Delaware Research and Development Tax Credit Summary

The Delaware R&D Tax Credit is based on the federal R&D Tax Credit provided under IRC Sec. 41. Below are some of the differences between the federal and Delaware research credits:

  • A taxpayer may elect a R&D credit for the taxable year equal to either:
    • 10% of the 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, calculated using the alternative incremental credit method under IRC Sec. 41(c)(4).
  • Small businesses with revenue less than $20 million and start-ups are eligible for a credit equal to either:
    • 20% of the 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, calculated using the alternative incremental credit method under IRC Sec. 41(c)(4).
  • The total R&D credit may not exceed 50% of the taxpayer’s qualified tax liability in any one taxable year.
  • The R&D credit is subject to a statewide $5 million per year cap.
  • Eligible taxpayers must submit a research and development credit application to the Division of Revenue on Form 2070AC by September 15 after the end of the taxable year during which the R&D expenses were made. A copy of the federal research credit Form 6765 must be attached to the application.
  • After receiving approval for the credit, the taxpayer must complete Form 700 the Delaware Income Tax Credit Schedule. Both the credit application and the credit schedule must be attached to the taxpayer’s Delaware corporation income tax return.
  • Unused R&D credits may be carried forward for 15 years, but cannot be carried back.
  • The Delaware R&D Tax Credit was made permanent effective July 1, 2013, and the credit is now available on an ongoing basis.

Delaware R&D Tax Credit Case Study

A Delaware manufacturing firm with fewer than 50 employees had never before claimed the R&D Tax Credit. This project involved a multi-year study covering the tax years 2012 – 2014. The Company qualified for the federal R&D Tax Credit of $271,832 and an additional $114,562 of state R&D Tax Credit in Delaware. Summary of credits:

FEDERAL DELAWARE
Year Total QREs Credit Total QREs Credit
2014 $1,200,000 $127,166 $1,000,000 $52,986
2013 850,000 92,166 700,000 37,951
2012 500,000 52,500 450,000 23,625
Total $2,550,000 $271,832 $2,150,000 $114,562

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