If your Delaware company engages in research and development, you are eligible for one of the most generous R&D tax credit programs in the country.
Starting January 1, 2017, Delaware companies that qualify for federal research and development tax credit are also eligible for the State’s enhanced R&D tax credit. Under the new law, you get a tax refund if the portion of your federal R&D credit from Delaware R&D exceeds your Delaware tax liability. In addition, there is no longer an annual expenditure cap set by the State, so your company receives the full amount of eligible credit.
The new program demonstrates Delaware’s commitment to developing an economy centered on leading-edge innovators, and providing the support your business needs to grow and succeed.
“The new, expansive R&D tax credit is designed to drive innovative companies to Delaware so they will do their R&D here, especially smaller and medium-sized businesses with revenues of less than $20 million,” explains Rick Geisenberger, Delaware’s Secretary of Finance.
“We recognize how important these cutting-edge companies are to Delaware’s economy, and have created this legislation to provide the support they need to compete.”
Straightforward process, significant return
How does the new R&D tax credit work? The criteria for the credit mirror the federal R&D tax credit, with no additional requirements. Any company that qualifies for the federal credit and conducts R&D in Delaware automatically qualifies for the Delaware tax credit.
Delaware’s credit is 50 percent of the corresponding federal credit. That means that if your company is eligible for a federal R&D tax credit of $100,000, you are eligible for a $50,000 tax credit in Delaware, provided that all your R&D activity is conducted here in the State.
Moreover, the tax credit is refundable. So, if your company’s Delaware R&D tax credit exceeds your Delaware tax liability, you will get a refund from the State for the difference.
Exceptional opportunities for small businesses
If your business generates less than $20 million in annual gross receipts, the new credit provides you with an exceptional opportunity to optimize R&D investment. Your company receives 100 percent (rather than 50 percent) of the corresponding federal credit. Plus, under the new law, you can apply the tax credit to receive a refund even if you have no revenue.
In the past, companies not yet earning a profit did not typically apply for the federal R&D credit, because they had no federal tax obligation and the federal credit is not refundable. With the change to Delaware’s R&D tax credit policy, you have a reason to apply for the credit, because you can get money back from your R&D investment in the form of a state tax refund.
Here’s is an example of how your company can benefit from the new tax credit program:
- You have annual gross receipts of less than $20 million.
- You qualify for a $100,000 Delaware tax credit on eligible Delaware R&D activity.
- You do not generate a profit, so you don’t owe any federal or state taxes.
- You file your Delaware income tax return and attach completed Delaware form 2070AC and federal form 6765
- You get a $100,000 refund check from the State.
“The savings are not just essential to fueling further innovation, credits can also help companies attract investors and increase their overall value.”
How to claim the tax credit
Any Delaware R&D activity starting in the 2017 tax year is eligible for the tax credit. That means that you should discuss the opportunity as soon as possible with your accountant to make sure you take advantage of this valuable opportunity.