Pennsylvania State R&D Tax Credit
A corporation that incurs qualified research and development expenses may apply for a research and development tax credit. Unique to Pennsylvania, with the R&D Tax Credit Assignment Program, technology companies can sell any unused R&D tax credits in the open market to help advance and grow their businesses.
How to obtain the credit?
All applications must be submitted on the new online application platform, which is accessible June 1, 2019.
Refundable/Transferable Tax Credit– Yes
- The credit is equal to 10% of the amount by which the corporation’s qualified research and development expenses exceed the taxpayer’s Pennsylvania base amount
- A qualified small business (for-profit corporation, limited liability company, partnership or proprietorship with net book value of assets totaling, less than $5 million at the beginning or end of the taxable year for which Pennsylvania qualified research and development expense is incurred, as reported on the balance sheet, less than five million dollars) may apply for a research and development credit equal to 20% of the amount by which the corporation’s qualified research and development expenses exceed the taxpayer’s Pennsylvania base amount
- Effective July 2, 2012, the total amount of credits approved by the Department could not exceed $55 million for any fiscal year (previously $40 million), of which $11 million (previously $8 million) must be allocated to small businesses
Sale or assignment of credit
- Taxpayers entitled to a research and development credit may sell or assign all or any portion of the credits awarded, with the approval of the Department of Community and Economic Development
- The sale or assignment of the credit will not be approved if the seller has any outstanding state taxes
- All reports must have been filed and all outstanding tax liabilities paid before the sale or assignment is approved
The purchaser or assignee must claim the credit in the tax year in which it is purchased or assigned. However, the amount of credit the purchaser or assignee may use against any one qualified tax liability cannot exceed 75% of the qualified tax liability for that tax year. The purchaser or assignee may not carry over, carry back or carry forward any amount of the purchased or assigned credit, nor may they obtain a refund or assign the purchased or assigned credit.
No portion of the credit may be carried back, however, once a credit is approved and applied against the tax liability for the year in which the credit was approved, any unused credit can be carried forward for up to 15 years.
Effective for awards made Dec. 15, 2006, and after, pass-through entities included limited liability companies and partnerships, thus the credit can be transferred (passed-though) in writing to shareholders, members or partners in their proportionate share. The shareholder, member or partner must use the credit in the taxable year in which the transfer is made. R&D credits cannot be used against employer withholding of employees’ personal income tax. Also effective for awards made Dec. 15, 2006, and after, the tentative credit on Line 7 is equal to 10 percent (10%) for large companies and 20 percent (20%) for small companies.
Find out if you qualify for the R&D tax credit
States and the R&D Credit: