Virginia

State Credit Name: Research and Development Expenses Tax Credit

Expiration Date: January 1, 2022

Who Can Apply? Corporations and flow-through entities

Credit Carry Forward: Refundable credit so N/A

About the Credit: 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.

Notes: 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. 

Click here to find out if you qualify for the federal research credit.

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