Expert Analysis: The Enhanced Advantage of the Louisiana R&D Tax Credit for Entities Employing Less Than 50 Persons (La. R.S. 47:6015)

The designation “Entity Employing Less Than 50 Persons” refers to a taxpayer with fewer than 50 Louisiana-based full-time equivalent employees, including affiliates, qualifying the business for the maximum 30% Research and Development (R&D) tax credit rate. This enhanced classification is critical as it also mandates a highly advantageous 50% base calculation threshold, significantly increasing the potential tax benefit derived from Qualified Research Expenses (QREs).

The Louisiana R&D tax credit is a key state incentive designed to promote investment in research and development activities within the state.1 By specifically targeting small businesses with the highest potential credit rate—up to 30%—the state is significantly more generous to its smallest innovators compared to larger entities, which may receive rates as low as 5%.2 This enhanced benefit reflects a governmental commitment to stimulating innovation and growth in nascent industries, particularly in high-growth sectors such as energy and biotechnology.2 Administering this incentive involves a two-step regulatory process: the credit must first be certified by the Louisiana Economic Development (LED) agency, which validates the QREs and employee count, before the certified amount can be claimed against income or franchise tax liabilities filed with the Louisiana Department of Revenue (LDR).4

II. Defining the Eligibility: The “Less Than 50 Persons” Threshold

The critical first step for any taxpayer seeking the maximum 30% credit rate is establishing definitive compliance with the employee size threshold. This requires a nuanced understanding of state law regarding affiliation and geographic counting.

A. Statutory and Administrative Employee Count

The eligibility for the top tier of the R&D credit hinges entirely on the headcount definition. Louisiana Revised Statute (La. R.S. 47:6015) explicitly grants the highest credit rate to “Any taxpayer who employs less than fifty persons”.5 Administratively, this is interpreted as the $0–49$ employee tier.3

A crucial aspect of this rule is the geographic limitation: the determination of the headcount applies only to employees located within Louisiana. Applicants are specifically required to report “The total number of persons employed in Louisiana by the taxpayer”.6 This ensures that the incentive directly supports workforce expansion and retention within the state.

While the statute uses “persons employed” 5, industry standards dictate that this count is typically measured using Louisiana full-time equivalents (FTEs).2 Using the FTE method, which prorates the count based on hours worked, allows for an accurate measure of the business’s operational size in Louisiana, regardless of whether those employees are dedicated exclusively to R&D or not.2

B. The Crucial Implication of Controlled Groups and Affiliated Entities

To maintain the integrity of the small business designation and prevent the artificial segmentation of labor, the state mandates that the employee count must include all employees of affiliated entities. The official LED application requires applicants to address whether they are part of a controlled group and to provide a list of any business that has 50% or more common ownership or control with the applicant.7 Furthermore, LED documentation specifies that businesses with fewer than 50 employees must aggregate the headcount of affiliates in their calculation.8

This aggregation requirement is pivotal. If the rule relied only on the immediate filing entity, larger enterprises could easily create small, separate R&D subsidiaries to qualify for the 30% credit rate. By enforcing the common ownership test (based on 50% control), the state ensures that the highest credit tier is directed toward genuinely independent, smaller firms. This approach preserves the program’s intended function as a subsidy for legitimate startup and scale-up innovation within Louisiana, thereby avoiding unintended utilization by segments of large corporate structures.

C. Prerequisites for Claiming the Credit

Regardless of the entity size, the underlying research activities must satisfy the requirements established by the Internal Revenue Code (IRC) §174 for qualified research expenses (QREs).9 Specifically, the activities must meet the federal four-part test: the research must be technological in nature, involve a process of experimentation, be aimed at eliminating uncertainty, and seek to develop new or improved business components.9 The Louisiana R&D credit, therefore, functions as a state supplement layered atop these fundamental federal definitions.

III. The Small Business Enhanced Credit Calculation (The 30% Tier)

The mechanical advantage for entities employing less than 50 persons is defined by two factors: qualification for the highest rate (30%) and the highly favorable base calculation (50%).

A. Louisiana’s Tiered R&D Credit Structure

Louisiana employs a tiered system where the credit rate and the calculation of the “base amount” (the threshold of historical QREs that must be exceeded) are dependent on the Louisiana FTE headcount.2

Table 1: Louisiana R&D Tax Credit Tiers and Base Requirements

B. Mechanics of the Favorable 50% Base Calculation

For an entity employing less than 50 persons, the base amount is calculated as 50 percent of the average annual qualified research expenses incurred within Louisiana during the three preceding taxable years.7

The credit is then determined by applying the 30% rate to the resulting difference between current QREs and this base amount.2

The structure of the 50% base provides a substantial, built-in advantage compared to the 80% base required for larger entities. This low threshold means that even if a small business maintains a steady, consistent level of R&D spending equivalent to its historical average, 50% of its current QREs will still be defined as “excess” and qualify for the 30% credit. This design strategy effectively subsidizes ongoing R&D efforts, providing a stable return for continued innovation. This is contrasted with the requirements for larger companies, which must demonstrate a significant year-over-year increase in spending (more than 20% growth above the historical average) just to generate excess QREs subject to their lower rates.3

C. The Startup Scenario (Zero Base)

For startups or new entrants into the R&D landscape, the calculation method offers the highest possible credit yield. If a company with fewer than 50 employees has no prior QREs recorded in the preceding three years, the base period calculation is zero.2

In this zero-base scenario, 100% of the current year’s Louisiana QREs are eligible for the 30% credit rate.10 This application of the 30% rate to total current QREs significantly lowers the barrier for new companies initiating research activities within the state.

D. Specialized Credit for Federal Grant Recipients (SBIR/STTR)

Louisiana offers a parallel, additional credit for recipients of the federal Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) grants. This incentive provides a 30% credit based on the qualifying Phase I or Phase II award amount received during the tax year.2

This particular SBIR/STTR credit is unique because it is transferable or sellable to other Louisiana taxpayers.2 This transferability is a key mechanism for providing immediate financial liquidity to early-stage small businesses, which may lack sufficient current-year tax liability to utilize a nonrefundable credit internally.

IV. State Revenue Office Guidance and Compliance Requirements (LED and LDR)

The administration of the R&D tax credit is a shared responsibility between LED (certification) and LDR (tax compliance and collection). Taxpayers must adhere strictly to LED’s application and verification requirements.

A. The Dual Administrative Framework

LED is responsible for reviewing and certifying the credit amount based on the QRE calculation and employee size determination.4 This certification is mandatory before the credit can be claimed on any tax return.4 The application requires detailed federal tax documentation (including Form 6765, if filed), total QREs, and specific workforce data, including the number of Louisiana employees and average wages.5 Taxpayers must apply for the credit and claim the underlying expenditures within one year after December 31 of the year in which the expenditures were incurred.4

Once certified, the LDR manages the final claiming process, where the certified credit is applied against the taxpayer’s Louisiana income tax or corporation franchise tax.4 The credit is nonrefundable against these taxes 8, but unused credits may be carried forward for up to 10 years to offset future liabilities, providing a crucial benefit for businesses in their growth phase.10

B. The Mandatory Expenditure Verification Report (AUP)

A critical compliance distinction exists for the small business tier related to expenditure verification (La. R.S. 47:6015(B)(4)).6

An expenditure verification report—typically prepared as an Agreed-Upon Procedures (AUP) report—is required only for applicants with less than fifty employees who have not filed for the federal research and development tax credit on IRS Form 6765.3 If the small business applicant does file the federal R&D tax credit (Form 6765), this verification report requirement is waived.6

This regulatory trade-off is implemented as a crucial quality control measure for the high-rate, small-business incentive. The state leverages the federal filing process as an implicit guarantee that the taxpayer has adhered to complex QRE definitions and potentially withstood federal scrutiny. By requiring non-federal filers to submit an AUP—an external accountant’s independent verification of the QREs—LED efficiently delegates the verification task to independent CPAs. This maintains the integrity of the 30% credit program without the state having to conduct extensive internal audits of every small business claim.

C. LDR Guidance on Credit Utilization and Authority

The LDR issues Revenue Information Bulletins (RIBs) to provide general information to the public. However, LDR guidance explicitly states that a RIB is an informal statement that does not have the force and effect of law and is not binding on the public or the Department.12

Consequently, tax professionals must rely on the formal statute (R.S. 47:6015) and the rules codified in the Louisiana Administrative Code (LAC 61:I. Chapter 29) for definitive legal interpretation regarding eligibility, QRE definition, and base computation.4

V. Practical Case Study and Calculation Example

The following examples illustrate the significant financial benefit of the 50% base calculation for the “Less Than 50 Persons” tier.

A. Example Scenario 1: New Louisiana Start-Up (Zero Base)

Context: TechCo Gamma, employing 15 Louisiana FTEs, began R&D activities in Tax Year 2025. It had no QREs in any preceding tax year.

Calculation Steps:

1. Employee Tier Determination: 15 employees, qualifies for the 30% rate (Less Than 50 Persons).
2. Base Period Calculation: Average of prior three years is $0. Base Amount (50% of average) is $0.10
3. Excess QREs:
   
   $$\$150,000 – \$0 = \$150,000$$
4. Tax Credit Calculation:
   
   $$\$150,000 \times 30\% = \$45,000$$
   .10

TechCo Gamma earns a $45,000 LA R&D Tax Credit.

B. Example Scenario 2: Established Small Business (With Prior QREs)

Context: Manufacturer Beta, employing 45 Louisiana FTEs, incurred $210,000 in QREs in 2025.

Calculation Steps:

1. Employee Tier Determination: 45 employees, qualifies for the 30% rate and the 50% base rule.
2. Calculate Average Prior QREs:
   
   $$(\$150,000 + \$100,000 + \$50,000) / 3 = \$100,000$$
3. Base Amount Calculation (50% Rule):
   
   $$\$100,000 \times 50\% = \$50,000$$
   .11
4. Excess QREs:
   
   $$\$210,000 – \$50,000 = \$160,000$$
5. Tax Credit Calculation:
   
   $$\$160,000 \times 30\% = \$48,000$$

Manufacturer Beta earns a $48,000 LA R&D Tax Credit.

Comparative Financial Impact: Had Manufacturer Beta employed 51 persons, the 80% base and 10% rate would apply. The Base Amount would be $80,000, and the resulting credit would be $13,000. This comparison demonstrates that the difference between 45 and 51 employees results in a lost credit of $35,000, underscoring the critical nature of the 50-person threshold.

VI. Conclusion and Strategic Recommendations

The classification of a business as an “Entity Employing Less Than 50 Persons” under La. R.S. 47:6015 provides a profoundly valuable state incentive, intentionally structured to maximize the return on investment for small, growing businesses. The combination of the 30% credit rate and the highly preferential 50% base calculation offers an aggressive subsidy for innovation that is largely insulated from the high growth requirements imposed on larger firms.

Strategic planning for eligible entities must focus on securing eligibility and optimizing compliance:

1. Strict Employee Monitoring: Due to the severe financial discontinuity caused by exceeding the 50-person count, businesses must rigorously track and calculate their Louisiana FTEs, ensuring the proper inclusion of employees from all affiliated and commonly controlled entities.7
2. Strategic Compliance Pathway: Small businesses should evaluate the trade-off between the compliance cost of an Expenditure Verification Report (AUP) and the administrative simplicity of filing the federal Form 6765, which waives the AUP requirement for state certification.6
3. Utilization of Carryforward: Given that the credit is nonrefundable, small businesses should rely on the generous 10-year carryforward provision to offset future income and franchise tax liabilities, transforming R&D expenditures into significant long-term capital assets.10 Firms receiving federal SBIR/STTR grants have the added benefit of being able to immediately monetize that portion of the credit through transferability.2

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