The Doctrine of “Discovering Information” within the New Hampshire Research and Development Tax Credit Framework

Discovering information in the context of the New Hampshire Research and Development (R&D) tax credit refers to the pursuit of knowledge intended to eliminate technical uncertainty regarding the capability, method, or design of a new or improved manufacturing process or business component. This legal standard requires that the research be technological in nature, relying on the fundamental principles of physical science, biological science, engineering, or computer science through a systematic process of experimentation.1

The conceptual architecture of the New Hampshire Research and Development Tax Credit, primarily codified under RSA 77-A:5, XIII, represents a deliberate alignment between state fiscal policy and federal technical standards. While many state-level tax incentives function as broad mirrors of federal law, New Hampshire’s approach is distinctively tailored to the manufacturing sector, creating a specialized regulatory environment where the term “discovering information” serves as the primary gatekeeper for eligibility.1 The interpretation of this phrase has evolved from the rigid “Discovery Test” of the early 1980s—which often required a “new to the world” breakthrough—to the modern “Uncertainty Standard” adopted through New Hampshire’s conformity with the Internal Revenue Code (IRC) under RSA 77-A:1, XX.3 This transition is critical for contemporary businesses, as it shifts the focus from the absolute novelty of the information to the specific technical challenges faced by a business organization at the outset of a project.3 In the Granite State, “discovering information” is not merely an academic exercise but a rigorous statutory requirement that must be substantiated through detailed wage allocations and technical documentation provided to the Department of Revenue Administration (DRA).5

The Legal and Statutory Foundations of Research in New Hampshire

To understand the meaning of “discovering information,” one must first examine the statutory language of RSA 77-A:5, XIII. The law provides a credit for “qualified manufacturing research and development expenditures,” which are defined specifically as wages paid or incurred to an employee for services rendered within the state.1 For these wages to qualify, the services must be undertaken for the “purpose of discovering information which constitutes qualified research and development of a new or improved manufacturing process or business component”.1 This definition creates a mandatory nexus between the act of discovery and the specific industry of manufacturing.

The New Hampshire legislature’s decision to limit the credit to “manufacturing” research is a significant narrowing of the broader federal IRC Section 41, which allows credits for almost any business component intended for sale, lease, or use in a trade or business.5 Consequently, in New Hampshire, the information being discovered must specifically relate to a manufacturing process or the physical development of a manufactured product.1 This implies that the discovery of information regarding service models, purely aesthetic designs, or administrative methodologies does not satisfy the state-level requirement, regardless of its technological complexity.6

The Role of IRC Section 41 and State Conformity

New Hampshire law explicitly ties the definition of “discovering information” to Section 41 of the United States Internal Revenue Code.1 However, the state does not maintain “rolling” conformity with the IRC; instead, it adopts the code as of a particular date for each taxable period, as dictated by RSA 77-A:1, XX.13 This means that federal changes to the definition of qualified research or the interpretation of “discovering information” may not immediately apply in New Hampshire until the legislature updates the conformity date.

The “discovering information” standard is operationalized through the federal “Four-Part Test,” which the New Hampshire DRA utilizes as the primary audit standard. For an activity to constitute the discovery of information, it must pass each of the following tests:

Administrative Guidance from the Department of Revenue Administration

The New Hampshire Department of Revenue Administration (DRA) provides the definitive interpretation of how the “discovering information” standard is applied through Technical Information Releases (TIRs) and Administrative Rules. A TIR represents the Department’s position on the law and is designed to provide immediate information to taxpayers and practitioners regarding policy positions.19

Key Technical Information Releases (TIRs)

The history of the R&D credit in New Hampshire is traced through a series of critical TIRs that have expanded the credit’s funding while maintaining the core definition of qualified research.

1. TIR 2007-007 (New Hampshire Research and Development Tax Credit Enacted): This was the seminal guidance issued following the enactment of Senate Bill 134.20 It established that the credit is intended to encourage manufacturing R&D within the state and clarified that “qualified manufacturing research and development expenditures” are limited solely to wages paid to employees for services rendered in New Hampshire.21 It further clarified the application order: the credit is applied first against the Business Profits Tax (BPT), and any remainder is applied to the Business Enterprise Tax (BET).21
2. TIR 2013-001 (New Hampshire Increases the Research and Development Tax Credit): Following Senate Bill 1 in the 2013 session, the annual aggregate credit pool was increased from $1,000,000 to $2,000,000.9 This release reinforced the $50,000 cap per taxpayer and the requirement to file the federal Form 6765 as part of the application process.9
3. TIR 2015-005 (House Bill 2 – Research and Development Tax Credit Increase): This release announced the most significant expansion of the program, increasing the aggregate value of credits issued by the commissioner to $7,000,000 for any fiscal year, effective July 1, 2017.9 This increased funding level remains in effect today, though it is often oversubscribed, leading to the pro-rata reduction of awards.1

Administrative Rule Rev 2406.05

While TIRs provide policy guidance, Administrative Rule Rev 2406.05 establishes the procedural requirements for claiming the credit.20 The rule dictates that a business enterprise must complete and file Form DP-165, “Research & Development Tax Credit Application,” with the commissioner by June 30 following the taxable period.23 A critical insight within Rev 2406.05 is the “compensation element” requirement; any wages used to calculate the R&D tax credit must also be reported in the enterprise value tax base for BET purposes.23 This ensures that the credit is targeting wages that are already subject to New Hampshire’s unique enterprise-level taxation, thereby providing relief to the very activities that drive the state’s manufacturing economy.

The Practical Application of “Discovering Information”

The transition from theory to practice in the R&D tax credit realm requires a granular look at what constitutes a “technical uncertainty.” In the manufacturing context, uncertainty exists if the information available to the organization does not establish the capability of developing the component, the method for doing so, or the appropriate design of the final product.3

Distinguishing Discovery from Routine Engineering

The DRA distinguishes between the “discovery of information” and “routine engineering” or “quality control.” Routine activities are those where the outcome is predictable based on existing common knowledge within the field. For instance, if a manufacturer uses standard materials and established assembly techniques to build a product that is identical to previous versions, no information is being “discovered,” and the wages do not qualify.6

Conversely, discovery occurs when a manufacturer must engage in a “process of experimentation” because the path to the result is unknown. This is frequently seen in the following scenarios:

• Material Science: Determining if a new composite material can withstand extreme temperatures in a way that previous materials could not.26
• Process Optimization: Re-engineering a manufacturing line to integrate robotics where the interaction between the software and the physical machinery is uncertain and requires iterative testing.3
• Software Integration: Developing proprietary algorithms to control precision manufacturing equipment where the latency and accuracy targets are beyond currently available solutions.3

The “Substantially All” Rule

In the context of the discovery process, New Hampshire adheres to the federal “substantially all” rule, meaning that at least 80% of the activities associated with the claimed wages must constitute elements of a process of experimentation.7 If a project involves some discovery but is primarily focused on routine production, the DRA may disallow the entire claim for that specific project. This underscores the importance of the “meaning” of discovering information—it must be the dominant purpose of the employee’s work, not an incidental byproduct of their daily tasks.28

Statistical Overview and Economic Impact

The New Hampshire R&D tax credit is a highly utilized program that consistently nears its legislative funding caps. The Department of Revenue Administration’s “Tax Expenditure and Potential Liability Report” provides a statistical look at how the credit is distributed and its growth over time.30

These statistics reveal a second-order trend: while the aggregate cap is $7 million, the actual amount utilized on returns fluctuates. This is often due to the “non-refundable” nature of the credit and the “five-year carryforward” provision.1 A business may be awarded a credit for “discovering information” in a year where they have little tax liability; they will then carry that credit forward, resulting in the higher “utilization” numbers seen in FY 2024 as previous years’ awards are finally applied against profits.30

The $50,000 Cap and Pro-Rata Reduction

Because the credit is capped at $7 million statewide, the DRA must evaluate all applications submitted by the June 30 deadline before making final awards by September 30.1 If the total qualified requests exceed $7 million, the DRA applies a pro-rata reduction to every applicant.1 Furthermore, no single taxpayer can receive more than $50,000 in a single fiscal year, regardless of how much they spent on discovering information.1 This cap tends to concentrate the benefits of the credit among small to mid-sized manufacturing firms, as larger corporations often hit the $50,000 limit with only a small fraction of their total R&D payroll.5

Detailed Case Study: High-Performance Machining, Inc.

To illustrate how a business navigates the discovery of information and the DRA’s guidance, consider “High-Performance Machining, Inc.” (HPM), a hypothetical aerospace components manufacturer based in Lebanon, New Hampshire.

The Innovation Challenge: HPM sought to develop a new method for machining titanium-aluminide turbine blades. Traditional machining caused micro-cracking in the material, rendering it unsuitable for high-stress aerospace environments.

The “Discovery” Phase:

1. Objective: Discover information regarding a cryogenic cooling method during the milling process that could prevent thermal stress and micro-cracking.3
2. Uncertainty: The engineering team was uncertain about the optimal flow rate of liquid nitrogen and the necessary tool-path adjustments to maintain dimensional accuracy under cryogenic conditions.2
3. Technological Nature: The project relied on mechanical engineering and thermodynamics.2
4. Experimentation: HPM conducted 15 different trial runs, using high-speed cameras and laser-scanners to analyze the material’s reaction at various temperatures and speeds. They iterated on their cooling nozzle design based on the data gathered.12

The Financial and Administrative Path:

HPM identified $800,000 in qualifying New Hampshire wages for the engineers and technicians involved in the study.

Filing and Award:

HPM filed its federal Form 6765 with its US income tax return. Simultaneously, they submitted Form DP-165 to the New Hampshire DRA by June 30. In September, they received an award letter for $30,000. Because HPM had a Business Profits Tax liability of $20,000 and a Business Enterprise Tax liability of $15,000, they applied the credit as follows:

• BPT Offset: $20,000 (BPT reduced to $0).
• BET Offset: $10,000 (Remaining credit applied to BET, reducing it to $5,000).
• Result: HPM successfully utilized the full $30,000 award to improve its cash flow and reinvest in its cryogenic milling technology.1

Conformity with Federal R&D Standards: Software and Biotechnology

A point of frequent confusion for New Hampshire businesses is whether the “discovering information” standard applies to software and biotechnology, given the law’s focus on “manufacturing.” DRA guidance and legislative analysis clarify that these sectors are eligible if the activities are tied to a physical manufacturing process or if the software itself is considered a “manufactured” business component.5

Software as a Manufacturing Process

Under federal and state interpretation, software development qualifies as discovering information if it involves resolving technical uncertainties related to novel algorithms or complex system architectures.3 In New Hampshire, the software must typically be part of a “manufacturing process” or be intended for sale as a business component.1 For example, a company developing a new AI-driven quality-inspection software for a factory is discovering information about how to improve a manufacturing process.3

However, “Internal Use Software” (IUS)—software developed primarily for the taxpayer’s own administrative or management functions—is subject to a “high threshold of innovation” test.17 To discover information in the IUS context, the software must be “innovative,” involve “significant economic risk,” and not be “commercially available”.17

Biotechnology and Life Sciences

Biotechnology firms in New Hampshire frequently engage in discovering information regarding “new drugs, medical devices, and methods of drug delivery”.17 Because the development of these items involves rigorous biological and chemical experimentation, they naturally meet the technological nature and uncertainty tests.4 The DRA treats the “discovery” of a stable chemical formula for a new medication as a qualified manufacturing R&D activity, provided the ultimate goal is the commercial production (manufacturing) of that drug.2

The Future of the Credit: SB 276 and Beyond

As of 2025, there is significant legislative momentum to modernize the R&D tax credit to better accommodate the high costs of modern technical discovery. Senate Bill 276 (SB 276) proposes a major overhaul of the program’s caps.33

The proposed increase to a $100,000 individual cap is a recognition by the state that the price of “discovering information” has risen. For a high-tech manufacturer, $50,000 in credits may only cover the wages of one specialized engineer for a fraction of the year. By doubling the cap, the state aims to attract and retain larger-scale R&D operations that contribute more significantly to the New Hampshire economy.33

Compliance and Best Practices for Substantiating Discovery

Because the “discovering information” standard is inherently subjective, the DRA relies on the taxpayer’s ability to document the “process of experimentation.” Failure to provide contemporaneous records is the leading cause of credit disallowance during an audit.29

Documentation Hierarchy

To satisfy the DRA, a business should maintain a hierarchy of documentation that connects the financial claim (wages) to the technical discovery:

1. The Nexus Document: A project-level summary that describes the technical uncertainty at the beginning of the year, the hard science used to address it, and the manufacturing component being improved.3
2. The Iteration Log: Lab notebooks, Jira tickets, or engineering change orders (ECOs) that show the systematic evaluation of alternatives.3
3. The Results File: Test data, prototype photographs, or patent applications that prove information was, in fact, discovered (even if the project was a failure).26
4. The Wage Allocation: Payroll records that break down the time spent by each employee on the discovery phase vs. the production phase.5

A critical second-order insight for practitioners is that “success” is not a requirement for discovery. The law incentivizes the attempt to discover information to solve a technical challenge. Therefore, wages spent on a project that ended in failure are just as qualifying as those spent on a project that resulted in a patent, provided the systematic process was followed.18

Conclusion: Strategic Value of the Discovery Standard

The New Hampshire Research and Development Tax Credit is a sophisticated fiscal tool that rewards business organizations for taking technical risks. By anchoring the credit in the “discovery of information,” the state ensures that its tax expenditures are directed toward activities that genuinely advance the state’s manufacturing capabilities and economic competitiveness. While the “wages only” restriction and the $50,000 cap create a unique set of constraints, the interaction with the Business Enterprise Tax and the five-year carryforward period provides a meaningful benefit to both startups and established manufacturers.

For the business professional, the “meaning” of discovering information in New Hampshire is ultimately about documentation and technical intent. It requires a bridge between the engineering department and the tax department, where technical uncertainties are translated into qualified wage expenditures. As the state prepares for potential funding increases in 2026, businesses that can clearly articulate their processes of experimentation and their contributions to the “manufacturing process” will be best positioned to leverage this incentive for long-term growth and innovation in the Granite State. The credit does not merely reward production; it rewards the intellectual and scientific rigor required to bring new manufacturing solutions into existence.

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