Indiana R&D Tax Credit Summary
The Indiana R&D Tax Credit provides a tax credit for increasing qualifying research activities in the state of Indiana. Indiana adopts the I.R.C. Section 41 definition for qualified research and expenditures that are conducted in Indiana, and utilizes the federal regular research credit methodology.
Indiana leverages off of the federal section 41 rules regarding the calculation and qualification of qualified research activities with some modifications.
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Applicable Indiana code section is Ind. Code Sec. 6-3.1-4-1.
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Indiana allows two alternative credits methods to determine how to calculate the benefit for research expenses:
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(1) Indiana Credit for Increasing Research Activities (Regular Credit); and
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The Indiana Regular R&D Tax Credit equals:
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For Indiana qualified research expense incurred after December 31, 2007, the amount of the research expense tax credit is determined under the following formula:
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(1) Subtract the taxpayer’s base amount from the taxpayer’s Indiana qualified research expense for the taxable year.
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(2) Multiply the lesser of: $1 million or the remainder from (1) above by 15%
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(3) If the remainder from (1) above exceeds $1 million, multiply the amount of that excess by 10%
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(4) Add the products from (2) and (3) above
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For Indiana qualified research expense incurred before January 1, 2008, the amount of the research expense tax credit is equal to the following:
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10% of the remainder of the taxpayer’s Indiana qualified research expenses for the taxable year minus the taxpayer’s base amount.
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The amount of the research expense credit that a taxpayer uses during a particular taxable year may not exceed the sum of the adjusted gross income tax for the taxable year after the application of all credits that under Ind. Code §6-3.1-1-2 are to be applied before the research expense credit.
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(2) Qualified Alternative Incremental Credit for Research Conducted in Indiana (Engaged in the Aerospace Industry)
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Applicable to taxable years beginning after December 31, 2005, an aerospace contractor can elect to calculate the research expense credit under an alternative method instead of the method provided in Ind. Code §6-3.1-4-2.
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An election to use the alternative method pursuant to Ind. Code §6-3.1-4-2.5 applies to the taxable year for which the election is made and all succeeding taxable years unless the election is revoked with the consent of the Department.
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The Qualified Alternative Incremental Credit for Research is available only to a taxpayer that:
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is primarily engaged in the production of civil and military jet propulsion systems
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is certified by the Indiana economic development corporation (IEDC) as an aerospace advanced manufacturer
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is a United States Department of Defense contractor; and
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maintains one or more manufacturing facilities in Indiana employing at least 3,000 employees in full-time employment positions that pay on average more than 400% of the hourly minimum wage under Ind.Code §22-2-2-4 or its equivalent
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For qualified R&D expenses incurred after December 31, 2009, the Alternative Incremental Credit may be used only if a taxpayer is engaged in the aerospace industry and is calculated as follows:
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The credit amount is 10% of the excess of the current year's qualified research expenses that is in excess of 50% of the average of the previous three years' qualified research expenses.
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Should an Indiana taxpayer not have expenses in all three prior years, the Alternative Incremental Credit rate amount is 5%.
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Eligible Entities: C-Corporations, S-Corporations, LLCs, Partnerships
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A taxpayer, including an individual (shareholder), corporation, limited liability company, trust or partnership that has any liability under the adjusted gross income tax, and that incurred an Indiana qualified research expense in a taxable year is entitled to a tax credit for that year.
Deadline for Tax Filing: Due with Indiana Tax Return
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Qualified taxpayers must submit Form IT-20 and enclose with their annual income tax return.
Data Required to Compute Credit:
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Claim Period Qualified R&D Expenses (QREs)
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QREs for Prior 3 Years
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Gross Receipts for Prior 4 Years
Credit Carryforward: Applicable to taxable years beginning after December 31, 2005, credits may be carried forward for 10 years.
Refundable/Transferable Tax Credit: No
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A taxpayer isn’t entitled to any carryback or refund of any unused credit. However, S corporations and partnerships may pass through the credit to their shareholders and partners.
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Enclose your schedule IN K-1 to support your claim.
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A completed Form IT-20REC must be kept with your records as the department can require you to provide this information.
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Important Links and Forms: