Are R&D Tax Credits Available in Indiana?

Yes. The state of Indiana provides the Research and Development (R&D) Tax Credit for increasing qualifying research activities in the state of Indiana. Indiana leverages from the federal section 41 rules regarding the calculation and qualification of qualified research activities with some modifications.

  • Applicable Indiana code section is Ind. Code Sec. 6-3.1-4-1.
  • Qualified Research Expenses ("QREs") are expenses applied to research conducted in Indiana.
  • For expenses incurred on or before December 31, 2007, the credit amount is 10% of the excess of the taxpayer's Indiana QREs for the taxable year minus the taxpayer's base amount.
  • For Expenses incurred on or after January 1, 2008, the credit amount is 15% of the lesser of $1 million or the remainder of the taxpayer's Indiana QREs for the taxable year minus the taxpayer's base amount. If the remainder exceeds $ 1 million, that excess should be multiplied by 10% instead.

Alternative method of calculating R&D tax credit:

Effective January 1, 2010, for QREs incurred on or after January 1, 2010, the credit amount is 10% of the excess of the current year's qualified research expenses that is in excess of 50% of the average of the previous three years' qualified research expenses.

  • If the taxpayer did not have Indiana QREs in all three prior years, the credit amount is 5% of the taxpayer's QRE for the taxable year.
  • Tax years starting 2006, for taxpayers involved in the production of civil and military jet propulsion, the credit amount is a percentage determined by the Indiana Economic Development Corporation, which should not exceed 10%, multiplied by the taxpayer's Indiana QREs minus 50% of the taxpayer's average of the previous three years' QREs.
  • Indiana allows a 10-year carry forward period for any unused R&D tax credits.

Indiana R&D Tax Credit Case Study

An Indiana life sciences company with fewer than 100 employees had never before claimed the R&D Tax Credit. This project involved a multi-year study.

The Company qualified for the federal R&D Tax Credit of $312,666 and an additional $81,250 in Indiana state R&D Tax Credit.

Total QREs
Total QREs
Total $3,769,250 $376,925 $3,769,250 $282,694

You can read more about this Indiana tax credit 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.

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