Are R&D Tax Credits Available in Vermont?

The state of Vermont provides the Research and Development (R&D) Tax Credit which offers a tax credit for increasing qualifying research activities. Vermont leverages the federal section 41 rules in determining qualified research expenditures and calculating the state credit.

  • Applicable Vermont code section is 32 V.S.A Section 5930ii
  • The credit applies to qualified expenditures that occurred in Vermont
  • This credit applies to personal income tax or business or corporate income tax.
  • The credit is equal to 27% of the federal credit for expenditures made in Vermont
  • Vermont allows a 10 year carry forward period for any unused R&D tax credits


More companies in Vermont can now qualify for the R&D tax credit. Companies are able to qualify R&D activities by beginning with the development of concepts and extending to the point where a product, process, formula, or other business component is ready to be commercially released. If you are engaged in any research activities, looking into a potential R&D tax credit may be a great benefit. In addition, look back studies can recognize unclaimed credits for the last 3 or 4 open tax years.

Vermont R&D Tax Credit Case Study

A manufacturing company in Burlington, Vermont conducted a look back study for the prior two years for the R&D credit. This project involved a multi-year study covering the tax years 2018 through 2020.

The Company qualified for the federal R&D Tax Credits of $278,930 and an additional $75,311 in Vermont state R&D Tax Credits.

Total QREs
Total QREs
Total $2,789,304 $278,930 $2,789,304 $75,311

You can read more about this Vermont 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.