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 R&D credit is comprised of a base credit and a supplemental credit that is available only to the extent that the total amount of credits granted for a fiscal year is less than the annual credit cap ($7.7 million for tax years 2021 -2024).
• The base credit is equal to 15 percent (15%) of the first $300,000 in Virginia QREs paid or incurred by the taxpayer during the credit year.
• An increased credit rate (20%) is available for qualified expenses paid to a Virginia college or university.
• Virginia also offers an alternative simplified credit method. Using this method, the credit is 10 percent (10%) of the difference between qualified research expenses of the credit year and 50 percent (50%) of the average qualified research expenses incurred during the three prior tax years.
• The total amount of credits under the alternative simplified credit method may not exceed $45,000.
• If the total eligible credit requests exceed the $7.77 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.