Are R&D Tax Credits Available in Maine Research?

Yes. The state of Maine provides the Research and Development (R&D) Tax Credit for qualified research conducted in the state of Maine. The Maine R&D Tax Credit leverages the federal Section 41 rules surrounding credits for increasing research activities. Maine offers a research expense tax credit which has similarities to the federal credit and also offers a super research and development tax credit.

Maine Research Credit

  • Research expense tax credit is governed by statute 36 §5219-K.
  • Qualified research expenses are limited to those expenses incurred in the state of Maine.
  • Research expense tax credit is limited to 5% of the excess qualified research expenses that exceed the previous three-year average and 7.5% of basic research payments.
  • The credit is also limited to 100% of the first $25,000 in tax liability plus 75% of the liability in excess of $25,000.
  • The credit can be carried forward for up to 15 years.

Maine Super Credit

  • The super credit is no longer available for tax years beginning after December 31, 2013.

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)

Maine R&D Tax Credit Case Study

An Augusta manufacturing company creating syringes for the medical industry has been claiming the R&D credit for years. The company claims R&D credits each year for the development activities of its engineers. This project involved a multi-year study.

The Company qualified for the federal R&D credit of $464,333 and an additional $65,833 in Maine state R&D Tax Credit.

FEDERAL
MAINE
Year
Total QREs
Credit
Total QREs
Credit
Year 4
$1,500,000
$129,500
$1,500,000
$17,500
Year 3
$1,250,000
$121,333
$1,250,000
$12,500
Year 2
$1,150,000
$112,000
$1,150,000
$15,833
Year 1
$1,050,000
$101,500
$1,050,000
2$0,000
Total $4,950,000 $464,333 $4,950,000 $65,833

You can read more about this Maine tax credit case study here.