Are R&D Tax Credits Available in Virginia?

Are R&D Tax Credits Available in Virginia?

Yes. The state of Virginia provides the Research and Development (R&D) Tax Credit which allows a refundable individual and corporate income tax credit for conducting qualified research and development in Virginia, to the extent a taxpayer's Virginia qualified R&D expenses (QREs) exceed a base amount. Here is a summary of the credits:

• The credit is allowed in the taxable year in which qualified R&D expenses are reported on the federal income tax return.
• Virginia's R&D tax credit follows IRC Section 41 rules for qualified activities and expenses and follows a modified version of the federal regular credit method.
• The base credit is equal to:
  • 15% of the first $300,000 in Virginia qualified R&D expenses, or
  • 20% of the first $300,000 in Virginia qualified R&D expenses if the research was conducted in conjunction with the Virginia public or private college or university, to the extent the expenses exceed the taxpayer’s base amount.
• Virginia also offers an alternative simplified credit method. Using this method, the credit is 10% of the difference between QREs of the credit year and 50% of the average QREs incurred during the three prior tax years. If the taxpayer did not incur Virginia QREs in any one of the three preceding tax years, the credit is 5% of the current year’s expenses.
• The total amount of credits under the alternative simplified credit method may not exceed $45,000 ($60,000 if qualified expenses are conducted in conjunction with a Virginia public or private college or university).
• Beginning in 2023, if the total eligible credit requests exceed the $15.77 million credit cap for all credits, each taxpayer will be granted a pro-rata amount of credits as determined by the Department.
• An eligible taxpayer must submit an Application for the Research and Development Expenses Tax Credit, Form RDC, and any supporting documentation to the Department no later than September 1 of the year following the credit year.