The General Business Credit Basket
In the Context of Alaska R&D
The Core Meaning: The "Basket" is an aggregate limit (IRC § 38) preventing taxpayers from eliminating their entire tax liability using credits. It caps annual credit usage at the first $25,000 of tax plus 75% of the remaining liability.
Understanding the "Basket"
The General Business Credit (GBC) is not a single credit. It is a statutory "wrapper" or "basket" that contains over 30 different federal tax incentives, including the Investment Credit, Work Opportunity Credit, and significantly, the Research & Development (R&D) Credit.
When Alaska adopted the Internal Revenue Code (IRC) for its corporate income tax, it inherently adopted this "basket" structure. This means that even if a company has millions in Alaska R&D credits, they cannot simply wipe out their tax bill to zero. They must adhere to the Net Income Tax Limitation.
Aggregation: All applicable credits are summed into one "Current Year GBC".
Limitation: The sum is compared against the tax liability threshold.
Carryover: Anything that spills out of the basket is carried back 1 year or forward 20 years.
Visualizing the Aggregate
Limitation Simulator: The "25/25" Rule
Under IRC § 38(c), the credit is limited to your Net Income Tax minus the greater of: (1) Tentative Minimum Tax, or (2) 25% of your regular tax liability exceeding $25,000.
Use the sliders below to see how this impacts an Alaska taxpayer.
Result Summary
Impact of Limitation on Cash Flow
*Assumes Tentative Minimum Tax is zero for simplification.
Alaska Regulatory Framework
The Legal Basis
The Alaska Net Income Tax Act adopts the federal Internal Revenue Code (IRC) by reference. This is the foundational mechanism that ties Alaska credits to the Federal General Business Credit basket rules.
- AS 43.20.021(a): Explicitly adopts the IRC provisions "as they may be amended," creating a "rolling conformity" state (with specific exceptions). This means IRC § 38 (General Business Credit) limitations generally apply unless Alaska statute specifically overrides them.
- AS 43.20.021(j): Provides the specific authorization for the R&D credit, stating that the credit is allowed "against the tax due." However, it does not explicitly remove the limitation on how much of the tax due can be offset in a single year, reverting to federal mechanics.
- 15 AAC 20.100: Administrative code providing guidance that computation of Alaska taxable income and liability generally follows federal forms and instructions unless specified.
Strategic Lifecycle
Because of the GBC limitation, tax planning becomes a multi-year exercise. Credits are not "lost" immediately; they enter a lifecycle.
Carryback Rule (1 Year)
Alaska allows carrying the credit back to the preceding tax year to recover taxes previously paid. This is often the immediate cash-flow priority.
Carryforward Rule (20 Years)
Unused credits sit on the balance sheet (as deferred tax assets) for up to 20 years.
Credit Utilization Over 5 Years (Simulation)
Conclusion
The Alaska R&D tax credit is a powerful incentive, but it operates within the strict confines of the federal General Business Credit Basket. Understanding the interaction between Alaska Statute 43.20.021 and IRC § 38 is critical for accurate financial forecasting. The credit is not a simple deduction; it is a limited asset that requires strategic management of carrybacks and carryforwards to maximize realized value.
An Expert Analysis of the General Business Credit Basket and the Alaska R&D Tax Credit Framework
The General Business Credit (GBC) Basket is the foundational mechanism under federal law (IRC § 38) that aggregates and limits the utilization of various business tax incentives. The Alaska Research and Development (R&D) tax credit (AS 43.20.021(d)) leverages this federal framework, allowing a limited credit equal to 18% of the apportioned federal R&D credit amount.
This structure necessitates a complex dual-compliance process where the eligibility and amount of the credit are first established federally, and then drastically constrained and apportioned under state law before being claimed as an offset against Alaska corporate net income tax liability.
I. The Federal Foundation: Understanding the General Business Credit (GBC) Basket
The General Business Credit is codified in Internal Revenue Code (IRC) Section 38, establishing a unified system for taxpayers to claim dozens of distinct business credits. This composite structure ensures administrative consistency and manages the total fiscal impact of incentives on federal revenue.
A. GBC Defined: A Composite Structure (IRC § 38)
Under IRC § 38(a), the total General Business Credit allowed for a taxable year is the sum of three distinct elements: business credit carryforwards (unused credits from prior years), the current year business credit (total credits generated in the present year), and business credit carrybacks (credits generated in subsequent years and applied retroactively).1
The Research Credit, determined under IRC § 41, is explicitly included as a component of the current year business credit.1 Taxpayers compute this aggregate credit amount, including the R&D component, on IRS Form 3800, General Business Credit.2 Although many credits can be claimed directly on Form 3800, the process is mandatory for taxpayers claiming an Investment Credit or certain fuel credits, or for pass-through entities allocating credits to beneficiaries.3
Table 1: Key Component Credits of the Federal GBC (IRC § 38)
| Credit Type (IRC Section) | Corresponding IRS Form | Inclusion Status |
| Research Credit (§ 41) | Form 6765 | Current Year Business Credit 1 |
| Investment Credit (§ 46) | Form 3468 | Current Year Business Credit 1 |
| Work Opportunity Credit (§ 51) | Form 5884 | Current Year Business Credit 1 |
| Low-Income Housing Credit (§ 42) | Form 8586 | Current Year Business Credit 1 |
B. GBC Tax Liability Limitation Rules
The GBC is generally non-refundable, meaning its primary purpose is to reduce tax owed, not to generate a cash payment.4 Therefore, the allowable GBC amount is subject to stringent limitations based on the taxpayer’s net income tax.
- Net Income Tax Definition: The “net income tax” is crucial for calculating the limit. It is defined as the sum of the regular tax liability and the tax imposed by the Alternative Minimum Tax (AMT), reduced by certain non-GBC credits.5
- Corporate Limitation Rule: For corporations, the maximum allowable GBC is capped based on the tentative minimum tax (or a calculated threshold). Specifically, the GBC generally cannot offset more than the net income tax minus 25% of the excess of net income tax over $25,000.5
This federal limitation structure restricts the immediate monetization of credits. When a taxpayer generates more credits than can be utilized in the current year—for instance, when R&D Qualified Research Expenditures (QREs) are high but profitability, and thus tax liability, is low—the excess GBC amounts are not lost. Instead, they must be carried back one year and carried forward for up to 20 years.2 This provision effectively functions as a long-term deferral mechanism, requiring corporate tax planners to model utilization across two decades to maximize the ultimate economic value of the credit.
II. Alaska’s Federal-Based R&D Credit: Statutory Limitations and Calculation
Alaska’s tax code does not establish an independent, standalone R&D tax credit based on a distinct state calculation. Instead, the state credit is derived directly from, and limited by, the federal R&D credit determined under IRC § 41.7
A. AS 43.20.021(d): The Federal-Based Attribution Requirement
Alaska Statute 43.20.021(d) permits a credit allowed under the Internal Revenue Code to be used in computing Alaska income tax, but only under specific restrictions.8
- The Core Limitation: The 18% Multiplier: The primary constraint is that the state credit is limited to 18% of the amount of the credit determined for federal income tax purposes, after applying apportionment rules.7 This calculation provides a dollar-for-dollar offset against Alaska tax liabilities.9
- Adoption of Federal QRE Definitions: Since the credit is federal-based, Alaska utilizes the exact definition of qualified research expenses and the computational framework established under IRC § 41.7 This simplifies the definition of eligible activities but mandates consistency between federal and state documentation.
B. Mandatory Apportionment of Federal Credits
For any corporation taxable both inside and outside of Alaska, the federal R&D credit must first be apportioned to determine the amount attributable to Alaska operations before the 18% limitation is applied.9
- QRE Location as the Apportionment Key: Alaska, similar to a few other states, requires the apportionment of the federal credit based on the percentage of total U.S. Qualified Research Expenditures (QREs) that were incurred within the state of Alaska.10 This location-based methodology ensures that the state only grants a benefit for the proportion of the federal credit that corresponds to in-state R&D activity.9
This reliance on a percentage of the federal credit means the effective state credit rate for a company is relatively low compared to states that offer direct percentage credits on QREs. For example, if a company uses the federal Alternative Simplified Credit (ASC) method, yielding a 14% federal credit on increased QREs, the Alaska credit is 18% of that 14%, resulting in an effective state credit of approximately 2.52% of the increase in Alaska QREs. This design is indicative of a state policy focused on rewarding established, profitable corporations—particularly those in the foundational oil and gas and associated manufacturing industries 11—which are likely to have stable, significant corporate income tax liabilities to offset.13
C. Application and Carryover Provisions
The Alaska R&D credit is strictly regulated regarding its utilization and longevity.
- Offset Limitations: The credit can be applied against Alaska corporate net income tax liability. However, it cannot be used against the Alaska Alternative Minimum Tax (AMT) or other state taxes, unless subject to specific ordering rules.9
- Non-Refundability and Non-Transferability: The Alaska credit is unequivocally not refundable and is not transferrable to other taxpayers.14 This policy limits the ability of cash-poor startups or newly established businesses to monetize the incentive immediately.
- Carryover Period: Unused portions of the Alaska federal-based credit align with the federal standard, permitting a 1-year carryback and a 20-year carryforward.9 This long carryforward period is essential for capital-intensive companies in volatile markets, allowing the benefit of current R&D investment to be realized decades later when profitability recovers.
Table 2: Comparison of Federal R&D Credit vs. Alaska R&D Credit Features
| Feature | Federal R&D Credit (IRC § 41/GBC) | Alaska R&D Credit (AS 43.20.021(d)) |
| Calculation Basis | Incremental increase in Qualified Research Expenses (QREs) | 18% of Apportioned Federal Credit Determined 8 |
| Limitation Mechanism | GBC Limitation (Form 3800) | Alaska Corporate Net Income Tax Offset Limit 9 |
| Transferability | Generally Non-Transferable | Non-Transferable 14 |
| Carryover Period | 1 Year Back / 20 Years Forward 4 | 1 Year Back / 20 Years Forward 16 |
III. Alaska Department of Revenue (DOR) Guidance and Compliance
Compliance with the Alaska R&D credit is formalized through specific statutory requirements and the use of state-mandated forms, particularly Alaska Form 6390.
A. Mandatory Reporting: Alaska Form 6390
To claim the federal-based R&D credit, a company must file Alaska Form 6390 – Alaska Federal-based Credits along with its state tax return (e.g., Form 6000, 6100, or 6150).7 The purpose of Form 6390 is to enforce the state’s limitations, specifically ordering and capping the federal credits on an “as-if Alaska basis”.8
For flow-through entities, such as partnerships, the expenditure is first reported on Alaska Form 6900 (Alaska Partnership Return), and the credit subsequently flows through to be claimed by a corporate partner to offset that partner’s Alaska corporate tax liability.14
B. Credit Ordering Rules and AMT Hierarchy
The application of the credit is dictated by statutory ordering rules, which are critical when a taxpayer is subject to both regular tax and Alternative Minimum Tax (AMT). Federal-based credits, including the R&D credit, may offset Alaska AMT liability only after Alaska “incentive credits” have been fully utilized.7 This established hierarchy requires tax professionals to sequence credit application meticulously to ensure maximum utilization of both federal-based and state-specific incentives.
C. Anti-Double-Dipping Provisions
Alaska law strictly prohibits claiming multiple benefits for the same qualified expenditure. Specifically, if an expenditure is the basis for a federal income tax credit claimed on Form 6390, that expenditure may not be used to claim a credit against any other type of tax.14 Furthermore, taxpayers who claimed a specific credit against the corporate tax, such as the Service Industry Credit (AS 43.20.049), cannot also claim the attribution of the federal R&D credit on Form 6390 based on those same expenditures.14 This enforces a required choice for taxpayers to select the most financially beneficial credit mechanism for their specific activities.
D. Determining the Calculation Base: Decoupling of Determination vs. Utilization
An important nuance in the Alaska statute is that the state credit is limited to 18% of the federal credit determined for federal income tax purposes.8 This language means the calculation base for the Alaska credit is the full federal credit amount calculated on Form 6765, before that amount is potentially restricted by the federal General Business Credit limitation on Form 3800.
This structural separation benefits companies that may have high R&D activity in Alaska but low total U.S. profitability. Such companies could have a large federal R&D credit determined but currently unusable due to the GBC limit. However, they can still calculate and potentially use the Alaska credit (18% of the determined amount) if they have sufficient Alaska-sourced corporate tax liability, provided the determined credit has been properly apportioned to the state.
IV. Comprehensive Example: Calculating and Claiming the Alaska R&D Credit
This example demonstrates the required multi-step calculation, beginning with the federal determination and culminating in the state claim on Alaska Form 6390.
A. Scenario Setup: Polar Innovation Inc. (PII)
PII is a C-Corporation engaged in R&D across three states, including Alaska, specializing in components for the energy sector.11
| Key Financial Data (Tax Year 2024) | Amount |
| Total U.S. Qualified Research Expenses (QREs) | $3,300,000 |
| Alaska QREs (In-State Expenses) | $1,800,000 |
| Federal R&D Credit Determined (Based on IRC § 41) | $330,000 |
| Alaska Corporate Net Income Tax Liability | $75,000 |
B. Step 1: Federal R&D Credit Determination
The corporation calculates its total federal Research Credit using Form 6765. In this scenario, PII has determined a total federal credit of $330,000.11 This amount is entered into the General Business Credit basket on Federal Form 3800.
C. Step 2: Alaska Apportionment and 18% Limitation (AS 43.20.021(d) / Form 6390)
The $330,000 determined federal credit must be apportioned to Alaska based on QREs incurred in the state, and the 18% statutory limit must be applied.
Table 3: Alaska R&D Credit Calculation Walkthrough
| Metric | Calculation | Amount |
| Federal R&D Credit Determined (Base) | From Step 1 | $330,000 |
| Alaska Apportionment Percentage | $1,800,000 AK QREs / $3,300,000 Total QREs | 54.55% |
| Apportioned Federal Credit Amount | $330,000 x 54.55% | $180,000 |
| Alaska Statutory Limit Multiplier | 18% of Apportioned Amount | 18% |
| Total Alaska R&D Credit Claimable | $180,000 x 18% | $32,400 |
Note: A similar historical example shows that a federal credit determination of $3,300,000 in QREs led to a total credit of $59,400 over four years, which aligns with the 18% calculation ($330,000 x 18% = $59,400), illustrating the direct application of the statutory multiplier.11
D. Step 3: Alaska Corporate Tax Liability Offset
PII claims the calculated $32,400 state credit against its Alaska corporate income tax liability.
- Tax Liability: $75,000
- Credit Applied: $32,400
- Resulting Tax Due: $75,000 – $32,400 = $42,600
Since the Alaska Corporate Net Income Tax Liability ($75,000) exceeds the calculated credit ($32,400), the entire calculated credit is utilized in the current year. If the calculated credit had exceeded $75,000, the unused portion would be carried forward for up to 20 years.9
V. Conclusion and Key Compliance Recommendations
The General Business Credit basket provides the essential mechanism for establishing the federal R&D credit, which serves as the ultimate determinant for the Alaska state credit. Alaska’s system, defined by the 18% limitation and QRE apportionment, represents a policy designed to maximize tax fairness by linking the state benefit directly to locally incurred research expenditures and ensuring that the credit primarily offsets the liability of established, profitable companies.
For corporations operating in Alaska, adherence to the precise compliance mechanism is paramount:
- Strategic Location of QREs: Since the size of the Alaska R&D credit is directly proportional to the percentage of Qualified Research Expenses (QREs) incurred within Alaska 9, multi-state businesses have a quantifiable financial motivation to locate critical research personnel, suppliers, and contractor activities in-state to maximize the apportioned base.
- Meticulous Documentation and Filing: Taxpayers must strictly document their total federal R&D determination (as if on Form 6765), accurately apportion the credit based on Alaska QREs, apply the 18% statutory limit, and file the result on Alaska Form 6390.7
Comprehensive Carryforward Modeling: Given the non-refundable nature of both the federal GBC and the Alaska R&D credit, and the inherent volatility of Alaska’s revenue climate 13, corporate tax strategy must utilize sophisticated financial modeling that projects future tax liabilities over the entire 20-year carryforward window to ensure the full value of the unused credit is ultimately realized.16
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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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