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. 

FEDERAL
CALIFORNIA
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