Alaska R&D Tax Credit

Alaska offers a Research and Development tax credit to encourage innovation and technological development in the state. This is a state credit in addition to the federal R&D credit. Businesses with qualifying research expenditures can claim both for a reduction in both their federal and state taxes.

Alaska research and development tax credit

The Alaska R&D tax credit is:

• Equivalent to 18% of the allowed federal R&D tax credit

• Available to companies doing business in Alaska even if the research activities themselves are conducted outside of Alaska

Unused amounts of credit for the year are not refundable, but can be carried back for one year and  forward for up to 20 years. More information on the Alaska R&D credit can be found here.

Does your business qualify for the Alaska research and development tax credit?

• Do you conduct business in Alaska? If you currently do business in Alaska, you may be eligible for the Alaska R&D tax credit.

• Is your business an LLC, S corporation, C corporation, or partnership? Sole proprietorships do not qualify for the credit.

• Do you have business expenses that are qualified research expenditures (QRE’s)? For business expenses to qualify for the credit, they must meet the four-part test. This test is for the Federal R&D credit. You must be eligible for the Federal R&D credit in order to claim the Alaska R&D credit. IRS Forms 6765 and 3800 are used to calculate eligibility.

  • Qualified purpose – the expenses must be for creating a new business product or improving on a current one. Note that this product does not have to be something new to the industry in question, but merely to the company conducting the research.

  • Elimination of uncertainty – the company must have a plan in place for exactly how they are going to go about their inventing or improvement process. This is where a lot of companies fall short – often companies know that they can produce the innovation they need, but don’t have a concrete plan at the outset to show what they plan to do.

  • Process of experimentation – the company must prove that they have tried one or more alternatives in their invention or improvement process. This experimentation does not have to be by traditional white-coated, degree-holding scientists. Anywhere there is experimentation taking place, no matter the employee’s job title, there is potential for research and development.

  • Technological in nature – the research in question must be based on one of the hard sciences, such as the various branches of engineering, chemistry, physics, or computer science.

If your business has expenses that meet all four of these criteria, you must submit proof of the expenditures, their purpose, and Alaska Form 6390 – Alaska Federal-Based Credits to the Alaska Department of Revenue to claim the credit.

The Alaska research credit is solely based on the federal credit, so if you are eligible for the federal credit, you are eligible for the Alaska one. Proof of eligibility for the credit therefore only needs to be filed with the federal credit, and can consist of anything that shows that your business’ research expenditures are qualified, including:

• general ledger detail

• payroll records

• project notes

• lab results

• emails and other business communications.

Ready to claim your credit? Consult with Endeavor Advisor’s tax team at (512) 503-3080 to get started with the process.