Delaware Modifies State R&D Tax Credits

Worth approximately $7 billion annually in recent years, the research and development (R&D) has grown exceptionally since its inception. To begin with, tax credits for spending on R&D were first enacted into federal law in the U.S. in 1981. In the ensuing quarter century, many states have adopted such tax credits, often using the federal tax credit as a prototype. Even so, many state credits have different credit limitations and amounts, as well as varying sunset dates and other important provisions.

Nonetheless, the fact remains, over the past two decades R&D tax credits offered by U.S. states have become widespread and increasingly valuable to firms. The process began when Minnesota became the first state to enact an R&D tax credit in 1982, one year after the introduction of the federal R&D tax credit. Since then, the number of states offering such a credit has risen steadily. Now, Delaware has recently made revisions to their state credit to expand its use. The changes come amid Virginia’s recent amendments last month.

To elaborate, S.B. 200 has made significant amendments to Delaware’s state research and development tax credit. These modifications to the research and development credit, as well as changes made to other Delaware tax credits, were made as a result of a merger between DuPont Co. and Dow Chemical Co.

Previously in Delaware, the aggregate credit limit per fiscal year was $5 million, and no one credit was permitted to exceed 50 percent of a taxpayer’s tax liability. However, for qualified research expenses beginning Jan. 1, 2017, both limitations have been removed. In addition, the credit has become refundable.

Overall, the recent legislation in Virginia and Delaware highlight the importance of knowing the differences that make up this popular credit in each taxing jurisdiction. Undeniably, tax credits for research and development are some of the most popular credits available. For a discussion of the various state research and development tax credit, and the federal tax credit for increasing research activities, contact one of Swanson Reed’s R&D tax specialists today.

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