Are R&D Tax Credits Available in Delaware?

The state of Delaware has a Research and Development (R&D) Tax Credit very similar to the federal version including the definition of qualifying research. Below are some of the differences between the federal and Delaware research credits:

  • There are two ways to calculate the Delaware research credit.
    • The Delaware credit may be calculated by taking 10% of the excess of Delaware qualified R&D expenses for the taxable year over the taxpayer’s Delaware base amount.
    • The Delaware credit may also be calculated by taking 50% of Delaware’s apportioned share of the taxpayer’s federal R&D credit calculated using the Alternative Simplified method.
  • For taxpayers with average gross receipts under $20 million, the credit rate under the first calculation method is adjusted to 20%, and using the Alternative Simplified method allows 100% of Delaware’s apportioned share of the federal credit.
  • Qualified research must take place in Delaware.
  • Unused tax credits will be refundable, which means that unused tax credits will be paid to the taxpayer in the form of a tax refund.
  • Qualified taxpayers must submit an application to the Division of Revenue on or by September 15 after the end of the taxable year during which the qualified R&D expenses were made.

Delaware R&D Tax Credit Case Study

A company in Dover, Delaware with fewer than 50 employees had never before claimed the R&D Tax Credit. This project involved a multi-year study covering the tax years 2019 – 2021. The Company qualified for the federal R&D Tax Credit of $271,832 and an additional $114,562 of state R&D Tax Credit in Delaware.

FEDERAL
DELAWARE
Year
Total QREs
Credit
Total QREs
Credit
2021
$1,200,000
$127,166
$1,000,000
$52,986
2020
$850,000
$92,166
$700,000
$37,951
2019
  $500,000
$52,500
$450,000
$23,625
Total $2,550,000 $271,832 $2,150,000 $114,562


You can read more about this Delaware case study here.

Four-Part Test

Qualified research activities are defined by the four-part test outlined below

Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.

Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.

Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.

Experimentation
All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.

Research and Development Tax Insights

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