Wisconsin R&D Tax Credit

Businesses in Wisconsin can apply for two primary tax credits for research and development activities on their income tax return. The first is the general R&D credit, which most R&D businesses qualify for. However, specific research activities can also qualify for a more lucrative state R&D tax credit. Discover all the necessary information regarding  the Wisconsin R&D Tax Credit and its more profitable counterpart, as well as how to claim them.

Wisconsin Research and Development Tax Credit Explained

The state provides an R&D tax credit that mirrors the federal tax credit (IRC § 41). In other words, any firm, LLC, shareholder, or individual that meets the IRC § 41 requirements can claim this incentive using Schedule R.

The credit equals 5.75% of the excess QREs over the base amount (5% for tax years before 2015). You can calculate the base amount by taking 50% of the QREs from the past three tax years. In case your company didn’t have QREs in the prior three years, the credit is 2.875% of the excess QREs over the base amount.

Wisconsin research tax credit was and is still completely nonrefundable for any tax year before January 1, 2018. Still, you can carry forward the unused parts for up to fifteen years to offset subsequent tax liabilities. After the 2017 Act 59, the credit amount for tax years starting on or after January 1, 2018, is determined in the same way. However, you can now claim up to 10% of the amount as a refundable credit.

More precisely, the refundable portion is equivalent to either 10% of the tax credit you claim in the current year or the credit that remains after deducting the credit used to reduce tax liability in the current year. Whichever of the two is lesser is your refundable part.

Special Credit for Certain Qualifying Activities

Additionally, Wisconsin provides a more lucrative R&D tax credit for operations on internal combustion engines and certain energy-saving products. The amount is equivalent to 11.5% of the excess QREs over the base amount. Industries that can claim this incentive include:

• Building internal combustion engines for vehicles (as well as substitutes like hybrid, electric, and fuel cell drives); and

• Developing and producing energy-efficient lighting, automation, and control systems for buildings or automotive parts for specific hybrid-electric vehicles.

How to Calculate the Wisconsin Research Tax Credit

As mentioned before, the credit is 5.75% of Wisconsin QREs for the taxable year that exceed 50% of the average Wisconsin QREs for the past three years. That said, if you didn’t have any QREs in the past three taxable years, your credit is 2.875% of the Wisconsin QREs.

Wisconsin Research and Development Tax Credit: Takeaway

The federal Section 41 regulations governing the computation and eligibility of qualifying research activities serve as a foundation for the Wisconsin R&D Tax Credit. However, unlike the federal tax credit, you must conduct research in the state to claim this incentive.

FAQs

What kind of companies can apply?

Partnerships, LLCs, S-Corporations, C-Corporations

What is the deadline for applying?

You must submit your application together with the Wisconsin Tax Return.

What data do I need to calculate credit?

Claim period Wisconsin QREs (Qualified R&D Expenses)

What information do I need to provide?

Wisconsin QREs for the past three years.

Is credit carryforward an option?

Yes, up to fifteen years.