Author: John T. Murray, CPA, Tax Senior Manager
If your business can take advantage of Virginia's Research & Development Refundable Tax Credit, you must apply by April 1, 2015 for 2014 expenses. There are no extensions.
Our clients have had a lot of success with this program and they do not have to have applied for the Federal Research & Development Credits to qualify for the Virginia Credits. However, qualifying expenses have to be conducted in Virginia.
The credits are not just for typical R&D companies either. Manufacturers, Computer Programmers/Developers can also benefit. Any cost related to process improvements or tech development costs may qualify.
Summary of Virginia's Research & Development Tax Credit
During the 2014 Session of the Virginia General Assembly, lawmakers increased the overall credit cap (from $5MM to $6MM), increased the refundable tax credit and allowed for pass-through entities to elect the credit at the entity level. While the Virginia Department of Taxation is currently working out the guidelines for carrying out the new provisions, it is not too early to begin collecting documentation for completing the VA RDC form for 2014. The due date for the application for VA refundable tax credits is April 1, 2015.
Effective for taxable years beginning on or after January 1, 2014, the tax credit amounts are (i) 15 percent of the first $234,000 in Virginia qualified research and development expenses, or (ii) 20 percent of the first $234,000 of Virginia qualified research and development expenses if the research was conducted in conjunction with a Virginia public or private college or university, to the extent the expenses exceed a base amount. There is a $6 million cap on the total amount of credits allowed in any fiscal year.
Virginia qualified research and development expenses means qualified research expenses, as defined in § 41(b) of the Internal Revenue Code. The expenses can be for in-house research or contract research expenses. For purposes of the research credit, research activities related to the development or improvement of a business component are treated as qualified research only if the research activities meet all of the requirements set out below.
- the expenditures for the research may be treated as expenses under the provisions of Code Sec. 174
- the research is undertaken for purposes of discovering information which is technological in nature
- the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and
- substantially all of the activities of which constitute elements of a process of experimentation but may not relate to style, taste, cosmetic, or seasonal design factors.
Please note that the research activities must be conducted within Virginia and the Taxpayer must submit its application for the Credit by April 1, 2015. No extensions are allowed.
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