The Strategic Integration of the SMART Act and Research and Development Tax Incentives in Mississippi

The Strengthening Mississippi Academic Research Through Business (SMART) Act is a performance-based incentive providing a twenty-five percent cash rebate for research and development costs incurred through formal partnerships with Mississippi public universities. It functions as a specialized liquidity mechanism that operates in tandem with the state’s Research and Development Skills Tax Credit and new full-expensing provisions to lower the net cost of corporate innovation.

Technical Framework and Legislative Intent of the SMART Business Act

The Strengthening Mississippi Academic Research Through Business (SMART) Act, primarily codified under Mississippi Code Section 37-148, represents one of the most proactive attempts by the State of Mississippi to bridge the gap between academic discovery and industrial application. The legislative intent behind the Act is multifaceted: it seeks to stimulate private investment in research and development, enhance the competitive posture of Mississippi-based companies, and maximize the economic return on the state’s significant investment in its public university system.1 By offering a direct cash rebate rather than a traditional tax credit, the state addresses a fundamental barrier to entry for high-tech ventures: the need for immediate cash flow during the pre-revenue or capital-intensive stages of the innovation lifecycle.1

The Act is structurally divided into two distinct operational programs that target different phases of the development pipeline. The SMART Business Rebate Program is designed for private-sector investors who engage universities to perform research on their behalf.1 Conversely, the SMART Business Accelerator Initiative, expanded during the 2021 legislative session, focuses on the commercialization of state-owned intellectual property, providing grants to universities and their research corporations to validate early-stage product concepts.2 This bifurcated approach ensures that the state supports both the demand for research from existing businesses and the supply of innovation emerging from within academic laboratories.

The Rebate Mechanism versus Traditional Tax Credits

A critical distinction for corporate tax planners is the difference between the SMART Act rebate and the traditional Research and Development Skills Tax Credit found in Mississippi Code Section 57-73-21. While the Skills Tax Credit provides a dollar-for-dollar reduction of a business’s income tax liability, the SMART Act provides a direct reimbursement of costs paid to a university.4 This means that an investor does not need to have a current Mississippi tax liability to benefit from the SMART Act; once the research costs are paid and the claim is processed, the state issues a check from current income tax collections.3 This makes the SMART Act an “above-the-line” financial benefit that functions more like a grant than a tax shield.

The fiscal architecture of the program is governed by strict annual caps. The total state support for the rebate program is limited to $5,000,000 per fiscal year.1 Within this global cap, individual investors are restricted to a maximum rebate of $1,000,000 per fiscal year.1 These rebates are allocated on a first-come, first-served basis, determined by the date the SMART Business Rebate certificates are issued by the Mississippi Board of Trustees of State Institutions of Higher Learning (IHL).3 This chronological priority highlights the necessity for businesses to align their project timelines with the state’s fiscal calendar to ensure funding availability.

Eligibility Requirements and Administrative Compliance

To qualify as an “Investor” under the SMART Act, an entity must be a natural person, partnership, limited liability company, association, corporation, or business trust that is subject to Mississippi income or franchise tax.1 The legislation explicitly prohibits the formation of an entity for the “specific purpose of acquiring the rebate,” an anti-abuse provision designed to ensure that the incentivized research is conducted by legitimate commercial actors with a broader interest in the state’s economy.1

The “New Agreement” Mandatory Prerequisite

Perhaps the most important administrative rule for businesses to internalize is that the SMART Act rebate only applies to new research agreements.1 Any research that has already commenced or any agreement signed prior to application and approval is categorically ineligible for the rebate.1 This “forward-looking” requirement is designed to incentivize incremental research that might not have otherwise occurred without the state’s twenty-five percent cost-sharing.1

A research agreement is defined as a written contract, grant, or cooperative agreement between the investor and a college or its research corporation.6 For the purposes of this act, “Qualified Research” must be systematic and investigative, intended to discover information within the state of Mississippi.3 Research conducted outside the state’s borders or research funded by other governmental grants—such as federal Small Business Innovation Research (SBIR) grants—does not qualify for the rebate.3 This ensures that the state’s $5,000,000 annual allocation exclusively supports Mississippi-based activities and does not subsidize costs already covered by other public funds.

The Department of Revenue’s Operational Guidance

The Mississippi Department of Revenue (DOR) plays a secondary but vital role in the administration of the SMART Act. While the IHL evaluates the technical merits and budgetary compliance of the research agreements, the DOR is responsible for verifying the investor’s tax standing and issuing the final rebate check.2

Verification of Tax Standing

Before an investor can even submit an application to the IHL, they must obtain a certification letter from the Department of Revenue.2 This letter must state that the applicant is current in their state tax filings and is subject to Mississippi income or franchise tax.2 Businesses should allow sufficient lead time to request this letter, which involves providing their FEIN or SSN, address, and contact information to the DOR’s Office of Tax Policy and Economic Development.13 Failure to include this letter will result in an immediate rejection of the SMART Act application.

The Rebate Redemption Process

Once the research has been conducted and the investor has paid the university, the process moves to the redemption phase. The investor must submit a rebate allocation claim to the Department of Revenue using Form 50-124-14.3 This form is effectively an invoice to the state for twenty-five percent of the qualified costs.15 To be approved for payment, the claim must include the following attachments:

1. The SMART Business Certificate issued by the IHL.3
2. Proof of payment to the college or research corporation (e.g., canceled checks or bank transfer records).5
3. A copy of the original approved Research Agreement.12
4. The investor’s IRS Form W-9 to facilitate the state’s disbursement.15

A significant administrative pitfall involves the “Exact Match” rule. The company name on the research agreement must be an identical match to the name on the check issued to the university and the name on the SMART Act application.11 If a parent company applies for the certificate but a subsidiary pays the university, the DOR will likely deny the rebate.11 This rigidity is a deliberate control measure to ensure that the entity receiving the public funds is the same entity that incurred the economic burden of the research.

The 2023 Expensing Paradigm: HB 1733

The utility of the SMART Act was significantly amplified by the passage of House Bill 1733 during the 2023 legislative session.16 This legislation addressed a major challenge created by the federal Tax Cuts and Jobs Act (TCJA), which removed the ability for businesses to immediately deduct research and experimental (R&E) expenditures under IRC Section 174, requiring instead that these costs be amortized over five years.16

Decoupling and Immediate Deductibility

House Bill 1733 effectively “decoupled” Mississippi tax law from the federal amortization requirement for tax years beginning after December 31, 2022.16 Taxpayers in Mississippi may now elect to fully and immediately deduct specified R&E expenditures in the year they are incurred.16 Furthermore, the bill allows for 100% bonus depreciation on qualified property and qualified improvement property (QIP), conforming to the definitions in IRC Section 168(k) as they existed on January 1, 2021.16

For a business utilizing the SMART Act, this creates a potent “stacking” effect. An investor can receive a twenty-five percent cash rebate for their research costs paid to a university and then immediately deduct the remaining seventy-five percent of those costs from their Mississippi taxable income in the same tax year.1 This dual benefit drastically lowers the after-tax cost of research in Mississippi relative to other states that follow federal amortization rules.

To claim this immediate deduction, corporations must check the “R&D Expense Election” checkbox on their Mississippi Net Taxable Income Schedule (Form 83-122 for corporations or Form 84-122 for pass-through entities).19 This election is irrevocable for the tax year in which it is made.19

Interaction with the R&D Skills Tax Credit

While the SMART Act targets external research costs paid to universities, the Research and Development Skills Tax Credit (codified in Miss. Code Ann. § 57-73-21) targets the internal labor costs of a company’s innovation department.4 This credit is awarded to businesses that create and maintain full-time positions requiring research and development skills, such as chemists, engineers, or software developers.8

Qualifying for the Skills Credit

The credit amount is $1,000 per full-time employee per year for a five-year period.4 Unlike the Jobs Tax Credit, which usually requires a minimum number of new positions, the R&D Skills Tax Credit has no minimum job creation threshold.8 However, the positions must meet rigorous criteria:

• The employee must possess at least a bachelor’s degree in a scientific or technical field from an accredited university.8
• The employee must be working in their specific area of expertise.8
• The compensation must be at a professional level, and the individual must have at least two years of job-related experience.8

The Skills Tax Credit can be used to offset up to fifty percent of a business’s Mississippi state income tax liability.8 Any unused portion of the credit can be carried forward for up to five years.8 To claim this credit, companies must submit a letter to the Department of Revenue listing the name, job title, hire date, salary, and educational credentials of each qualifying employee.9

Practical Example: The Integrated Innovation Strategy

To demonstrate how these incentives function in a real-world scenario, we can examine a hypothetical case involving Mississippi BioTech Solutions (MBS), a mid-sized pharmaceutical manufacturer located in the Jackson metropolitan area.

Scenario Phase 1: University Partnership

In early 2024, MBS identifies a need to perform clinical validation for a new diagnostic compound. They apply for the SMART Act rebate and receive approval from the IHL for a new research agreement with the University of Mississippi Medical Center (UMMC). The research budget is set at $2,000,000, with all work to be completed within the state.

Scenario Phase 2: Internal Scaling

To manage the UMMC partnership and integrate the findings into their manufacturing process, MBS hires five new senior lab technicians and two biochemical engineers. These positions all meet the criteria for the R&D Skills Tax Credit (bachelor’s degrees in technical fields, 2+ years of experience, professional compensation).

Scenario Phase 3: Financial Realization

At the end of the fiscal year, MBS has paid the full $2,000,000 to UMMC. They submit their proof of payment and SBC to the Department of Revenue.

• SMART Act Rebate: MBS receives a cash check for $500,000 (25% of $2,000,000).1
• Skills Tax Credit: MBS claims a $7,000 tax credit (7 employees x $1,000) on Form 80-401, reducing their tax liability by that amount (subject to the 50% cap).8
• HB 1733 Expensing: MBS elects to immediately deduct the unreimbursed $1,500,000 from their state taxable income. At the 2024 tax rate of 4.7%, this deduction results in an additional $70,500 in tax savings.16

In total, for a $2M project, MBS has realized $577,500 in first-year benefits, effectively reducing the net cost of the research by nearly twenty-nine percent. This liquidity allows MBS to reinvest the $500,000 rebate into further prototype development or equipment purchases, accelerating their time-to-market.

The SMART Business Accelerator Initiative: A Catalyst for State IP

While the Rebate Program is investor-driven, the SMART Business Accelerator Initiative is designed to move state-owned intellectual property out of the university and into the commercial sector.2 This initiative recognizes that many promising university discoveries fail to attract private investment because they are in a “pre-commercial” state where the technical or market risk is too high.

Funding and Scope of Validation

The Accelerator Initiative provides grants of up to $150,000 per project to Mississippi public universities or their research corporations.2 These funds are restricted to “qualified validation expenses,” which include the development of early product concepts, the conduct of proof-of-concept studies, and the manufacturing of prototypes.2 Notably, these funds cannot be used for the salaries of licensees of state-owned IP or for legal fees.6

Priority consideration for these funds is given to projects in high-growth sectors: Healthcare, Energy, and Advanced Manufacturing.2 This prioritization reflects the state’s broader economic development strategy, which seeks to leverage the research strengths of institutions like Mississippi State University (Advanced Manufacturing/Vehicular Systems) and the University of Mississippi Medical Center (Healthcare).2

University Partnerships and Economic Impact Statistics

The effectiveness of the SMART Act is inextricably linked to the research capacity of the Mississippi Institutions of Higher Learning (IHL). In recent years, Mississippi’s public universities have significantly expanded their research footprints, creating a more robust ecosystem for private partnerships.

The Multiplier Effect of University Research

Economic impact studies indicate that research spending at Mississippi public universities generates a significant multiplier effect. For example, in fiscal year 2018-19, Mississippi State University’s research spending of approximately $264.5 million resulted in a net impact of $213.1 million in added income for the state, supporting over 3,300 jobs.28 When incorporating the enhanced productivity of university alumni and spin-off companies, the total impact of a single research-intensive university can exceed 1.6% of the state’s total Gross State Product (GSP).28

This talent pipeline—producing nearly 20,000 graduates annually—is the fundamental resource that allows businesses to qualify for the Research and Development Skills Tax Credit.8 As enrollment continues to grow at institutions like the University of Mississippi (up 4.7% in 2025) and Mississippi State University, the available pool of research-skilled labor increases, making the state more attractive for high-tech relocation and expansion.29

Reporting Requirements and Tax Form Integration

For the corporate tax department, the primary challenge is the correct reporting of these various incentives to ensure audit-readiness.

Form 80-401: The Credit Gateway

All state income tax credits, including the R&D Skills Tax Credit, must be reported on Form 80-401: Income Tax Credit Summary Schedule.32 This form acts as a central ledger where the taxpayer identifies the specific credit being claimed and its application against the current year’s tax liability.32

• Code Entry: Each credit has a specific three-digit code assigned by the Department of Revenue.32
• Calculation of 50% Limit: The form requires the taxpayer to calculate the total tax due and ensure that the sum of all “Jobs” and “Skills” credits does not exceed fifty percent of that amount.8
• Carryforward Tracking: Form 80-401 tracks any excess credits that will be carried forward to the next five tax years.8

Form 50-124-14: The Rebate Gateway

Because the SMART Act is a rebate and not a credit, it is not filed as part of the annual income tax return. Instead, it is a standalone submission to the DOR’s Office of Tax Policy and Economic Development.15 The “Redemption” of the rebate can occur at any time during the year once the proof of payment to the university is secured, provided it falls within any expiration window set by the IHL certificate.3

Audit Readiness and Documentation

The Department of Revenue maintains the right to audit any incentive claim. For the SMART Act and R&D credits, businesses must maintain a contemporaneous record that includes:

• The original Research Agreement and any amendments.10
• Detailed invoices from the university showing the breakdown of costs (labor, materials, overhead).13
• A “time-tracking” log for any employees claimed under the Skills Tax Credit to prove they were engaged in R&D activities.9
• Copies of the employees’ degrees and transcripts to verify the “technical field” requirement.8

Strategic Implications and Conclusion

The Strengthening Mississippi Academic Research Through Business (SMART) Act is more than a fiscal incentive; it is a strategic tool for risk mitigation in corporate innovation. By covering twenty-five percent of the out-of-pocket costs for university research, the state essentially acts as a silent partner in every new R&D project. When integrated with the Research and Development Skills Tax Credit and the 100% immediate expensing of R&E costs, the combined framework allows Mississippi companies to innovate at a significantly lower net cost than their competitors in states with more traditional, liability-restricted tax structures.

For businesses, the key to maximizing these benefits lies in administrative precision. The requirement to apply before starting research, the necessity of obtaining a tax standing letter from the DOR, and the rigorous “exact match” naming conventions represent significant hurdles for the unprepared. However, for companies that successfully navigate these requirements, the rewards include immediate cash liquidity, a reduced tax footprint, and access to the world-class intellectual and technical resources of the Mississippi university system.

As the global economy becomes increasingly driven by intellectual property and technical specialized expertise, Mississippi’s commitment to funding the “SMART” approach provides a clear competitive advantage. By aligning the interests of the boardroom with the capabilities of the laboratory, the SMART Act ensures that Mississippi remains a viable and attractive destination for the next generation of industrial breakthroughs. The evolution of the program, from its inception in 2013 to the 2021 expansion and the 2023 expensing reforms, demonstrates a long-term bipartisan commitment to fostering a sustainable ecosystem of innovation and economic growth.

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