Expert Report on the Louisiana R&D Tax Credit for Mid-Market Enterprises: Calculation and Compliance for the 50–99 Employee Tier (R.S. 47:6015)

Executive Summary: The 10% Incremental Credit Rate

The Louisiana R&D Tax Credit for entities employing 50 to 99 persons grants a 10% credit rate on Qualified Research Expenditures (QREs) that exceed a high base amount.

This base is statutorily set at 80% of the average QREs incurred during the three preceding taxable years, rewarding only substantial, incremental increases in local R&D investment.1

The tiered structure established under Louisiana Revised Statutes (R.S.) 47:6015 is designed to encourage existing businesses with operating facilities in Louisiana to establish or continue research and development activities within the state.4 The designation of “Entity Employing 50 to 99 Persons” is a critical threshold, as it dictates a significant shift in the calculation methodology compared to smaller enterprises. Companies in this tier fall under the general category of “Credit for Increasing R&D Expenditures (50+ employees)” and must utilize the highly restrictive 80% Base Amount percentage.1 This design ensures that the state’s incentive capital is focused on supporting measurable growth in research spending among established, financially stable firms, rather than subsidizing maintenance activities.

I. Statutory Foundations and Definition of the Mid-Market Tier (50–99 Employees)

A. Legal Framework and Tiered Structure Rationale

The Louisiana R&D Tax Credit (R.S. 47:6015) utilizes a tiered incentive structure that adjusts the credit rate and the calculation baseline according to the size of the taxpayer’s workforce. This system explicitly categorizes businesses based on employee count to allocate benefits strategically.

The specific parameters for the 50–99 employee category are:

• Credit Rate: The amount of the credit applied to the excess Qualified Research Expenditures (QREs) is 10%.1
• Base Calculation Percentage: The historical baseline against which current expenditures are measured is determined as 80% of the average annual qualified research expenses incurred in Louisiana during the three years preceding the taxable year.2

This high base percentage represents a policy decision to demand a substantial incremental investment from mid-market and large companies.6 For these established entities, the state requires QREs to significantly surpass historical averages—by more than 20%—before any credit benefit is realized.

A fundamental compliance requirement for any taxpayer employing fifty or more persons is the statutory prerequisite that the entity must also claim the federal income tax credit for increasing research activities under 26 U.S.C. §41(a) for the corresponding taxable year.2 This mandatory alignment ensures that the state credit is claimed only for activities that meet the rigorous standards and definitions established under federal law, primarily using the Federal Form 6765, Credit for Increasing Research Activities.1 This linkage simplifies state administration while guaranteeing that the subsidized activities meet the federal definition of “qualified research,” which must satisfy the four-part test related to technological discovery and a process of experimentation.1

B. Defining “Persons Employed” and Headcount Determination

Accurate determination of the employee count is paramount, as the difference between 49 and 50 employees results in a dramatic shift from the 30% credit/50% base to the 10% credit/80% base.

The Louisiana Economic Development (LED) application requires the taxpayer to report the “Total Employees (including affiliates)” as of the last quarter of the tax year.1 The applicable statute specifies that the application must detail the “total number of persons employed in Louisiana by the taxpayer”.2 The explicit inclusion of affiliated group employees in the calculation means that a company with 45 direct employees in Louisiana could still be classified in the 50+ tier if its parent company or a subsidiary controls the entity and employs an additional 10 or more persons.7 Tax experts must analyze controlled group relationships (defined as 50% or more common ownership or control) to ensure accurate tier placement, thereby preventing inadvertent non-compliance that could jeopardize the credit claim.

Beyond the total headcount, the state mandates detailed workforce data submission as part of the application process. This includes reporting the total number of persons employed in Louisiana directly engaged in R&D, as well as the average wages and benefits for both the R&D workforce and non-R&D employees.2 This granular data requirement is not merely administrative; it serves an economic development function. LED, as the certifying agency, utilizes this detailed information to evaluate the quality of the jobs supported by the incentive, measuring key metrics such as high-wage, specialized R&D roles. This sophisticated assessment informs the legislative review of the program’s overall economic return on investment (ROI).8

C. Ineligible Businesses and the Intellectual Property Filter

The 50–99 employee tier, like others, is subject to specific exclusions that focus the incentive on true technological innovation. Certain business types are deemed ineligible unless they can substantiate their research with intellectual property (IP).

The following businesses are ineligible to participate in the R&D tax credit program, unless they have a pending or issued United States patent related to the qualified research expenditures claimed:

1. Professional services firms.4
2. Businesses primarily engaged in custom manufacturing and custom fabricating.4

This patent requirement functions as a mandatory filter, particularly relevant for mid-market engineering, energy services, or specialized fabrication companies. By linking eligibility to defensible IP, the statute ensures that the subsidized research results in novel, marketable products or processes, thereby enhancing Louisiana’s long-term technological competitiveness rather than subsidizing routine, client-specific contract work or non-innovative fabrication.

II. Definitive Calculation Methodology: The 10% Rate and the 80% Base Rule

The core mechanism of the Louisiana R&D tax credit for this tier is the determination of the incremental increase in QREs. The 10% rate is applied strictly to the amount of current-year QREs that exceeds the calculated historical Base Amount.3

A. Core Formula for Incremental QREs

The fundamental formula for calculating the credit is:

$$\text{R\&D Tax Credit} = (\text{Current Year LA QREs} – \text{Base Amount}) \times 10\%$$

B. Detailed Analysis of the 80% Base Amount (The High Hurdle)

The defining characteristic of the 50–99 employee tier is the Base Amount calculation, as codified in R.S. 47:6015(E)(1)(a) 2:

“If the taxpayer is an entity that employs fifty or more persons, the base amount shall be eighty percent of the average annual qualified research expenses within Louisiana during the three years preceding the taxable years.”

The base is derived from the average of QREs incurred over a mandatory three-year look-back period.3 The significance of the 80% factor cannot be overstated. Compared to the 50% factor used for small businesses, the 80% threshold creates a significantly greater burden of proof for incrementality. A mid-market enterprise must demonstrate R&D growth substantially exceeding 20% over its historical average simply to break even against the Base Amount. If a firm’s QREs are stable or show only marginal growth, the resulting credit will be minimal or zero, reinforcing the structure’s function as an incentive for expansion rather not a reward for baseline maintenance of research spending.

C. Base Calculation for Entities with Limited History

While the three-year average is standard, the base calculation includes modifications for entities lacking three years of prior QRE history in Louisiana.9

• Less than Three Years: If QREs were incurred for fewer than three preceding years, the average is computed using only the available prior years.9 For example, if two preceding years have QREs, the sum of those QREs is divided by two, and then the 80% factor is applied.
• No Prior QREs: If the taxpayer has incurred no Louisiana QREs in the preceding three tax years, the Base Amount is set to zero ($0).3 In this specific startup scenario, the taxpayer’s entire current year QREs become the creditable “excess QREs,” all subject to the 10% credit rate.

The following table summarizes the Base Amount rule specific to mid-market and large companies:

Base Amount Calculation for Entities Employing 50 or More Persons

III. Louisiana Economic Development (LED) Certification Process

The R&D tax credit is administered by LED, which handles the application, calculation verification, and final certification. This certification must be secured before the credit can be utilized on state tax returns.4

A. Application Submission and Documentation (LED Guidance)

Entities in the 50–99 employee tier apply under the “Increase In R&D (50+ Employees)” application type.7 Required documentation emphasizes the link to federal compliance:

• The fully completed R&D Application, including contact information and details regarding legislative districts.7
• A copy of the Filed Federal Form 6765, Credit for Increasing Research Activities, for the current tax year.1
• The three previous year’s federal tax returns to enable LED to verify the Base Amount calculation.1
• A listing of any business that shares 50% or more common ownership or control with the applicant (affiliated group reporting).7
• Documentation supporting the research activities, ensuring they satisfy the federal four-part test (e.g., diagrams, mark-ups, employee involvement).1
• Payment of the required application fee, calculated using the Fee Calculation Sheet, made payable to LED.7

B. Expenditure Verification and LED Audit Authority

For taxpayers in the 50+ employee tier who file Federal Form 6765, an external expenditure verification report is not typically required, unlike some small businesses.2 However, LED retains comprehensive authority to scrutinize the application and verify expenses.

LED may request additional federal income tax information from the taxpayer, including IRS Forms 8821 and 4506, to ensure the expenses claimed meet the Louisiana sourcing requirements and qualified research definitions.2 This layered verification process establishes that while federal eligibility is a prerequisite, the Louisiana credit is not automatically granted; the state performs its own due diligence to verify that expenditures benefit the Louisiana economy and meet strict statutory criteria.

C. Certification and Registry Entry

Once LED approves the application, the amount of the R&D tax credit earned is certified, known as the Credit Certification.5 The Louisiana Department of Revenue (LDR) then enters this certified amount into the Tax Credit Registry. LDR issues Form R-6135, Credit Utilization Form (also referred to as the Credit Registration Form), which serves as the official document required for the taxpayer to claim the credit on their state income or franchise tax return.9

IV. Louisiana Department of Revenue (LDR) Compliance and Claiming Procedures

The LDR governs the mechanical process of applying the certified credit against state tax liabilities and enforcing compliance rules.

A. Application Against State Taxes (LDR Guidance)

The R&D tax credit is a nonrefundable credit designed to be applied against the taxpayer’s Louisiana income tax and corporation franchise taxes due.2

Corporate taxpayers, filing Form CIFT-620 (Corporation Income and Franchise Tax Return), must utilize the supporting tax schedules to claim the credit. Specifically, the certified R&D credit is generally reported on Schedule NRC (Nonrefundable Tax Credits).11 This schedule ensures that the credit is properly categorized among other state tax preference items.

LDR often classifies nonrefundable credits into specific priority tiers.13 For corporate financial planning, knowing the R&D credit’s priority is essential, as it dictates the order in which the credit reduces tax liability relative to other incentives, thereby optimizing cash flow and tax minimization strategies.

Unutilized credit amounts are not lost; any portion of the certified credit that exceeds the current year’s tax liability may be carried forward for up to five (5) subsequent tax years.3

B. Restrictions and Future Program Limitations

1. Future Statewide Cap:

Taxpayers in the 50–99 employee tier must recognize the impending constraint on the program. Effective beginning July 1, 2025, the aggregate amount of R&D tax credits allowed across all taxpayers each fiscal year will be limited to $12 million.3 This limit introduces a first-come, first-served dynamic, necessitating that mid-market firms expedite their R&D application submission to LED immediately following the close of the tax year to maximize the likelihood of securing their certified credit before the annual cap is exhausted.

2. Transferability and Reporting:

The standard 10% incremental R&D credit is nonrefundable and non-transferable. However, if the entity also receives a credit through the separate Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) program (a 30% credit on the award amount) 3, that specific credit is transferable.

If a transferable credit is sold, stringent compliance requirements are imposed by LDR:

• The taxpayer must submit Form R-6140, Credit Utilization Form.16
• LDR must receive notification of the transfer or sale within ten business days after the transaction.2
• A transfer processing fee of two hundred dollars ($200) per transferee must be remitted.2
• Failure to comply with these notification and registration requirements results in the disallowance of the tax credit until the taxpayer achieves full compliance.2

V. Financial Case Study: Modeling the 10% Credit for a 75-Employee Enterprise

This illustrative case study applies the 10% credit rate and the rigorous 80% Base Amount rule to model the tax benefit for a company classified in the 50–99 employee tier.

A. Input Data and Assumptions

Assume “Bayou Research Corp.” (BRC) is a Louisiana technology firm that employs 75 persons as of the last quarter of the current tax year (CY 2024). BRC consistently claims the federal R&D tax credit.

B. Step-by-Step Base Calculation and Credit Determination

Step 1: Determine Eligibility and Parameters

BRC’s headcount of 75 places it firmly within the 50–99 employee tier. Consequently, the calculation parameters are the 10% Credit Rate and the 80% Base Calculation percentage.

Step 2: Calculate Average Prior 3-Year QREs (A)

The average QREs from the three preceding tax years are summed and divided by three 3:

$$\text{A} = \frac{(\$400,000 + \$450,000 + \$500,000)}{3} = \frac{\$1,350,000}{3} = \$450,000$$

Step 3: Calculate the Base Amount (B)

The 80% statutory factor is applied to the average QREs, establishing the non-creditable baseline investment 2:

$$\text{B} = \text{A} \times 80\%$$

$$\text{B} = \$450,000 \times 0.80 = \$360,000$$

Step 4: Compute the Excess (Incremental) QREs (C)

The excess QREs represent the current spending that surpassed the historical baseline:

$$\text{C} = \text{Current Year QREs} – \text{Base Amount}$$

$$\text{C} = \$800,000 – \$360,000 = \$440,000$$

Step 5: Apply the 10% Credit Rate

The credit rate is applied to the incremental increase:

$$\text{Louisiana R\&D Credit} = \text{Excess QREs} \times 10\%$$

$$\text{Louisiana R\&D Credit} = \$440,000 \times 0.10 = \$44,000$$

C. Financial and Strategic Analysis

The financial outcome for BRC is a $\$44,000$ tax credit based on an $\$800,000$ investment. This calculation highlights the severe constraint imposed by the high 80% Base Amount. Even though BRC increased its QREs by 60% over the three-year average, only $55\%$ of the current year expenditures ($440,000 out of $\$800,000$) were eligible for the 10% credit.

Illustrative R&D Credit Calculation for Bayou Research Corp. (75 Employees)

This structure demonstrates a significant policy preference toward small businesses. If BRC had been classified as a small business (49 employees) with the exact same spending profile, the incentive would have been dramatically different: the Base Amount would be calculated using 50% $(\$450,000 \times 50\% = \$225,000)$, resulting in Excess QREs of $\$575,000$. Applying the small business 30% credit rate would yield a credit of $\$172,500$. This sharp disparity—$\$44,000$ for the 75-employee firm versus $\$172,500$ for the 49-employee firm—underscores the legislative objective to allocate the most generous subsidies toward job creation and R&D activities among Louisiana’s emerging small enterprises, while applying highly constrained subsidy parameters to mid-market entities. Tax planning for the 50–99 tier must, therefore, be highly focused on creating substantial, cyclical spikes in QREs to overcome the high 80% base and maximize the limited incentive.

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