What to Expect when Settling a Claim for R&D Tax Incentives in Ohio

The United States has long been known for its somewhat rigid rules when it comes to corporate taxes. Companies usually have to resign themselves to a high rate of corporate income tax. But recent developments have shown the US government’s aim to move forward – and earn points with various firms and corporations, big and small.

The proposal put forward by the US Treasury department involves research and development tax incentives, which aim to clarify the rules for the program and therefore make them more ‘attainable’ for more firms. Some tax lawyers and specialists have already lauded these proposals, stating that they can allow more companies to save millions in their taxes, as there are undoubtedly less rigid restrictions on R&D tax credits.

The four-part R&D tax incentive test

In order for any firm to qualify for the R&D tax credit, they need to determine their eligibility by making sure that they adhere to the four set elements. These include:

• The research’s purpose should be to either improve a current functionality or improve an existing product so that a technological and social gain can be attained.
• The research project or program should follow a certain, systematized process and procedure, where several different alternatives for other developmental projects are assessed and screened.
• The firm or taxpayer should have the goal of eliminating any uncertainty related to the specific research and development program.
• The research project must be related to engineering, physical science, computer science, or the biological sector.

Apart from these four conditions, there are a host of restrictions which include software which has been developed for the company’s own internal use, reverse engineering, or other research activities that are related only to the social sciences.

A look at Ohio’s R&D tax incentives

Ohio is known for its Ohio Research and Development Investment Tax Credit, which is basically a non-refundable credit from the CAT, or Commercial Activity Tax in the state. Firms which are interested in qualifying for this incentive are supposed to invest in qualified research expenses, according to Sec.41 of the IRC. This would also include expenses incurred in-house, such as supplies, employee salaries, and contract expenses. This Ohio R&D tax credit is equal to 7% of the total amount of qualified expenses on research in excess of the firm’s average investment in R&D over the three previous years. If there is any excess credit that has not been used for the year when it is earned, it is possible to have it carried over for a period of 7 years.

Ohio also has its Research and Development Sales Tax Exemption, which exempts any enterprise from their whole state and county sales tax when they purchase qualified equipment and machinery that will be primarily used for R&D.

If you are a firm based in Ohio and would like to know more about your privileges for the R&D tax incentive in the state, contact our experts here at Swanson Reed.