California Research and Development Tax Credit Summary

The California R&D Tax Credit is very similar to the federal version including the definition of qualifying research. Below are some of the differences between the federal and California R&D Tax Credits.

  • The credit rate in California is 15% as opposed to 20% for federal purposes when using the regular calculation method
  • There is no Alternative Simplified Credit (ASC) method in California
  • California still allows for the Alternative Incremental Research Credit
  • Qualified Research must take place in California in order to qualify for the California credit
  • California has adopted a permanent research and development tax credit
  • Unused California research credits can be carried forward indefinitely as opposed to federal credits which can be carried back one year and carried forward twenty
  • California has adopted a different definition of gross receipts for companies that provide services

California R&D Tax Credit Case Study

A San Francisco Company develops software used by their clients. It had never before claimed the R&D credit for the development activities of its software programmers. This project involved a four year study with a three year look back to claim credits for years 2010 through 2013. The Company qualified for the federal R&D Tax Credit of $359,917 and an additional $247,500 in California state R&D Tax Credit. Summary of credits:

FEDERAL
CALIFORNIA
Year
Total QREs
Credit
Total QREs
Credit
2013
$1,300,000
$156,333
$1,300,000
$97,500
2012
900,000
92,167
900,000
67,500
2011
650,000
66,500
650,000
48,750
2010
450,000
44,917
450,000
33,750
Total $3,300,000 $359,917 $3,300,000 $247,500

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