Vermont Research & Development Tax Credit Glossary

Vermont R&D Tax Credit Overview

The Vermont Research and Development Tax Credit provides financial incentives for businesses conducting qualified research within the state. Governed by V.S.A. Title 32, Chapter 151, § 5930ii, the credit is generally equal to 27% of the federal tax credit allowed for expenditures made in Vermont. It applies to C-Corporations, S-Corporations, LLCs, and partnerships, offering a 10-year carryforward period for unused nonrefundable credits.

Glossary Term Definition
Research and Development Tax Credit State tax incentive designed to encourage businesses to invest in technical innovation within Vermont.
V.S.A. Title 32, Chapter 151, § 5930ii The specific Vermont statute providing the legal authority and framework for the R&D tax credit.
Eligible Research and Development Expenditures Costs incurred for research activities conducted in Vermont that qualify for the tax credit calculation.
Qualified Research Expenses (QREs) Specific eligible costs, including wages, supplies, and contract research, used to calculate the credit.
Internal Revenue Code Section 41 (IRC § 41) Federal tax code section defining qualified research, which Vermont adopts as the basis for eligibility.
Federal Tax Credit Allowed (IRC § 41(a)) The amount of federal R&D credit generated, which serves as the baseline for the Vermont credit.
Taxpayer of This State An individual or entity subject to Vermont income tax and eligible to claim the credit.
Tax Imposed Under This Chapter (Income Taxes) Vermont state income taxes against which the Research and Development Tax Credit can be applied.
Nonrefundable Tax Credit A credit that can reduce tax liability to zero but cannot result in a cash refund.
Credit Carryforward The ability to apply unused tax credits from the current year to future tax years.
Ten (10) Year Carryforward Period The specific duration (10 years) that unused Vermont R&D credits remain valid for future use.
Credit Amount (27% of Federal Credit) The Vermont credit value, calculated as 27 percent of the allowed federal research tax credit.
Apportionment (QREs Made Within This State) Allocating the credit based on the portion of qualified research expenses incurred specifically within Vermont.
Activities Conducted in the State of Vermont Research work physically performed within Vermont borders, a requirement for claiming the state credit.
Taxable Year The fiscal or calendar year for which the tax return is filed and credits claimed.
Department of Taxes The Vermont state agency responsible for administering tax laws and processing R&D credit claims.
Publication of Claimant Names State requirement to publicly list the names of taxpayers who claim the R&D tax credit.
Annual Publication of List The yearly release of a report by the Department of Taxes identifying R&D credit beneficiaries.
Calendar Year (for Publication) The 12-month period used for compiling and reporting the list of tax credit claimants.
C-Corporations (Eligible Entities) Standard corporations that are subject to double taxation but eligible to claim Vermont R&D credits.
S-Corporations (Eligible Entities) Pass-through entities where income and credits flow to shareholders to avoid corporate-level taxation.
LLCs (Eligible Entities) Limited Liability Companies that can pass R&D tax credits through to their members or owners.
Partnerships (Eligible Entities) Business structures where partners share profits, losses, and tax credits, including the R&D credit.
Individual Income Tax (Applicable Tax) Personal income tax liability against which pass-through R&D credits can be applied by owners.
Corporate Income Tax (Applicable Tax) Tax levied on corporate profits which can be reduced by the Vermont R&D tax credit.
Pass-through Entities (Credit Allocation) Entities that distribute income and tax credits to owners rather than paying tax directly.
Form BA-404 (Tax Credits Earned, Applied, Expired, and Carried Forward) The specific Vermont tax form used to report and track business income tax credits.
Form IN-119 (Nonrefundable Credits for Individuals) The form used by individuals to claim their share of nonrefundable credits from pass-through entities.
Claim Period Qualified R&D Expenses The specific timeframe during which eligible research expenses were incurred for the tax claim.
In-house Research Expenses Internal costs for R&D, such as employee wages and supplies used directly in research.
Contract Research Expenses Payments made to third parties (contractors) to perform qualified research on behalf of the taxpayer.
Wages for Qualified Services Salaries paid to employees for performing, supervising, or supporting qualified research activities.
Supplies Used in the Conduct of Qualified Research Tangible property (excluding land/depreciable assets) consumed during the research and experimentation process.
Qualified Services (Conducting/Supervising/Supporting Research) Direct research work, direct supervision, or direct support of research activities eligible for the credit.
Qualified Research (Four-Part Test) Research meeting IRS criteria: permitted purpose, technological nature, elimination of uncertainty, and process of experimentation.
Permitted Purpose (New/Improved Business Component) Research intended to create a new or improve an existing product, process, or software.
Elimination of Uncertainty Research aimed at discovering information to resolve technical uncertainty regarding capability, method, or design.
Process of Experimentation A systematic evaluation of alternatives to eliminate technical uncertainty and achieve a result.
Technological in Nature Research relying on principles of hard sciences like engineering, physics, biology, or computer science.
Business Component Any product, process, software, technique, formula, or invention held for sale, lease, or license.
New or Improved Business Component A business component whose performance, reliability, or quality is enhanced through research activities.
Physical or Biological Sciences Fields of science (physics, chemistry, biology) that must underpin the research for it to qualify.
Engineering or Computer Science Technical disciplines often involved in qualified research for software or hardware development.
Research After Commercial Production (Exclusion) Activities occurring after a product is ready for commercial use, which are excluded from qualification.
Adaptation of Existing Business Component (Exclusion) Modifying an existing product for a specific customer's need, which does not qualify as research.
Duplication of Existing Business Component (Exclusion) Reverse engineering or reproducing an existing product, which is excluded from the R&D tax credit.
Social Sciences, Arts, or Humanities (Exclusion) Research in non-technical fields like economics or sociology, which is ineligible for the R&D credit.
Funded Research (Exclusion) Research paid for by another party (grant or contract) where the taxpayer retains no rights/risk.
Property Subject to Depreciation (Exclusion from Supplies) Capital assets like machinery or buildings whose costs cannot be claimed as supply expenses.
Government-Funded Research (Exclusion) Research activities funded by any government entity, which are excluded from eligible credit calculations.