Maine R&D Tax Credit

Research and development drive innovation and enable businesses to maintain market competitiveness. That is why many states have established tax credits to incentivize such activities.

Therefore, if you operate a business in Maine or are considering locating there, it’s essential to understand the state’s incentives. After all, they can help lower your costs and accelerate your company’s growth. Here is what you need to know about the Maine research and development tax credit.

Maine Research Tax Credit Explained

The state offers two types of incentives: Maine R&D tax credit and Sales Tax Exemption (for a select few specialized industries).

The R&D Credit

In general, the Maine research tax credit adheres to the federal R&D qualification guidelines. You can claim it as part of a corporation’s Maine tax return. You can calculate it as a federal R&D Tax Credit (IRC 41) percentage. In other words, the Maine R&D tax credit equals 5% of the excess QREs over the average QREs for the preceding three years, plus 7.5% of the basic research payments.

Furthermore, credit is restricted to 100% of the first $25,000 in company tax liability plus 75% of the tax liability beyond $25,000. Although you can’t carry the credit back, you can carry it forward for a period of up to fifteen years.

Sales Tax Exemptions

Exemptions from Maine sales tax are allowed for R&D, manufacturing, fuel and electricity, biotechnology, as well as custom computer programming costs.

R&D

Costs for machinery and equipment used directly and solely in R&D by the taxpayer are free from sales tax.

Manufacturing

Sales of equipment and machinery the buyer mainly and directly uses in the creation of tangible personal property for eventual sale, or use are free from sales tax. Furthermore, goods used or destroyed directly or mainly in manufacturing, maintenance, and replacement components for eligible production equipment are free from Maine sales tax.

Fuel and Electricity for the Production

Businesses are free from paying 95% of sales tax on fuel as well as the electricity they use in production.

Biotechnology

Expenditures for supplies, instruments, equipment, and machinery a buyer uses primarily and directly in biotechnology applications are excluded from sales tax.

Custom Computer Programming

Every customized computer software a business acquires is tax-free. In particular, if you buy a standard program and subsequently modify it, the cost of the standard program is taxable. However, the cost of the customization, if explicitly specified, is tax-exempt.

How to Calculate the Maine Research Tax Credit

The credit equals 5% of excess eligible research expenditures above the preceding three-year average plus 7.5% of basic research funding (relating to research qualifying scientific research institutions and universities conduct).

Maine Research and Development Tax Credit: Takeaway

The credit is only available for the first $25,000 of income tax calculated before other credits, plus 75% of the additional tax amount. Although you can’t carry it back, you can carry the credit forward for fifteen years. However, taxpayers who submit a Combined Return (or a controlled group) must follow specific rules.

FAQs

What kind of companies can apply for an R&D tax credit in Maine?

Partnerships, LLCs, S-Corporations, C-Corporations

What is the deadline for applying for an R&D tax credit in Maine?

You must submit your application with the Maine Tax Return.

What data do I need to calculate credit an R&D tax credit in Maine?

Claim period QREs (Qualified R&D Expenses)

What information do I need to provide to file an R&D tax credit in Maine?

QREs for the past three years, as well as the Federal Form 6765.

Is credit carryforward an option in Maine?

Yes, up to fifteen years.