Read about the industry R&D Tax credit that was recently passed in the Senate
The Michigan Senate recently passed bills to foster innovation and economic growth within the state’s business landscape. HB 4368 and HB 5099 through HB5102 collectively propose the establishment of a research and development tax credit to incentivize business investment in research and development (R&D) activities. The operative provisions of the R&D tax credit are in HB4368, HB5100, and HB5101.
HB4368 defines the terms specific to administering the R&D tax credit. Key terms are summarized as follows:
- “Authorized Business” – a business subject to Michigan withholding requirements that increase its qualifying R&D expenses.
- “Qualifying R&D expenses” – the total amount of R&D expenses, in-house or contracted, incurred to carry on trade or business in Michigan.
HB5100 and HB5101 lay down the foundational research and development tax credit framework, outlining the eligibility criteria and the scope of qualifying R&D activities. Specifically, HB 5100 provides:
- Businesses with 250 employees may claim 3% of eligible R&D expenditures up to 10% of the base amount (the average of the previous three years), limited to $2 million.
- Businesses with fewer than 250 employees may claim 3% of eligible R&D expenditures up to 15% of the base amount (the average of the previous three years), limited to a total dollar amount of $250,000.
- A business may claim an additional credit of 5%, limited to $200,000 if the R&D expenses were incurred in partnership with a research university.
- If the R&D tax credit exceeds a company’s tax liability, the portion that exceeds the liability is refunded to the business.
- The total amount of all R&D tax credits that may be offered is limited to $100 million annually.
- The R&D tax credit is not transferrable and may not be claimed by any member of a flow-through entity.
In conclusion, the state’s passage of the R&D tax credit package by the Michigan Senate marks a significant step towards cultivating a culture of innovation and economic prosperity. The package was sent to the Michigan House just before the legislative Spring Break at the end of March. It is anticipated that final action will occur sometime in May or early June. The R&D bills are tied closely to a broad effort to pass comprehensive economic development reform. Of all measures under consideration, R&D is less likely to undergo further amendment than other bills.
