Alaska Federal-Based R&D Credits
"The Alaska R&D credit is an 18% 'piggyback' incentive applied to the portion of the Federal Research Credit allocated to qualified research expenses incurred specifically within Alaska."
This deep research report explores the statutory mechanics, calculation methodologies, and strategic value of the Alaska Research and Development Tax Credit, specifically detailing its dependency on Internal Revenue Code § 41.
The "Piggyback" Mechanism
Unlike states that operate independent calculations, Alaska's credit is derivative. It does not re-adjudicate what qualifies as "research." Instead, it accepts the federal determination of Qualified Research Expenses (QREs) and applies a geographic allocation ratio. Understanding this flow is critical for compliance.
Federal Calculation
Determine total Federal R&D Credit under IRC § 41.
Geography Filter
Isolate QREs incurred specifically within Alaska state lines.
Allocation Ratio
Calculate: (AK QREs ÷ Total Federal QREs).
State Credit
Apply 18% rate to the Allocated Federal Credit.
Interactive Credit Estimator
Use this tool to understand how changes in your Federal allocation impact your Alaska benefit. The model assumes the current statutory rate of 18%. Notice how the "Alaska QRE" input acts as the primary lever for value generation.
Input Parameters
Total Qualified Research Expenses (Global/National)
Portion of expenses incurred in Alaska
The final credit amount from Form 6765
Value Impact Analysis
Compares the Total Federal Credit to the derived Alaska Credit.
Geographic Allocation
Visualizes the portion of R&D activity qualifying for the state piggyback.
Guidance, Law, and Compliance
Detailed analysis of the regulatory framework governing the credit.
According to the Alaska Department of Revenue instructions for Form 6300 (Alaska Incentive Credits), the calculation strictly follows a pro-rata share method.
Example Scenario:
- A fishing technology firm has $2,000,000 in total Federal QREs.
- $1,500,000 of this work (testing in Dutch Harbor) occurred in Alaska.
- The company earned a $200,000 Federal Tax Credit.
- Step 1 (Allocation): $1.5M / $2.0M = 75% Allocation Ratio.
- Step 2 (Base): 75% of $200,000 = $150,000 (Allocated Federal Credit).
- Step 3 (State Rate): $150,000 × 18% = $27,000 Alaska Credit.
Because Alaska conforms to the Internal Revenue Code, "Qualified Research Expenses" (QREs) are defined under IRC § 41(b). For expenses to count towards the numerator of the Alaska ratio, the activity must take place physically within the state.
Typically Eligible
- Wages for researchers based in AK.
- Supplies consumed during testing in AK.
- Contract research performed by 3rd parties in AK (at 65%).
- Cloud computing costs allocable to AK projects.
Ineligible
- Research conducted outside AK (even if for an AK company).
- Land or depreciable property.
- General overhead or administrative salaries.
- Research funded by grants/contracts.
The Alaska R&D credit is generally non-refundable. This means if the credit exceeds the corporation's tax liability for the year, the excess cannot be redeemed for cash.
However, unused credits typically adhere to Alaska's general business credit carryforward provisions (often up to 7 years, though statutes vary by specific incentive program years). Businesses must track "vintage years" of credits carefully on Form 6300 schedules.
Note: Taxpayers should consult the specific instructions for Line 6 of Form 6300 regarding the specific limitation on credit usage against tax liability (often limited to a percentage of tax liability in certain fiscal years).
Strategic Conclusion
For corporations with significant footprint in Alaska, the federal-based R&D credit offers a streamlined path to tax savings. By leveraging the heavy lifting done for the Federal Form 6765, Alaska businesses can secure an additional 18% benefit with minimal additional administrative burden, provided they maintain rigorous documentation of the geographic location of their expenses.
Expert Report on Alaska Federal-Based Credits and the Research & Development Tax Incentive
Executive Summary: The Mechanism of Alaska Federal-Based Credits
The Alaska Federal-Based Credit (AFBC) is a state corporate income tax credit derived from eligible federal income tax credits, notably the federal Research and Development (R&D) tax credit established under Internal Revenue Code (IRC) § 41.1 For corporations, this incentive allows for the calculation of a state credit equal to 18 percent of the federal R&D tax credit amount that is demonstrably attributable to Alaska business operations.3
The AFBC provides a dollar-for-dollar offset against Alaska corporate net income tax liabilities and offers robust carryover provisions, ensuring long-term value for qualifying taxpayers.1 Administered through Alaska Form 6390, the mechanism requires rigorous apportionment for multi-state entities and is governed by strict credit utilization ordering rules set forth by the Alaska Department of Revenue (DOR).5
I. Introduction to Alaska’s Derivative Tax Incentive Structure
A. Alaska’s Strategic Reliance on the Internal Revenue Code (IRC)
Alaska’s corporate tax structure, governed primarily by Title 43, Chapters 20 and 55, relies heavily on linking state tax benefits directly to established federal tax law. This strategic approach is codified in Alaska Statute (AS) 43.20.021, which adopts the Internal Revenue Code by reference. This method streamlines the qualification process for businesses operating in multiple jurisdictions.
By adopting the federal eligibility standards defined under IRC § 41, which governs Qualified Research Expenditures (QREs), the state avoids the administrative and auditing complexity inherent in establishing a parallel, unique set of state-specific R&D requirements.2 This linkage ensures consistency for multi-state entities, allowing them to leverage the substantial effort already expended in quantifying their federal General Business Credit (GBC) pool (IRC § 38) for state purposes.1 The AFBC, therefore, functions not as a standalone state R&D program, but as a proportionate offset based entirely on the success of the federal R&D credit claim.
B. The Purpose and Scope of AFBC
The primary function of the AFBC is to provide a proportional incentive to corporations that invest in federally qualified R&D activities, rewarding the maintenance of a tax nexus with the state of Alaska. The credit provides a dollar-for-dollar offset against state tax liabilities.1
The scope of the AFBC extends beyond the R&D credit itself. It encompasses all credits allowed under IRC § 38 that are permitted in calculating Alaska corporate income tax.1 This General Business Credit umbrella includes various federal incentives, such as the R&D Credit, certain hiring credits (e.g., Work Opportunity Tax Credits), and energy industry credits.7
C. Key Statutory Differentiation: Corporate vs. Individual Credit Rates
A critical statutory distinction exists within the AFBC framework regarding the applicable credit rate based on taxpayer type. AS 43.20.021(d) explicitly limits the credit for corporations to 18 percent of the apportioned federal credit amount.3 Conversely, resident individuals claiming the AFBC are entitled to a slightly lower tax credit equal to 16 percent of the federal credit claimed.8
This two-percentage point differential between the corporate (18%) and individual (16%) AFBC rate reflects a focused economic policy designed to stimulate investment by large corporations. Given the concentration of Alaska’s economy in capital-intensive sectors such as oil, gas, and resource services, the slightly elevated rate for corporate taxpayers provides a greater targeted incentive toward C-corporations whose R&D scale is substantial. This legislative design maximizes the economic benefit derived from these primary corporate taxpayers, affirming the state’s focus on attracting and retaining large, high-value corporate operations.
II. Statutory Foundation and Definition of Federal-Based Credits
A. AS 43.20.021(d): The Governing Statute
The authority for the AFBC is firmly established in AS 43.20.021(d), which governs how federal credits are adopted and limited within Alaska’s income tax calculation.4 The statute dictates two non-negotiable limitations for corporations:
- The 18 Percent Limitation: The credit is strictly limited to 18 percent of the amount of the federal credit determined for federal income tax purposes.3
- The “Attributable to Alaska” Prerequisite: The 18 percent rate is applied only to the portion of the federal credit that is definitively attributable to Alaska.4 This phrase introduces the mandatory requirement for apportionment calculations, preventing multi-state businesses from claiming the credit based on their full national R&D expenditure pool.
B. Prohibited Dual Benefit and Overlap with Other State Credits
Taxpayers claiming AFBCs must carefully navigate anti-double-dipping provisions, particularly concerning other specific state incentives.
1. Conflict with the Service Industry Credit
A key requirement established by the Department of Revenue concerns the Service Industry Credit (SIC) under AS 43.20.049. An expenditure utilized as the basis for claiming a federal income tax credit, and subsequently claimed as an AFBC on Alaska Form 6390, may not also be used to claim the SIC.9
The SIC is specifically targeted at expenditures incurred in Alaska that are directly attributable to the in-state manufacture or modification of tangible personal property used to explore, develop, or produce oil or gas.9 For corporations engaged in the resource sector, this conflict mandates sophisticated tax modeling to determine the optimal credit path. The AFBC offers an 18% benefit with a 20-year carryforward, whereas the SIC provides a different benefit structure, allowing a maximum claim of $10,000,000 in a subsequent year if a portion is carried forward, but only allowing a five-year carryforward.1 The decision requires analyzing which mechanism yields the higher net present value (NPV) benefit given the taxpayer’s operational profile and future tax liability projections.
2. Exclusion for Special Industrial Incentive Credits
It is important to note that the 18% AFBC limitation explicitly does not apply to the special industrial incentive tax credit outlined in AS 43.20.042.4 This exclusion ensures that specific, high-priority state incentives operate independently of the general federal-based credit mechanism.
III. The Alaska R&D Credit: Nexus with Federal Law and QREs
A. Qualified Research Expenditure (QRE) Definition (Adoption of IRC § 41)
The calculation of the federal R&D tax credit—the basis for the AFBC—is predicated on the identification and aggregation of QREs. Alaska statute dictates that the definition of QREs is adopted wholesale from the federal standard, IRC § 41.5 This uniformity simplifies compliance for businesses accustomed to federal documentation requirements.
Qualified costs fall into several categories 10:
- Employee Wages: Compensation paid to employees engaged directly in qualified research activities.
- Supplies and Materials: Costs of supplies consumed during the research process.
- Third-Party Contractor Costs: Costs paid to third parties for contract research, provided the contractors reside within the United States.
- Cloud Hosting Expenses: Costs related to data storage and computing services integral to the research effort.
B. The Federal Four-Part Test for Qualified Activities
Eligibility is determined by whether the underlying activity meets the rigorous federal standard, known as the Four-Part Test 1:
- Permitted Purpose: The activity must aim to improve the functionality, performance, reliability, or quality of a new or existing business product or process.
- Technological in Nature: The research must fundamentally rely on the principles of physical or biological science, engineering, or computer science.
- Elimination of Uncertainty: The taxpayer must seek to resolve a technological uncertainty concerning the capability, methodology, or appropriate design of the product or process.
- Process of Experimentation: The taxpayer must demonstrate that they engaged in a systematic process of experimentation, involving testing alternatives to eliminate the technological uncertainty.
C. Geographic Scope of Qualified Activities
A crucial structural feature of the Alaska R&D credit is its independence from the physical location of the research activity. While the activity must be conducted within the United States to qualify for the underlying federal credit 5, the activity need not be conducted within Alaska to generate the AFBC.2
This decoupling of the research location from the state credit benefit serves a strategic function. It removes a significant administrative burden and compliance barrier for multi-state corporations with their primary research centers located outside Alaska. By allowing non-Alaska QREs to form the basis of the federal credit pool, the state ensures that a large corporation maintaining its tax nexus within Alaska can still leverage its national R&D investment to reduce its state tax liability through the apportionment mechanism. This design effectively encourages corporations with centralized, non-Alaskan R&D departments to maintain their operational footprint and pay corporate income tax within the state.
IV. Calculating the Alaska Federal-Based Credit
The calculation process requires a methodical, three-step approach detailed on Alaska Form 6390 (Alaska Federal-Based Credits).11
A. Step 1: Determining the Federal R&D Credit Amount
The calculation begins with the total federal R&D credit amount earned by the taxpayer, which is typically documented on Federal Form 6765 and summarized on Federal Form 3800, General Business Credit.5 This amount represents the maximum potential credit base before Alaska’s specific limitations and apportionment rules are applied.
B. Step 2: Apportionment—Defining the Alaska Credit Base
For any taxpayer conducting business both inside and outside of Alaska, the federal credit amount must be apportioned to determine the amount “attributable to Alaska”.1 This step is critical as it establishes the dollar value upon which the 18% state rate will be calculated.
Alaska utilizes an equally weighted three-factor apportionment formula for corporate income tax.12 This factor (Apportionment Factor) is calculated as follows:
$$\text{Apportionment Factor} = \frac{\text{Property Factor} + \text{Payroll Factor} + \text{Sales Factor}}{3}$$
The resulting Apportionment Factor is entered on Form 6390, Line 6.11 This factor is then multiplied by the total current federal General Business Credit applicable to Alaska (Form 6390, Line 5) to yield the Alaska Credit Base (Form 6390, Line 7).11
C. Step 3: Applying the Statutory Rate
The final step is the application of the statutory limitation. The total current apportioned General Business Credit is determined by multiplying the Alaska Credit Base (Line 7) by the mandated statutory rate of 18%.3 This result represents the total AFBC earned for the current year (Form 6390, Line 8).
Table 1 outlines the procedural framework for calculating the AFBC.
Table 1: Statutory Calculation Framework of the Alaska AFBC
| Form 6390 Line | Calculation Component | Calculation Basis | Role in Final Credit Determination |
| Line 5 | Federal GBC Base | Total GBC from Federal Form 3800 applicable to Alaska 11 | Determines the national pool of credits available for state computation. |
| Line 6 | Apportionment Factor | (Property + Payroll + Sales) / 3 12 | Quantifies the portion of the business operations “attributable to Alaska”.4 |
| Line 7 | Alaska Credit Base | Line 5 multiplied by Line 6 11 | The dollar amount of the federal credit subject to the state rate limitation. |
| Line 8 | Current AFBC Earned | Line 7 multiplied by 18% 3 | The maximum credit generated in the current year, before application limits. |
V. Compliance and Reporting: Alaska Form 6390
A. Purpose and Requirement of Form 6390
Alaska Form 6390, titled “Alaska Federal-Based Credits,” is the mandated administrative form required to claim AFBCs.1 It is filed alongside the relevant state corporate tax return (Form 6000, 6100, or 6150).6 The stated purpose of Form 6390 is to properly order and limit federal-based credits on an “as-if Alaska basis,” ensuring compliance with the 18% statutory limit and the apportionment rules.6
B. Part I and Part II Analysis
Form 6390 is divided into sections that address both the generation and the application of the credit:
- Part I: Available Credit Determination: This section consolidates the current year’s apportioned credit (Line 8) with historical adjustments, specifically including carryforward credits (Line 9) and carryback adjustments (Line 10).11 The total available AFBC is aggregated on Line 11. Importantly, the form also accounts for applicable federal general business credits originating from passive activities, which are calculated separately on Form 6395 before being integrated into Form 6390.6
- Part II: Allowable Credit (Utilization): This section dictates how the total available AFBC is applied against the taxpayer’s current year liability, incorporating the state’s mandatory credit ordering hierarchy.11
VI. Credit Utilization, Limitations, and Ordering Rules
A. The Value of the Carryover Period
The AFBC provides considerable strategic value through its utilization flexibility. Unused federal-based credits may be carried back for one year and carried forward for an extensive period of up to 20 years.1 This long carryover horizon is essential for capital-intensive businesses, particularly those engaged in multi-year R&D projects that may generate substantial credits before achieving consistent taxable income. The 20-year window effectively preserves the economic value of the credit investment over decades, protecting against fluctuations in profitability.
B. Offsetting the Alaska Alternative Minimum Tax (AMT)
AFBCs are permitted to offset both the regular corporate net income tax liability (Form 6390, Line 12c) and, under certain conditions, the net Alaska Alternative Minimum Tax (AMT) liability (Line 13c).6 Alaska’s AMT, calculated under AS 43.20.021(f), is set at 18 percent of the applicable alternative minimum federal tax preferences for corporations.4
C. Critical Ordering Rules: AFBCs vs. Alaska Incentive Credits
The application of the AFBC is strictly subordinate to other state-specific incentive credits. The Department of Revenue’s guidance on Form 6390 mandates that federal-based credits may offset Alaska regular tax and AMT only after all specific Alaska incentive credits have been applied against those liabilities.6
This mandatory prioritization means that the AFBC operates as a secondary offset mechanism. Taxpayers claiming other localized credits (e.g., the Education Tax Credit or certain industry-specific credits) must first exhaust those credits against their current regular tax and AMT liability.6 Only the residual liability remaining after the application of these priority state incentives can be reduced by the AFBC.11 If the priority credits fully consume the tax liability, the entirety of the newly earned AFBC is immediately pushed into the 20-year carryforward pool. Consequently, corporate tax planning must accurately forecast the utilization rate of primary state credits to properly determine the immediate realizable cash flow benefit from the AFBC.
Table 2 illustrates the mandatory hierarchy for credit application.
Table 2: Alaska Corporate Credit Ordering Hierarchy
| Priority Level | Credit Category | Form 6390 Line Reference | Impact on Tax Liability |
| First | Alaska Incentive Credits | Lines 12b and 13b | Must be applied first against Regular Tax and AMT 6 |
| Second | Alaska Federal-Based Credits (AFBC) | Lines 12c and 13c (Applied against the residual tax) | Applied only to the liability remaining after the application of priority credits 7 |
VII. Detailed Case Study: Multi-State Corporate AFBC Claim
To demonstrate the combined effect of federal credit generation, apportionment, and the 18% limit, this section analyzes the claim process for North Star Engineering, a multi-state corporation with substantial physical operations in Alaska.
A. Scenario Setup: Apportionment and Federal Determination
North Star Engineering, a C-corporation, generated $3,300,000 in Qualified Research Expenditures (QREs) over a four-year period (2021–2024), resulting in a cumulative federal R&D tax credit of $330,000.1
The company must now determine the portion of this federal credit base that is attributable to Alaska using the equally weighted three-factor formula.12 The following apportionment factors represent the company’s share of property, payroll, and sales located within Alaska, based on multi-year data:
Apportionment Data (Four-Year Average)
| Factor | Alaska Factor (%) |
| Property Factor | 30.00% |
| Payroll Factor | 20.00% |
| Sales Factor | 10.00% |
| Apportionment Factor (Form 6390, Line 6) | 20.00% (($0.30 + 0.20 + 0.10) / 3) |
The determination of the apportionment factor is a key strategic element. Because the three factors (Property, Payroll, and Sales) are equally weighted 12, a corporation can significantly increase the effective value of its AFBC by strategically maximizing its Alaska-based physical presence, even if that presence is not directly tied to the research activity itself. The greater the proportion of fixed assets (Property) and employee compensation (Payroll) that can be sourced to Alaska, the higher the resulting apportionment factor, which in turn converts a larger slice of the national R&D credit base into a viable state credit.
B. Annual Calculation Tables: Tracking Credit Generation
The $330,000 total federal credit must first be filtered through the 20.00% apportionment factor and then limited by the 18% statutory rate to determine the state AFBC.
Table 3: Case Study: Alaska R&D Tax Credit Calculation (Four-Year View)
| Year | Federal R&D Credit (Line 5) | Apportionment Factor (Line 6) | Alaska Credit Base (Line 7) | Alaska AFBC Generated (Line 8: 18% Rate) |
| 2021 | $130,000 | 20.00% | $26,000 | $4,680 |
| 2022 | $90,000 | 20.00% | $18,000 | $3,240 |
| 2023 | $65,000 | 20.00% | $13,000 | $2,340 |
| 2024 | $45,000 | 20.00% | $9,000 | $1,620 |
| Total Available AFBC | $330,000 | – | $66,000 | $11,880 |
The analysis shows that although the company qualified for a substantial federal credit of $330,000, the total cumulative benefit derived in Alaska is limited to $11,880. This highlights the severe constraining power of the dual limitation structure (apportionment followed by the 18% rate).
C. Final Credit Application: Utilization Against Current Liability (2024)
For the 2024 tax year, North Star Engineering generated a current AFBC of $1,620. The application of this credit against the actual tax liability is subject to the required credit ordering rules.
Assumptions for 2024 Utilization:
- Alaska Regular Tax Liability (Line 12a): $10,000
- Alaska AMT Liability (Line 13a): $5,000
- Alaska Incentive Credits Claimed (e.g., Education Credit) (Lines 12b/13b): $4,000
- Current Year AFBC (Line 8): $1,620
| Step | Calculation | Regular Tax | AMT | Notes |
| 1. Initial Liability | – | $10,000 | $5,000 | – |
| 2. Apply Incentive Credits (1st Priority) | Initial Tax – $4,000 | $6,000 (Line 12c) | $5,000 (Line 13c) | The incentive credit is applied first.6 |
| 3. Apply AFBC (2nd Priority) | Remaining Regular Tax – $1,620 | $4,380 | $5,000 | The AFBC is fully utilized against the residual Regular Tax liability.11 |
| Result | Net Alaska Income Tax (Line 14) | $4,380 | $5,000 | Total combined tax liability after credits: $9,380. |
In this scenario, the company successfully utilized the full $1,620 AFBC against its current year’s residual regular tax liability. Had the initial incentive credits been larger, reducing the residual tax liability below $1,620, the unused portion of the AFBC would have been automatically converted into a carryforward credit, retaining its value for up to 20 years.1
VIII. Conclusion and Strategic Recommendations for Alaskan Taxpayers
A. Strategic Importance of Apportionment and Documentation
The Alaska Federal-Based Credit (AFBC) structure offers a significant tax incentive, highly valuable to multi-state corporations with substantial investment in R&D. However, realizing this value is entirely dependent on meticulous compliance with the state’s apportionment rules. The 18% AFBC rate is maximized only if the taxpayer can justify a robust apportionment factor on Form 6390, Line 6.11 Corporate tax departments must ensure that the Property and Payroll factors, which heavily influence the equally weighted three-factor formula, accurately reflect the company’s physical footprint in Alaska.
Furthermore, because the AFBC is a derivative credit, its validity rests entirely on the underlying federal R&D credit determination.2 Any federal audit resulting in an adjustment to the Qualified Research Expenditures (QREs) or the resulting federal credit (Form 6765) will automatically necessitate a corresponding amendment to the Alaska tax return and Form 6390. Maintaining comprehensive, contemporaneous documentation—including detailed general ledger entries, payroll records, and project notes—is essential for substantiating the claim against both federal and state scrutiny.2
B. Necessity of Strategic Credit Utilization Planning
The strict credit ordering rules, which mandate the prioritization of state-specific Alaska incentive credits over AFBCs 6, require sophisticated advance tax planning. Corporations must accurately project their current and future tax liabilities alongside the anticipated timing of their primary state credit utilization. This forecasting determines how much of the AFBC will be immediately realizable versus how much will enter the 20-year carryforward pool.1 Proper planning ensures that the economic benefit of the AFBC is timed to offset liability strategically, maximizing the present value of the long-term credit asset.
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What is the R&D Tax Credit?
The Research & Experimentation Tax Credit (or R&D Tax Credit), is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The credits are a tax incentive for performing qualified research in the United States, resulting in a credit to a tax return. For the first three years of R&D claims, 6% of the total qualified research expenses (QRE) form the gross credit. In the 4th year of claims and beyond, a base amount is calculated, and an adjusted expense line is multiplied times 14%. Click here to learn more.
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