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

Qualifications

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.

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)

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.

FEDERAL
VERMONT
Year
Total QREs
Credit
Total QREs
Credit
2020
$1,002,170
$100,217
$1,002,170
$27,059
2019
927,935
92,793
927,935
25,054
2018
859,199
85,920
859,199
23,198
Total $2,789,304 $278,930 $2,789,304 $75,311

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