Recent legislation has made a research and development tax credit on the federal level permanent, but Indiana has long been ahead of the game by creating their own incentives to help keep research and development jobs within the state. Research and development spending, and thus R&D jobs, often require long-term planning. The Indiana Research and Development Tax Credit gives confidence to Indiana investors and entrepreneurs by creating a positive business environment for all industries and encouraging long-term investment in high-wage jobs and infrastructure.
Qualified Research Expenses
Expenses that qualify for the Indiana Research and Development Tax Credit must be incurred by the taxpayer during the taxable year and include amounts paid for:
- Wages paid to employees
- Services for qualified research conducted within the state of Indiana
- Supervision of research activities
The Department of Revenue may also consider the following in prescribing what qualifies as a research expense:
- The place where the services are performed
- The residence or business location of the person or persons performing the services
- The place where qualified research supplies are consumed
- Other factors that the department deems relevant
The Credit Amount
The R&D tax credit is applied against state tax liability for a company’s qualified research expenses and is based on the increase in Indiana R&D over a prior three-year base (or “base period amount”). It is calculated as follows:
- 15% of the increase in qualified research expenses paid or incurred over the base amount up to $1 million
- Any excess qualified research expenses over $1 million are eligible for a 10% credit
- For tax years after 2009, the Alternative Simplified Credit Method is allowed, meaning that the credit amount is 10% of the excess of the current year’s qualified research expenses that exceed 50% of the average of the previous three years’ qualified research expenses. If the taxpayer does not have three prior years of qualified research expenses, the credit amount is calculated at 5%The tax credit is available to both C-corporations and pass-through entities, and any unused research and development tax credits can be carried forward for up to 10 years. No carry back period is allowed.
While research and development tax credits certainly benefit large, high-tech companies, even small- and medium-sized Indiana companies can take advantage of this valuable tax opportunity as they make improvements to their business products and processes. For additional information about the Indiana Research and Development Tax Credit or to determine your eligibility, please call the Barnes Dennig team at 317-572-1130 or click here to contact us. We look forward to assisting you!