R&D Tax Credits in Indiana

Indiana adopts the federal definition of qualified research and expenses, but strictly for R&D conducted within the state and uses the federal regular research credit calculation method. The R&D project must follow the federal guidelines for being technology-oriented and while not mandatory, Indiana does expect to see a substantial amount of costs related to experimentation.

The Internal Revenue Code defines qualified research as those expenses for activities intended to discover information that eliminates uncertainty concerning the development or improvement of a product. A product is defined as a process, technique, formula or invention.

Indiana Credit Rates

• The credit rate is 15% of the increase in Indiana qualified research expenses paid or incurred in the taxable year over the taxpayer’s base amount if it is $1 million or less.
• If the amount is more than $1 million then the credit rate is 10%.

Alternative Incremental Credit

Indiana also offers an alternative incremental credit which is 10% of the taxpayer’s Indiana qualified research expenses for the taxable year minus 50% of the taxpayer’s average Indiana qualified expenses for which the credit is being determined. The alternative incremental credit is only available to companies engaged in the aerospace industry.

Case Study

An Indiana-based company manufactures parts for oil and gas companies around the world.  The company began claiming both the federal and state R&D tax credit in 2014.  

Summary of credits:

Indiana R&D Tax Credit Form

A taxpayer must submit Form IT-20REC to the Indiana Department of Revenue to apply for the credit.