missouri– https://www.senate.mo.gov/22info/BTS_Web/Bill.aspx?SessionType=R&BillID=71259644

Pennsylvania R&D Tax Credit Program (pa.gov)

Kansas –Kansas Department of Revenue Tax Policy – Research and Development Credit (ksrevenue.gov)

Minnesota SF 2970 Status in the Senate for the 92nd Legislature (2021 – 2022) (mn.gov)

Michigan – https://www.michamber.com/news/research-and-development-tax-credit-receives-bipartisan-house-support/ and https://www.michamber.com/news/soar-fund-expands-to-make-michigan-more-competitive/