Virginia’s Legislature passed House Bill 884 and Senate Bill 58 (“Bills”), identical bills modifying the state’s existing research and development credits (“R&D credits”) and creating a tax credit for businesses with research and development expenses in excess of $5 million per year.
The Bills change the existing credit to:
- Increase the existing credit cap from $6 million to $7 million, the maximum amount of tax credits cap that the Department of Taxation may grant each fiscal year;
- Extend the expiration date from January 1, 2019 to January 1, 2022;
- Increase the amount of credits a taxpayer may claim to:
- 15% of the first $300,000 ($45,000) of a taxpayer’s Virginia qualified research and development that exceed a base amount; or
- 20% of the first $300,000 ($60,000) of those expenses if the research and development were conducted with a Virginia college or university;
- Provide an alternative, simplified method to compute tax credits; and
- Prohibit businesses from using the existing credit for R&D expenses over $5 million.
In addition, effective for tax years beginning on or after January 1, 2016 but before January 1, 2022, the Bills provide for a new,nonrefundable credit, (“Major R&D Expense Credit”) available for taxpayers with qualified R&D expenses of more than $5 million per year. Qualifying taxpayers can use the Major R&D Expense Credit against corporate and personal income.
The Major R&D Expense Credit is equal to 10% of the difference between the qualified research and development expenses paid or incurred by the taxpayer during the taxable year and 50% of the average qualified research and development expenses paid or incurred by the taxpayer during the three preceding taxable years. If a qualifying taxpayer did not pay or incur qualified research and development expenses in any one of the previous three taxable years, the credit is 5% of the qualified research and development expenses paid or incurred by the taxpayer during the tax year.
The Major R&D Expense Credit is limited to 75% of the taxpayer’s Virginia income tax liability for the year. Any unused credit may be carried forward for ten years. The annual credit cap for the Major R&D Expense Credit is $20 million.
Please note that applications for the current and Major R&D Expense Credit are due on July 1 of the year following the close of the taxable year in which the expenses were paid or incurred.
TECHNICAL INFORMATION CONTACTS:
Allea Newbold
Principal
Ryan
813.371.0566
allea.newbold@ryan.com
Michael Thompson
Director
Ryan
713.629.0090
michael.thompson@ryan.com