North Carolina Research and Development Tax Credit Summary

The North Carolina R&D Tax Credit provides a tax credit for increasing qualifying research activities in the state of North Carolina. While North Carolina leverages off of the federal section 41 rules regarding the qualification of qualified research activities, the calculation of the R&D Tax Credit is significantly different than the federal R&D Tax Credit.

  • North Carolina Article 3F provides for a research and development tax credit to a taxpayer as long as it meets the eligible requirements found in Article 3A.
  • Article 3A requires that a taxpayer must meet certain criteria, including
    • (1) meeting the wage standard,
    • (2) providing health insurance for employees,
    • (3) maintaining a good environmental record, and
    • (4) having a good Occupational Safety and Health Act record.
  • The North Carolina tax credit amount is applied to North Carolina research and development expenditures only.
  • North Carolina provides for five different tiers of tax credit rates that can be applied depending on the taxpayer’s business type:
    • Small business (3.25%); Low-tier research (3.25%); University research (20%); Eco-industrial park (35%);
    • Other expenses – dependent on level of expenses (1.25% – 3.25%). Only one credit rate is allowed for the same expenses. If more than one category applies to the same expenses the higher credit rate is used.
  • Unused R&D tax credits may be carried forward up to 15 years.

North Carolina R&D Tax Credit Case Study

An aerospace company in Raleigh creates parts for aircraft. This project involved a multi-year study covering the tax years 201 – 2014. The Company qualified for the federal R&D Tax Credit of $364,237 and an additional $118,373 in North Carolina State R&D Tax Credits. Summary of credits:

FEDERAL NORTH CAROLINA
Year Total QREs Credit Total QREs Credit
2014 $1,113,300 $111,330 $1,113,300 $36,182
2013 968,116 96,812 968,116 31,464
2012 834,870 83,497 834,870 27,133
2011 725,980 72,598 725,980 23,594
Total $3,642,266 $364,237 $3,642,266 $118,373

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