Strategic Guide to Qualified Research Expenditure (QRE) Compliance and Calculation: The Louisiana R&D Tax Credit (R.S. 47:6015)

Executive Summary

Qualified Research Expenditures (QRE) are defined in Louisiana based on federal Internal Revenue Code (IRC) Section 41 standards, encompassing specific costs—wages, supplies, and contract research—for innovative activities conducted entirely within the state. These activities must pass a rigorous four-part test, with a mandatory 80% threshold for the process of experimentation, to qualify for the tiered, incremental tax credit provided under Louisiana Revised Statute (R.S.) 47:6015.

Key Strategic Takeaways for Louisiana Taxpayers

The Louisiana R&D tax credit is a highly competitive state incentive designed to encourage businesses to invest in research and development activities within the state, offering up to a 30% credit on qualified research expenditures.1 Key strategic considerations include:

• The Louisiana credit offers tiered rates (up to 30%) applied to the incremental increase of QREs over a statutory Base Amount.3
• Compliance is highly scrutinized due to the state-specific technical requirement that 80% or more of the research activities must involve a process of experimentation.1
• A critical upcoming change, effective July 1, 2025, transitions the program from uncapped to a $12 million annual cap, requiring taxpayers to prioritize early certification filing.5
• Louisiana’s recent adoption of 100% expensing for research and experimental (R&E) expenditures, starting January 1, 2025, substantially enhances the financial benefit of QREs by allowing both an immediate deduction and a credit.6

I. Defining Qualified Research Expenditure (QRE) in the Louisiana Context

The definition of Qualified Research Expenditure (QRE) in Louisiana is fundamentally tied to federal tax law, but with crucial state-level modifications that significantly influence eligibility and compliance requirements.

Foundational Link to Federal Tax Law (IRC §41 and §174)

Louisiana Revised Statute 47:6015 ensures conformity with the federal regime, stating that “Qualified research expenses” and “qualified research” share the same definitions as those provided in 26 U.S.C. 41 (IRC §41), as amended.8

This conformity imposes a prerequisite for any activity to qualify for the state credit: it must first be eligible as a business deduction under IRC Section 174 (research or experimental expenditures).1 This initial requirement effectively screens out expenditures related to routine testing, quality control, administrative tasks, or market research, ensuring the credit is focused purely on costs associated with genuine technological innovation.

The Four-Part Test for Qualified Research Activities (QRA)

Louisiana mandates that research activity must satisfy the four requirements outlined in IRC §41(d)(1) to be considered “qualified research”.1 These criteria are designed to differentiate true scientific and technological experimentation from routine product development 1:

1. Permitted Purpose: The activity must be aimed at developing or improving the functionality, performance, reliability, or quality of a new or existing business component. This component can be a product, process, software, technique, formula, or invention.9
2. Elimination of Uncertainty: The purpose of the research must be to discover information that resolves technological uncertainties regarding the component’s appropriate design, its capability, or the method required for its development.9
3. Process of Experimentation: The activity must involve a systematic process—such as testing, modeling, simulation, or trial and error—to evaluate alternatives for achieving the desired result or resolving technological uncertainties.
4. Technological in Nature: The research must fundamentally rely on the principles of hard sciences, including physics, chemistry, biology, engineering, or computer science.1

Statutory Differences: The Strict “80% Substantially All” Threshold

While Louisiana generally conforms to the federal four-part test, it introduces a significant and more stringent numerical requirement for the “Process of Experimentation” criterion.1 Federal guidelines require that the research be conducted “through a process of experimentation.” Louisiana, however, mandates that “Substantially all activities involve a process of experimentation”.1

The Louisiana Economic Development (LED), which administers the credit, defines this strict standard: “Substantially all” means that 80% or more of the research activities related to a project must involve a process of experimentation.1

This explicit 80% threshold establishes a critical compliance divergence from general federal practice. For a project to qualify, taxpayers must be able to forensically document that the vast majority of time and resources spent—including employee wages—were directly allocated to experimental tasks. If a project’s research activities include substantial time (more than 20%) dedicated to non-experimental elements, such as general management, administrative oversight, or routine data collection, the entire project’s associated QREs may fail to meet the state qualification standard.8 This requires exceptional attention to granular time-tracking and documentation, as failure to meet this 80% minimum significantly increases the risk of disallowance during a state audit.

II. Components of Eligible Louisiana QREs and Apportionment

To be eligible for the Louisiana R&D Tax Credit, all Qualified Research Expenditures must be incurred within Louisiana.1 The state recognizes three primary categories of QREs, aligning closely with federal categories but with key adjustments, particularly for contract research.

Qualified Wages (In-House Research Expenses)

Qualified wages represent the most heavily weighted component of QREs. The term “wages” adopts the meaning provided by IRC Section 3401(a).11

Qualified wages are amounts paid or incurred to an employee for performing qualified services.11 Qualified services fall into three specific categories, all of which must directly relate to the research activities 12:

1. Direct Performance: Employees physically conducting the hands-on research or experimentation.
2. Direct Supervision: Employees directly managing or overseeing the personnel performing the qualified research.
3. Direct Support: Employees providing services essential to the immediate research, such as testing lab personnel or data analysts involved in the experimental process.

For employees with mixed duties, wages must be accurately apportioned. Only the time explicitly spent performing qualified services on projects that meet the strict four-part test and the 80% experimentation standard is eligible for inclusion in QREs.

Qualified Supplies

Supplies are defined as tangible property other than land, improvements to land, or depreciable property (capital assets).11

To be included as a QRE, the supply must be either:

• Consumed directly by the research activity.2
• Utilized in the development of a prototype or pilot model.12

Examples include raw materials used for product testing, chemical reagents consumed in lab experiments, or materials destroyed during the process of experimentation.

Qualified Contract Research Expenses (CRE)

Contract research expenses involve amounts paid to outside consultants, research firms, or other non-employees to perform qualified research on behalf of the taxpayer.12

While the federal credit allows for 65% of contract research expenses to be included in QREs, Louisiana aligns with this percentage but reinforces the need for in-state focus.2 The state limits the inclusion of Contract Research Expenses in the QRE base to 65% of the total amount paid, and only if the research is conducted in Louisiana.2

The decision to cap contract research eligibility at 65% while allowing 100% eligibility for in-house qualified wages reflects an underlying economic policy objective. By providing a higher effective subsidy for W-2 employee wages, the state is strategically promoting the creation of internal R&D infrastructure and permanent, high-skill employment within Louisiana. Companies maximizing their credit benefit are incentivized to invest in hiring internal R&D staff rather than consistently engaging third-party consultants, ensuring the economic benefits of the QRE subsidy remain localized and persistent.

III. Comprehensive Calculation Methodology: The Tiered Incremental Model

Unlike many state tax incentives that offer a fixed percentage of total expenditures, the Louisiana R&D tax credit is calculated on an incremental basis. The credit is applied only to the amount by which the current year’s Louisiana QREs surpass a statutory “Base Amount”.3

Overview of the Incremental Calculation Formula

The methodology used for the credit is expressed as:

$$\text{Tax Credit} = (\text{Current Year LA QREs} – \text{Statutory Base Amount}) \times \text{Tiered Credit Rate}$$

The primary variables—the statutory base calculation and the tiered credit rate—are determined by the size of the entity, specifically the number of Louisiana employees.

Determining the Statutory Base Amount (R.S. 47:6015(E)(1))

Louisiana Revised Statute 47:6015(E)(1) establishes the base amount definition, which is calculated based on the taxpayer’s average annual qualified research expenses within Louisiana during the three years immediately preceding the current taxable year.8

The base amount formula applies different percentages based on employee headcount:

The tiered system is clearly designed to prioritize small businesses.5 Entities with fewer than 50 employees benefit from the lowest base period (50% of the average prior QREs) and the highest credit rate (30%). This low hurdle means small businesses can qualify for the 30% credit much more readily by achieving a smaller increase over their historic spending. Conversely, larger entities (50 or more employees) must exceed 80% of their historical average QREs to generate any credit, and they receive a lower tiered rate (10% or 5%).3

Detailed Calculation Example: Small Business Incremental QREs

To illustrate the mandatory incremental calculation, consider a scenario for a small, growing Louisiana technology company.

• Taxpayer Profile: Robotics Manufacturing Corp., operating in Louisiana, employs 45 people. This places the company in the highest tier (30% rate) and requires a 50% base calculation.
• Prior QRE History (Three Preceding Taxable Years):

• TY 2024 QREs: $100,000
• TY 2023 QREs: $50,000
• TY 2022 QREs: $10,000

• Current Year (TY 2025) QREs: $150,000

The calculation proceeds through the statutory steps:

1. Calculate the Average Prior QREs:
   
   $$\frac{\$100,000 + \$50,000 + \$10,000}{3} = \$53,333.33$$
2. Determine the Statutory Base Amount (50% Rule for $< 50$ employees):
   
   $$\$53,333.33 \times 50\% = \$26,666.67$$
3. Calculate the Incremental QREs:
   
   $$\$150,000 \text{ (Current QRE)} – \$26,666.67 \text{ (Base)} = \$123,333.33$$
4. Calculate the LA R&D Tax Credit (30% Rate):
   
   $$\$123,333.33 \times 30\% = \$37,000$$

If this company had been a new entity with no prior QRE history, the base amount calculation would yield zero, and the credit would be $45,000 (30% of total QREs).4

A common error made by taxpayers is assuming the 30% rate applies to the total current QREs for small businesses, regardless of prior spending. The statutory requirements clearly dictate that the credit is based on the incremental increase over the base amount, unless the taxpayer has no prior QRE history.4 Miscalculating the credit based on total QREs, rather than incremental QREs, constitutes a significant overstatement that is highly susceptible to adjustment or disallowance upon audit.8

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

The administration and compliance requirements for the Louisiana R&D credit are managed collaboratively by two state agencies: the Louisiana Economic Development (LED) and the Louisiana Department of Revenue (LDR).

Bifurcated Administration: Certification vs. Utilization

• Louisiana Economic Development (LED): The LED is the department responsible for monitoring the implementation of the credit, promulgating program rules in consultation with the Secretary of the Department of Revenue, and officially certifying the amount of qualified research expenditures.8
• Louisiana Department of Revenue (LDR): The LDR oversees the post-certification process, including the management of the Tax Credit Registry, audit procedures, and the claiming, transfer, and utilization of the certified credits.8

The LED Certification Process and EVR Mandate

Certification by LED is a mandatory prerequisite; the credit cannot be claimed until it has been certified.1

The application for certification must be submitted to LED within one year following December 31 of the expenditure year.5 The application must include all supporting documentation required by the department to substantiate the claimed QREs.15

Expenditure Verification Report (EVR) Requirement

A crucial element of the LED process is the mandatory Expenditure Verification Report (EVR).8 An EVR is required specifically for applicants that satisfy two conditions: they have fewer than fifty employees AND they have not filed for the federal R&D tax credit (IRS Form 6765).8

• EVR Purpose: This report, which acts as a preliminary expenditure audit, ensures the technical and financial validity of QREs claimed by small businesses, which receive the highest credit rate (30%).5
• EVR Deposit: Taxpayers required to submit an EVR must remit a deposit at the time of application: $7,500 for claimed QREs up to $1 million, or $15,000 for QREs exceeding $1 million.15

Certification is granted only upon the receipt and approval of the EVR by LED, where required.8

LDR’s Role in Credit Utilization and Carryforward

Once the credit has been certified by LED, LDR manages its utilization. The certified credit is claimed against the taxpayer’s Louisiana income tax liability.1

To claim a certified credit on a tax return, the owner must attach two specific forms: a completed Credit Utilization Form (R-6140, Section 2) and a copy of the Credit Registration Form (R-6135), which serves as proof of registration with the LDR Tax Credit Registry.13

• Carryforward Limitation: The primary R&D tax credit is non-refundable.5 Any unused credit may be carried forward for a period not to exceed five years.1 This five-year limitation is significantly shorter than the standard federal carryforward period (20 years) and necessitates careful tax planning, especially for companies with volatile or low current-year tax liabilities.
• Transferability: The primary research and development tax credit is generally non-transferable. However, specific additional credits, such as those related to SBIR/STTR grants, may be sold or transferred to other Louisiana taxpayers.5

Audit and Substantiation Requirements

The legal framework explicitly grants the Department of Revenue (LDR) the authority to examine a taxpayer’s application for R&D credits even after the credits have been issued.8

The taxpayer bears the sole burden of proving that their activities meet the definition of qualified research under 26 U.S.C. 41(d).8 LDR requires the taxpayer to provide “all relevant documentation” to support their expenses and claims.14 Failure to comply with these requirements results in the disallowance of the tax credit.8

Required supporting documentation must substantiate both the technical qualification of the research activities (meeting the four-part test, including the 80% experimentation minimum) and the financial qualification of the expenditures (incurred within Louisiana). This documentation includes 14:

1. Internal Revenue Service documents (e.g., related tax forms).
2. Detailed employee time tracking records.
3. Project documents, including technical reports, research notes, and systematic testing protocols.
4. Financial records, such as payroll registers, invoices, receipts, and canceled checks, linking expenditures directly to qualified research activities.

V. Strategic Implications and Regulatory Outlook

The landscape for the Louisiana R&D Tax Credit is undergoing strategic shifts due to recent legislative actions and the implementation of a long-term cap.

The Critical Shift: Introduction of the Statewide Cap

Historically, the Louisiana R&D credit was notable for having no cap on the aggregate amount of credits issued statewide.1 This policy is changing dramatically.

• New Cap Implementation: Effective July 1, 2025, the total R&D credits allowed annually across all taxpayers will be capped at $12 million on a statewide aggregate basis.5 This significant regulatory change affects the certainty and timing of credit realization for all claimants.
• Allocation Procedure: The limited $12 million allocation will be distributed on a “first-come, first-served” basis.5 This allocation is determined by the date the LED application is received, not the date the expenditures were incurred.
• Priority Filing: The new law provides priority filing for previously disallowed claims in the subsequent fiscal year.5

The transition to a capped, first-come-first-served system fundamentally alters the compliance strategy for businesses utilizing this credit. Under the former uncapped system, timeliness was secondary to compliance accuracy. However, with the cap, taxpayers must now prioritize the immediate calculation and submission of the LED certification application after the end of the tax year. Failure to submit the application quickly could result in the $12 million cap being exhausted by earlier filers, potentially leaving the taxpayer’s certified credits unutilized in that fiscal year. Taxpayers must now view the R&D credit process not just as an annual tax compliance function but as a time-sensitive race for a limited pool of state funds.

Interaction with Recent Louisiana Tax Law Changes (2024 HB 2)

Recent Louisiana legislation has introduced favorable tax reforms that substantially amplify the financial value of QREs.

• R&E Expensing Decoupling: Federal tax law (post-2021) generally requires R&E expenditures to be amortized over five years, delaying the tax deduction benefit. Louisiana House Bill 2 (2024) allows for bonus amortization or 100% expensing of research and experimental expenditures for costs incurred on or after January 1, 2025.6
• Corporate Tax Reform: The same legislation establishes a single flat Corporate Income Tax (CIT) rate of 5.5% starting January 1, 2025, and repeals the Corporation Franchise Tax starting January 1, 2026.6

This state-level decoupling from federal R&E amortization creates a powerful dual benefit for Louisiana taxpayers. Businesses incurring qualified research expenses receive not only the state tax credit (up to 30% of the incremental amount) but also the immediate cash flow benefit of a full 100% deduction of R&E costs against their state income. This dual incentive significantly enhances the overall return on investment for R&D conducted within the state, making Louisiana’s tax climate highly attractive compared to states that conform to the less favorable federal amortization schedule.

Conclusion

The Louisiana R&D Tax Credit, as codified in R.S. 47:6015, represents a significant opportunity for companies committed to innovation within the state. However, the realization of this benefit requires absolute precision regarding the definition of Qualified Research Expenditure (QRE). Eligibility hinges on rigorous adherence to the federal four-part test, magnified by the state’s uncompromising $\geq 80\%$ experimentation requirement. Furthermore, the credit calculation must accurately follow the tiered, incremental methodology based on the statutory Base Amount, defined by employee headcount and historical QRE averages.

Compliance strategy must immediately address the future constraints imposed by the $12 million annual credit cap effective July 1, 2025, necessitating rapid, proactive filing of certification applications. Companies that prioritize meticulous documentation to satisfy the 80% rule, structure their R&D to utilize in-house wages over contract research, and plan their filing timelines to meet the new cap constraints are best positioned to maximize the dual benefit of Louisiana’s generous tax credit and its favorable R&E expensing rules.

R&D Tax Credit Preparation Services

Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed provides state and federal R&D tax credit preparation and audit services to all 50 states.

If you have any questions or need further assistance, please call or email our CEO, Damian Smyth on (800) 986-4725.
Feel free to book a quick teleconference with one of our national R&D tax credit specialists at a time that is convenient for you.

R&D Tax Credit Audit Advisory Services

creditARMOR is a sophisticated R&D tax credit insurance and AI-driven risk management platform. It mitigates audit exposure by covering defense expenses, including CPA, tax attorney, and specialist consultant fees—delivering robust, compliant support for R&D credit claims. Click here for more information about R&D tax credit management and implementation.

Our Fees

Swanson Reed offers R&D tax credit preparation and audit services at our hourly rates of between $195 – $395 per hour. We are also able offer fixed fees and success fees in special circumstances. Learn more at https://www.swansonreed.com/about-us/research-tax-credit-consulting/our-fees/