Are R&D Tax Credits Available in Indiana?
Yes. The state of Indiana allows a taxpayer who incurs Indiana qualified research expenses (QREs) to claim a research tax credit. 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 after January 1, 2008, the credit amount is calculated using the following steps:
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- Step 1. Subtract the base amount from the Indiana QREs
- Step 2. Multiply the lesser of $1 million or the result of Step 1 by 15%
- Step 3. If the remainder of Step 1 exceeds $1 million, multiply the excess over $1 million by 10%
- Step 4. The credit is equal to the sum of Step 2 and Step 3.
Alternative method of calculating R&D tax credit:
An alternative credit calculation method is available for the following taxpayers:
- Taxpayers engaged in the production of civil and military jet propulsion systems
- Taxpayers certified by the Indiana Economic Development Corporation as an aerospace advanced manufacturer
- US Department of Defense contractors
- Taxpayers who maintain manufacturing facilities in Indiana with at least 3,000 full time employees who are paid on average more than 400% of the hourly minimum wage
Under the alternative credit calculation method, the credit is calculated by taking a percentage (no more than 10%) of the taxpayer’s Indiana QREs less 50% of the average Indiana QREs for the three prior taxable years.
- 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.
- The Indiana research credit is nonrefundable. 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.
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FEDERAL
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INDIANA
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Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
|
2018
|
$1,012,550
|
$101,255
|
$1,012,550
|
$75,941
|
||
|
2019
|
955,200
|
95,520
|
955,200
|
71,640
|
||
|
2020
|
905,800
|
90,580
|
905,800
|
67,935
|
||
|
2021
|
895,700
|
89,570
|
895,700
|
67,178
|
||
| Total | $3,769,250 | $376,925 | $3,769,250 | $282,694 | ||
You can read more about this Indiana tax credit case study here.