Michigan R&D Tax Credit 

The Michigan research credit adopted the federal research credit, so if a taxpayer qualifies for the federal credit, they will qualify for the state credit as well. MCL 208.1405 provides a credit against the MBT equal to 1.90% of a taxpayers “research and development expenses” for the 2009 tax year and each tax year after 2009. The credit is for 1.52% of research and development expenses for the 2008 tax year. The credit combined with credits under section 403 (Compensation Credit and Investment Tax Credit) cannot exceed 65% of a taxpayer’s tax liability before the surcharge under section 281.

 

Research and development expenses are “qualified research expenses” as that term is defined in Internal Revenue Code Section 41(b). “Qualified research expenses” is defined in IRC 41(b) as “the sum of … in-house research expenses and contract research expenses.” In-house research expenses are defined, in pertinent part, as: i) any wages paid or incurred to an employee for qualified services performed by such employee; ii) any amount paid or incurred for supplies used in the conduct of qualified research; and iii) under regulations prescribed by the Secretary, any amount paid or incurred to another person for the right to use computers in the conduct of qualified research. IRC 41(b)(2)(A).

Contract research expenses are “65 percent of any amount paid or incurred by the taxpayer to any person (other than an employee of the taxpayer) for qualified research.” IRC 41(b)(3)(A). The MBT credit is available for a percentage of the sum of these expenses. 

 

Michigan R&D Credit Summary: 

Pursuant to the Michigan Business Tax Act 2007 (modified by Act No.39 of House Bill 4362), M.C.L.A. § 208.1405, Taxpayer's research and development expenses; tax credit; limitation; definition. (For Tax Years Starting in 2008), states the Michigan R&D tax credit equals:

  • For the 2008 tax year, a taxpayer may claim a nonrefundable credit against the tax imposed by this act equal to 1.52% of the taxpayer's research and development expenses in this state in the tax year.

  • For the 2009 tax year and each tax year after 2009, a taxpayer may claim a credit against the tax imposed by this act equal to 1.90% of the taxpayer's research and development expenses in Michigan during the current the tax year.

  • The R&D credit under Sec. 405 combined with the total combined credit allowed under section 403 (see below) shall not exceed 65% of the tax liability imposed before the imposition and levy of the surcharge under section 281. See M.C.L.A. § 208.1281.

    • (1) Sec. 403(2) - Compensation Credit (nonrefundable) provides a credit equal to 0.37% of Michigan compensation. See M.C.L.A. § 208.1403(2).

    • (2) Sec. 403(3) - Investment Tax Credit (nonrefundable; revised) provides a 2.9% Michigan investment tax credit. M.C.L.A. § 208.1403(3).

    • The Compensation Credit and the Investment Tax Credit together are limited to 52% of total tax liability.

  • As used in this section, "research and development expenses" means qualified research expenses as that term is defined in section 41(b) of the internal revenue code. See  26 U.S.C.A. § 41.

Eligible Entities: Corporations and flow-through entities for tax years prior to 2011. Only C-Corporations after January 1, 2012.

  • The R&D credit under Section 405 is permanent for C-Corporations.

  • December 31, 2011 for flow-through entities with no “certificated credit”

Deadline for Tax Filing: Due with Michigan Tax Return

  • Taxpayers that wish to claim credits that were allowed under the Michigan Business Tax (MBT) can continue claiming those credits if they continue to file returns under the MBT.

  • For the 2008, 2009, and 2010 tax years, a qualified taxpayer that makes an eligible contribution in an eligible business may claim a credit against the MBT equal to 30% of the taxpayer’s eligible contribution, not to exceed $300,000.

Data Required to Compute Credit: Claim Period Michigan Qualified R&D Expenses (QREs)

Credit Carryforward: Unlimited carryforward for all entities prior to 2011. Unlimited carryforward for C-Corporations only after January 1, 2012 with a certificated credit.

  • Beginning January 1, 2012, only those taxpayers with a certificated credit, which is awarded but not yet fully claimed or utilized, may elect to be MBT taxpayers. If a taxpayer files an MBT return and claims a certificated credit, the taxpayer makes the election to file and pay under the MBT until the certificated credit and any carryfoward of that credit are exhausted. A taxpayer making a valid certificated credit election may also claim the credits on Form 45701, Michigan Business Tax (MBT) Credits for Compensation, Investment, and Research & Development

Refundable/Transferable Tax Credit: No

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