Rhode Island R&D Tax Credit

The research and development tax credit is a business incentive program designed to encourage firms to invest in new products, services, and technologies that drive research, innovation, and job creation. For this reason, many states offer tax credits to incentivize businesses to conduct research and development activities in-state.

In the same manner, the Rhode Island R&D tax credit motivates companies across industries to invest in new ideas and technological inventions. Discover whether your company fulfills all requirements and how much you can save on taxes.

Rhode Island Research and Development Tax Credit Explained

Rhode Island research tax credit and the federal credit requirements are very similar. However, consolidated corporations can’t allocate the Rhode Island tax credit, unlike the federal incentive. They can only use it to offset the tax of the specific corporation.

The Calculation Method

The credit computation method has changed over time. Before 1998, a taxpayer had to wait for the Federal Form 6765 to be calculated to learn their R&D tax credit’s amount. Today, however, when you conduct research activities, you can simply calculate the amount using QREs. In other words, this incentive is equivalent to 22.5% of your QREs of the first $111,111 (which is $25,000) plus 16.9% of the rest of your QREs over the $111,111 cap.

For instance, suppose your company has $500,000 of QREs for the taxable year 2019. In that case, your R&D tax credit for that year would be $90,722 (22.5% of the first $111,111 equals $25,000; plus 16.9% of the remaining $388,889 which is $65,722).

The Process

You can claim the Rhode Island research tax credit by attaching the forms RI-7695E (for R&D Expense Credit) and Schedule B-CR (for entering on Business Entity Credit Schedule) to your return.

However, please keep in mind that the credit can’t lower the tax under the minimum set tax due to RI law regarding the imposition of tax. After you’ve used all other credits available, the usage of the Rhode Island R&D tax credit is limited to 50% of the tax liability. In addition, seven years are allowed for the carryover of any excess credit.

Credit for R&D Property

In addition, the state provides an incentive called Credit for R&D Property. It is equivalent to the 10% of the expense or other basis you can use for the federal income tax purposes of tangible property (personal or otherwise), such as buildings or their structural components erected, constructed, bought, or reconstructed, after July 1st, 1994.

How to Calculate Rhode Island Research Tax Credit

For the Tax Years Before 1998

The amount is equivalent to the excess of QREs in the tax year over the base period expenditures.

For the Tax Years Post 1998

The amount is equivalent to 22.5% of the QREs for the first $111,111 (which is roughly $25,000) plus 16.9% of the rest of your QREs over $111,111.

Rhode Island Research and Development Tax Credit: Takeaway

Rhode Island R&D Tax Credit permits you to apply for credits related to R&D property and QREs. The amount is 10% of the expenses incurred for research and property.

FAQs

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

Partnerships, LLCs, S-Corporations, C-Corporations

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

You must submit your application with the Rhode Island Tax Return.

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

Claim period federal QREs (Qualified R&D Expenses)

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

Claim period RI QREs and Federal Form 6765.

Is credit carryforward an option in Rhode Island?

Yes, up to seven years.