Kentucky Research and Development Tax Credit Summary

Businesses that invest in facilities used to pursue research may qualify for a state income tax credit. Here is a summary of Kentucky’s Research Facilities State Income Tax Credit:

  • The nonrefundable income tax credit is equal to five percent (5%) of the qualified cost for “construction of research facilities” for “qualified research” as defined in Internal Revenue Code Section 41.
  • “Construction of research facilities” means constructing, remodeling, and equipping facilities in Kentucky or expanding existing facilities in Kentucky for qualified research.
  • Includes only tangible, depreciable property, and does not include any amounts paid or incurred for replacement property.
  • Any unused credit may be carried forward for 10 years.
  • The tax credit was enacted in 2002 and currently applies to taxable years beginning on or after January 1, 2007.

Kentucky R&D Tax Credit Case Study

A company constructed a new research facility in Lexington, Kentucky. The company designs and manufactures components for the automobile industry. In addition to the federal R&D Tax Credit it has traditionally claimed, the company claimed state R&D Tax Credits for the construction of a new research facility in 2014. This project involved a multi-year study covering the tax years 2011 – 2014. The Company qualified for the federal R&D Tax Credits of $327,833 and an additional $210,000 in Kentucky state R&D Tax Credit. Summary of credits:

Total QREs
Total QREs
2013 900,000 91,100 na
2012 650,000 63,000 na
2011 450,000 38,500 na
Total $3,300,000 $327,833 $4,200,000 $210,000

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