August 11, 2014|
On July 15, 2014 Governor Jack Markell signed HB 318, new legislation that allows Delaware's Research and Development Credit (R&D Credit) to be more accessible to small businesses in the first state. While the Act will not change the $5 million cap that is currently in place for the credit as a whole, it doubles the amount available to smaller businesses with average gross receipts of $20 million or less. In prior years, small businesses were largely cut out of the credit due to the qualifying expenses of larger businesses claiming 98% of the $5 million. In general the credit was equal to either: • 10% of excess of the taxpayer's total Delaware qualified R&D expenses for the taxable year over the taxpayer's Delaware base amount ; or • 50% of Delaware's apportioned share of the taxpayer's Federal R&D tax credit. For small businesses, the credit for tax years 2013 and after will now be: • 20% of excess of the taxpayer's total Delaware qualified R&D expenses for the taxable year over the taxpayer's Delaware base amount; or • 100% of Delaware's apportioned share of the taxpayer's Federal R&D tax credit. The Federal R&D Credit is presently expired (as of December 31, 2013), making the secondary option in both scenarios unavailable as written. The Federal credit has been extended 15 times since its inception in 1981, and in 11 of those instances the credit was retroactively restored. Based on this history, one may speculate that it would be extended again, but there is no official legislation at present. There are a large amount of industries and activities that qualify for the Research and Development Credit. Please contact your Faw Casson advisor to discuss this credit and whether it may apply to your business.