2013 Virginia research and development tax credit claims due April 1
Most eligibility criteria mirror the federal R&D tax credit
TAX ALERT |
Since launching its state research and development (R&D) credit program in 2011, Virginia has annually allocated $5 million to businesses (i.e., C corporations, sole proprietorships, or pass-through entities) engaging in qualified R&D activities within the state. Taxpayers engaged in activities that qualify under the federal R&D credit criteria (with the exception of research conducted on human embryonic stem cells) are also eligible for Virginia state income tax credits, provided they obtain pre-certification. To meet the pre-certification requirement for 2013, taxpayers must file Form RDC, Application for Research and Development Expenses Tax Credit by April 1, 2014. The state strictly enforces this annual deadline.
In addition to excluding certain stem cell research, the Virginia credit differs from the federal credit in that it is refundable, which makes it available to companies operating at a loss. The Virginia program is also currently in place through the end of 2015, whereas the federal credit expired at the end of 2013 and is pending extension.
Virginia rewards business for pursuing scientific or technical research that creates or improves products and processes. The bottom-line savings can significantly improve the return on R&D investments. The credit rate is 15 percent or 20 percent of the current-year spending in excess of the base amount, capped at $25,050 or $35,000. The 20 percent credit rate and higher base cap applies to research conducted in conjunction with a Virginia public or private college or university.
The state allocates $5 million annually for this credit. If the total amount of timely filed claims for 2013 exceeds $5 million, the credit is prorated among the applicants; similarly, if the total amount of timely filed claims is less than $5 million, the remaining amount (supplemental) is prorated among the timely filed claimants. For 2012, claims received by the deadline of April 1 totaled $2.7 million. The state then supplementally allocated most of the remaining unclaimed balance ($1.8 million) to the initial claimants. Only 138 taxpayers claimed the credit in 2012, which seems to indicate that not all taxpayers conducting qualifying research activities in the state are availing themselves of this tax credit opportunity.
In order to be eligible, the R&D must involve a systematic study or be directed towards discovering new information that is scientific or technical and must relate to developing a new product or process or improving the performance, quality or reliability of an existing product or process.
Taxpayers that intend to file for the federal R&D credit for 2013 and conducted some or all of the qualifying activity in the state of Virginia should file for the Virginia R&D credit by April 1, 2014 to allow for the required pre-certification. Because this credit is refundable and extends through the end of 2015, even taxpayers currently operating at a loss or unable to meet the April 1, 2014 filing deadline should consider whether they will have eligible activities and expenses for 2014 and 2015.