Virginia Research and Development Tax Credit Summary
Virginia allows a refundable individual and corporate income tax credit for conducting qualified research and development in Virginia, to the extent a taxpayer's Virginia qualified R&D expenses (QREs) exceed a base amount. Here is a summary of the credits:
- The credit is allowed in the taxable year in which qualified R&D expenses are reported on the federal income tax return.
- Virginia's R&D tax credit follows IRC Section 41 rules for qualified activities and expenses, and follows a modified version of the federal regular credit method.
- The R&D credit is comprised of a base credit and a supplemental credit that is available only to the extent that the total amount of credits granted for a fiscal year is less than the annual credit cap ($6 million for tax year 2014; $5 million for tax years 2011 – 2013).
- The base credit for tax year 2014 is equal to 15 percent (15%) of the first $234,000 ($167,000 for tax years 2011 – 2013) in Virginia QREs paid or incurred by the taxpayer during the credit year.
- An increased credit rate (20%) is available for qualified expenses paid to a Virginia college or university.
- If the total eligible credit requests exceed the $6 million credit cap for all credits ($5 million for tax years 2011 – 2013), each taxpayer will be granted a pro rata amount of credits as determined by the Department.
- An eligible taxpayer must submit an Application for the Research and Development Expenses Tax Credit, Form RDC and any supporting documentation to the Department no later than April 1 of the year following the credit year.
Virginia R&D Tax Credit Case Study
A Norfolk firm designs components for the maritime industry. The company claims R&D credits each year for the design and development activities of its engineers. This project involved a multi-year study covering the tax years 2011 – 2014. The Company qualified for the federal R&D Tax Credits of $196,000 and an additional $98,235 in Virginia state R&D Tax Credits.