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.

What are the Potential Benefits of this Tax Credit?

There are several benefits to realizing the R&D tax credit. These benefits can include the following:

  • Receive up to 12-16 cents of federal and state R&D tax credits for every qualified dollar
  • Create a dollar-for-dollar reduction in your federal and state income tax liability
  • Increase earnings-per-share
  • Reduce your effective tax rate
  • Improve cash flow
  • Carry forward the credit up to 20 years
  • Perform look back studies to recognize unclaimed credits for open tax years (generally 3 or 4 years)
  • Utilize the federal R&D tax credit against payroll tax (applicable to certain startup companies)

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.

FEDERAL
INDIANA
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.