It often comes as a surprise how large the aggregate benefit can be for companies that claim all the research and development (R&D) state tax credits for which they qualify. Organizations with multi-site operations across the U.S., or companies who plan to expand, can take advantage of each state’s R&D incentive legislation — and that’s on top of the federal R&D tax credit.

The more states that companies operate in, the higher the total incentive for qualifying research and development work.

Often, many tax credits go unclaimed. The complex differences between each state’s program, deadlines, and requirements, coupled with uncertainty about whether the work a company is doing at any of its sites qualifies as R&D work, make the task of claiming benefits seem daunting. To the initiated, however, identifying and claiming state tax credits is worth the time and effort.

States offer R&D tax credits to spur economic growth within their borders, encourage entrepreneurship, and create new jobs. And as a recent study by MIT researchers shows, it’s working. The research team was able to calculate that R&D state tax credits prompted a 20% increase in “high-quality” new firms over a 10-year period, according to MIT, which conducted the research and published it in “Economic Development Quarterly.” The performance far outpaced the typical state investment tax credits, which reward big businesses, not startups and fast-growing, entrepreneurial companies.

For this reason, states will continue to offer and refine their R&D State Tax Credits programs in the future.

Who can benefit from R&D State Tax Credits?

R&D State Tax Credits are dollar-for-dollar reductions in state tax liabilities. They can introduce new sources of cash flow into the business, especially for startups who have yet to turn a profit, since some states offer refundable tax credits.

Companies may also be surprised what type of work qualifies as R&D. Life science, technology and manufacturing companies are all obvious candidates for the tax credit, but anyone innovating software technology, including artificial intelligence, consumer experience software or warehouse robotics, may qualify. That includes financial firms, retailers, distributors and more.

What are the benefits of claiming R&D State Tax Credits?

In addition to reducing tax liabilities and receiving cash from certain refundable tax credits, companies may also be able to take advantage of the following:

Identifying more qualified credits: Each state has its own unique legislation, so knowing the depth and breadth of tax incentives in is key to fully claiming the credits for which you’re qualified and potentially expanding the total benefit to your company.

Additional value: A handful of states allow tax incentives to be sold to a third-party — even if that company has no R&D function — transforming tax credits into cash. Other R&D incentives may be available for non-income taxes, such as property, sales, and franchise tax.

Carry-over: Most states allow unused credits to be carried forward into future years.

Why should you use A&M’s R&D State Tax Credits service?

Many Clients rely on A&M year after year to ensure they are getting all the benefits they’re entitled to under each state’s R&D tax incentive program. You can depend on our decades-long experience and a deep knowledge of changing legislation in all 50 states to uncover and claim benefits with dependable results. Rely on us for:

Flexibility and experience: A&M works with all sizes and types of companies. Our team combines this flexibility with decades of experience to serve as a valuable guide through the process for your tax teams.

Continuous knowledge: State legislation regarding R&D tax incentives changes constantly, and the team makes it a priority to keep on top of the changes.

Benefit discovery: Most companies don’t fully understand whether their work qualifies for tax incentives. A&M can quickly help Clients identify which activities can help them claim a tax credit.