Virginia Research Tax Credit Changes Provide New Opportunities for Taxpayers
Virginia recently published several new guidelines effecting the state’s Research and Development Expense Tax Credit. (Ruling No. 20-120, House Bill 748 and Senate Bill 110) These changes include postponing the deadline for application submittal, increasing the maximum credit available, and extending the sunset for the incentive.
The deadline for submitting credit applications is now September 1. The new filing deadline (formerly July 1) affords taxpayers additional time to complete their applications and to do so within the timeline of their broader research credit studies; however, it could delay receiving award letters, which ultimately slows the realization of the benefit.
The maximum credit available has increased. For tax years beginning on and after January 1, 2021, the pool of Virginia research credits available to taxpayers has grown. For companies with fewer than $5 million in QRE’s, the RDE regime has increased to $7.7 million (up from $7 million previously). For companies $5 million or greater in QRE’s, the MRD regime increased to $24 million (up from $20 million previously). Award amounts are prorated based on the cumulative value of approved applications vs. the credit cap. Please note that taxpayers must still receive notification from the Virginia Department of Revenue indicating their allocated amount of research credit before it can be claimed on a Virginia income tax return.
The availability of the credit has been extended. Previously, the credit would sunset with tax years beginning before January 1, 2022. This extension has changed the sunset to include taxable years beginning before January 1, 2025. The extension of the benefit offers additional planning certainty and opportunity for taxpayers of all sizes.
Overall, these are taxpayer-friendly changes, and hopefully, the increase in credit cap will help bridge the deficit gap between application amount and award amount.
Contact an A&M Taxand R&D specialist if you would like to understand better how these changes will directly affect your company.
