Michigan Secures State R&D Tax Credit

Taxpayers in Michigan can now look forward to a state level R&D tax credit. This news comes after the Michigan House passed bills aiming to create a state-level tax credit to encourage research and development.

The bills include House Bills 5099, 5100, 5101, and 5102 and provide legislation that could allow R&D tax credits for certain businesses up to $100 million in a single calendar year. Of that amount, at least $25 million would be reserved for eligible businesses that applied for the credit with fewer than 250 employees.

The House-approved bills will create a research and development tax credit for Michigan businesses and research institutions. House Republicans secured amendments to arrange a simple, objective tax credit process, instead of a complicated, subjective grant program run by the Michigan Strategic Fund, which the original bill proposed. The caucus also secured a provision to help retain jobs by adding in a tax credit for existing research and development projects.

The legislation first went through weeks of dead ends as the divided House Democrat caucus attempted to go it alone. When support on the Republic side finally appeared, the House achieved a huge bipartisan win. The original legislation called for a complex program that was ultimately deemed unfair. The final, approved bill creates a fair, streamlines tax credit designed to incentivize businesses to invest in Michigan-based research.

The credits will be available for seven years under a single agreement, beginning January 1, 2024. For HB 5102, if the amount of the allowed credit exceeded the tax liability of an applicant for the tax year, that portion of the credit that exceeded the tax liability would be refunded.

To be eligible for the credit, a business would have to propose to increase research and development spending in Michigan through projects with the potential for significant technological advancements, job creation, and positive economic impact.

Qualified research would mean the research expenditures may be treated as expenses, the application of the research is intended to be useful in the development of a new or improved business component, and substantially all of the research activities constitute experimentation for a new or improved function, performance, reliability, or quality.

A business with at least 250 employees would have to propose to increase R&D spending by at least $500,000 per year above its base amount, and a business with fewer than 250 employees would have to propose an increase of at least $100,000 per year above its base amount.

Are you developing new technology for an existing application? Did you know your development work could be eligible for the R&D Tax Credit and you can receive up to 14% back on your expenses? Even if your development isn’t successful your work may still qualify for R&D credits (i.e. you don’t need to have a patent to qualify). To find out more, please contact a Swanson Reed R&D Specialist today or check out our free online eligibility test.

Who We Are:

Swanson Reed is one of the U.S.’ largest Specialist R&D tax advisory firms. We manage all facets of the R&D tax credit program, from claim preparation and audit compliance to claim disputes.

Swanson Reed regularly hosts free webinars and provides free IRS CE and CPE credits for CPAs. For more information please visit us at www.swansonreed.com/webinars or contact your usual Swanson Reed representative.

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