California Research and Development Tax Credit Summary
The California R&D Tax Credit is very similar to the federal version including the definition of qualifying research. Below are some of the differences between the federal and California R&D Tax Credits.
- The credit rate in California is 15% as opposed to 20% for federal purposes when using the regular calculation method
- There is no Alternative Simplified Credit (ASC) method in California
- California still allows for the Alternative Incremental Research Credit
- Qualified Research must take place in California in order to qualify for the California credit
- California has adopted a permanent research and development tax credit
- Unused California research credits can be carried forward indefinitely as opposed to federal credits which can be carried back one year and carried forward twenty
- California has adopted a different definition of gross receipts for companies that provide services
California R&D Tax Credit Case Study
A San Francisco Company develops software used by their clients. It had never before claimed the R&D credit for the development activities of its software programmers. This project involved a four year study with a three year look back.
The Company qualified for the federal R&D Tax Credit of $359,917 and an additional $247,500 in California state R&D Tax Credit.
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FEDERAL
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CALIFORNIA
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|||||
|
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
|
Year 4
|
$1,300,000
|
$156,333
|
$1,300,000
|
$97,500
|
||
|
Year 3
|
900,000
|
92,167
|
900,000
|
67,500
|
||
|
Year 2
|
650,000
|
66,500
|
650,000
|
48,750
|
||
|
Year 1
|
450,000
|
44,917
|
450,000
|
33,750
|
||
| Total | $3,300,000 | $359,917 | $3,300,000 | $247,500 | ||