Special Notes: Virginia has a refundable individual and corporate income tax credit for conducting qualified R&D in Virginia. In April 2016, Virginia’s legislature passed House Bill 884 and Senate Bill 58 modifying the state’s R&D credits and creating a tax credit for business with R&D expenses in excess of $5 million per year.

The bills changed the existing credit to:

• Increase the maximum amount of tax credits that the Department of Taxation may grant each fiscal year from $6 million to $7 million ;
• Extend the expiration date from January 1, 2019 to January 1, 2022;
• Increase the credit rate to:
  • 15% of the first $300,000 of a taxpayer’s Virginia qualified research and development expenses that exceed a base amount; or
  • 20% of the first $300,000 of QREs if the R&D was conducted with a Virginia college or university.
• Provide an alternative simplified credit method to compute tax credits; and
• Prohibit businesses from using the existing credit for R&D expenses over $5 million.

If the total credit surpasses the credit cap for all credits, each taxpayer will be granted a pro rata amount of credits determined by the Department.

Major R&D Expense Credit:  Effective for tax years 2016 to 2022, the bills provide for a new, nonrefundable credit, known as the Major R&D Expense Credit, available for taxpayers with qualified R&D expenses of more than $5 million per year. The Major R&D expense credit can be used against corporate and personal income tax. The Major R&D expense credit is equal to 10% of the difference between the QREs incurred by the taxpayer during the taxable year and 50% of the average QREs incurred during the three preceding taxable years. If the taxpayers does not have QREs in the prior three years, credit rate is 5% of the QREs incurred in the current year. The Major R&D Expense Credit is limited to 75% of the taxpayer’s Virginia income tax liability and any unused credit may be carried forward for 10 years. The annual credit cap is $20 million. Eligible taxpayers have to submit an application for the credit, Form RDC and any supporting documentation to the Department no later than April 1 of the following year.

Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed’s office location at 919 East Main Street, Richmond, Virginia provides R&D tax credit consulting and advisory services to Virginia Beach, Norfolk, Chesapeake, Richmond, Newport News, Alexandria, Hampton, Roanoke, Portsmouth and Suffolk.

If you have any questions or need further assistance, please call or email our local Virginia Partner on (804) 773-3219.
Feel free to book a quick teleconference with one of our Virginia R&D tax credit specialists at a time that is convenient for you. Click here for more information about R&D tax credit management and implementation.