Governor Jack Markell (D-DE) recently enacted SB 200, which significantly enhances Delaware’s R&D tax credit. In particular, the bill removes the $5 million annual cap on credits awarded and makes the credit refundable.
Calculating the State Credit
Currently, the credit equals 10% of the excess of the taxpayer’s in state qualified research expenses (QREs) for the taxable year over the base amount, or 50% of Delaware’s apportioned share of the taxpayer’s federal R&D credit calculated under the alternative simplified credit (ASC) method. Delaware’s apportioned amount of the taxpayer’s federal credit calculated under the ASC method equals the federal ASC credit that the taxpayer may claim multiplied by a percentage equal to a ratio of the taxpayer’s in state QREs over the taxpayer’s total QREs.
For businesses with average annual gross receipts for the prior four years of $20 million or less, the credit equals 20% of the excess of the taxpayer’s in state QREs for the taxable year over the base amount or 100% of Delaware’s apportioned share of the taxpayer’s federal R&D credit calculated under the ASC method.
Enactment
The new law is effective for QREs allowed in accordance with section 41 of the Internal Revenue Code for tax periods after December 31, 2016. With the enactment of SB 200, Delaware will have one of the more generous R&D state tax credits in the country and has established itself as a state leader in incentivizing research and development in the United States. Click here to read the bill.
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