Wisconsin Research Tax Credit Overview

The Wisconsin Research Tax Credit incentivizes businesses to invest in innovation within the state.
Governed by Wis. Stat. § 71.28(4) and aligned with IRC Section 41,
this credit allows eligible claimants—including corporations, individuals, and pass-through entities—to claim
a percentage of their Qualified Research Expenses (QREs). Key provisions include a
5.75% credit rate on excess expenses, enhanced incentives for internal combustion engine
and energy-efficient product research, and a 15-year carryforward period for unused credits.

Glossary Term Definition
Research Credit for Increasing Research Activities A tax incentive for businesses increasing qualified research spending within Wisconsin compared to a base period.
Wis. Stat. § 71.28(4) (Corporate Franchise/Income Tax) The specific Wisconsin statute authorizing the research credit against corporate franchise or income tax liabilities.
Wis. Stat. § 71.07(4k) (Individual Income Tax) Wisconsin statute section detailing the research credit application for individual income tax purposes and filers.
Qualified Research Expenses (QREs) Eligible costs including wages, supplies, and contract research incurred for qualified research activities in Wisconsin.
Expenses Incurred for Research Conducted in This State Only research expenses directly attributable to activities physically performed within Wisconsin boundaries are eligible.
Internal Revenue Code (IRC) Section 41 (Reference) The federal tax code section used as the definition basis for qualified research in Wisconsin.
Average Qualified Research Expenses (Base Amount Calculation) The average of gross receipts or QREs from previous years used to calculate the credit.
Taxable Year The fiscal or calendar year period for which the tax return is filed and credit claimed.
Three Taxable Years Immediately Preceding The specific prior timeframe used to establish the baseline for calculating the incremental research credit.
Credit Rate (5.75% of Excess QREs) The standard percentage applied to qualified research expenses that exceed the calculated base amount.
Credit Rate (2.875% of QREs for New Claimants) Reduced rate applied to total QREs for companies without prior expenses to establish a base.
Claimant (Person Who Files a Claim) The entity or individual formally filing the tax return to request the research tax credit.
Nonrefundable Credit A credit that can reduce tax liability to zero but cannot generate a cash refund excess.
Refundable Portion of the Credit The percentage of the unused credit amount that may be returned as a cash payment.
Refundable Percentage (25% for Tax Years > 12/31/2023) Increased refundable rate for unused credits applicable to tax years starting post-2023.
Refundable Percentage (15% for Tax Years 2021-2023) The specific refundable rate for unused research credits during the 2021 to 2023 tax period.
Current Year Research Credit The total research credit amount generated based on expenses incurred during the current tax year.
Unused Research Credit Carryforward The portion of the credit exceeding tax liability that is saved for future tax years.
Credit Carryforward Period (15 Years) The maximum duration, fifteen years, that unused research credits can be applied to future liabilities.
Corporation A legal business entity separate from its owners, eligible to claim the corporate research credit.
Individual A natural person who may claim the credit via flow-through entities or sole proprietorships.
Partner of a Partnership A member of a partnership who claims their allocated share of the entity’s research credits.
Shareholder of a Tax-option Corporation An owner of an S-Corporation who reports their pro-rata share of the research credit.
Member of a Limited Liability Company (LLC) An owner in an LLC treated as a partnership, claiming credits passed through the entity.
Tax-option (S) Corporation A corporation electing to pass corporate income, losses, and credits directly to its shareholders.
Partnership A business arrangement where partners share liabilities and profits, passing credits to individual returns.
Limited Liability Company (LLC) A business structure combining pass-through taxation with limited liability protection for its members.
Compensation Used in Computing Development Zones Credit Wages used for Development Zones credits cannot be double-counted for the research tax credit.
Schedule R (Research Credits Form) The specific Wisconsin tax form filed to calculate and claim the research expense credit.
Research Credit for Internal Combustion Engines Specific incentives for research improving efficiency or performance of internal combustion engines in vehicles.
Credit Rate for Internal Combustion Engines (11.5%) An enhanced credit percentage applied to excess qualified expenses for internal combustion engine research.
Credit Rate for Internal Combustion Engines (5.75% New) The specific startup rate for new claimants conducting internal combustion engine related research.
Internal Combustion Engine (Includes Substitutes) Defines the scope of engine research to include alternatives like electric or hybrid power systems.
Substitute Products (Fuel Cell, Electric, Hybrid) Technologies like batteries and fuel cells that replace standard engines, eligible for enhanced credits.
Vehicle (Includes Truck, Tractor, Motorcycle) Statutory definition of vehicles eligible for engine research credits, covering road and non-road types.
Frame (Definition related to Vehicle/Engine Research) The structural chassis of a vehicle, relevant for defining the scope of automotive research.
Research Credit for Energy Efficient Products Tax incentives targeting research into products that significantly reduce energy consumption or waste.
Energy Efficient Lighting Systems Lighting technologies meeting specific efficiency standards eligible for specialized research tax credit categories.
Building Automation and Control Systems Automated systems managing building environments, qualified under energy-efficient product research incentives.
Automotive Batteries for Hybrid-Electric Vehicles Research expenses related to developing high-performance batteries for hybrid and electric vehicle propulsion.
Research Facilities Credit (Carryforward only) A legacy credit for building research facilities, now only applicable as a carryforward amount.
Tax Commission The administrative body responsible for adjudicating disputes regarding Wisconsin tax credit claims.
Combined Group Affiliated corporations filing a single unitary tax return, aggregating QREs and credit calculations.
Sharable Credits (Combined Group Provision) Research credits earned by one group member that can offset the tax liability of others.
Non-sharable Credits (Combined Group Provision) Certain credit components that must be used by the specific entity that generated them.
Intercorporate Funding of Research Rules governing how research funded between members of a combined group is treated.
Qualified Research Consortium Specific entities where payments for research are eligible for a higher inclusion rate.
Contract Research Expenses (65% Rate) The statutory rule allowing 65% of payments to third parties to count as QREs.
Qualified Research Expenses (No Prior QREs) Treatment of research expenses for companies without a spending history in the lookback period.
Amortization of R&E Costs (5-year/15-year) The requirement to spread research deduction deductions over five or fifteen years for tax purposes.