Virginia Research and Development Tax Credit Summary

Virginia allows a refundable individual and corporate income tax credit for conducting qualified research and development in Virginia, to the extent a taxpayer’s Virginia qualified R&D expenses (QREs) exceed a base amount. Here is a summary of the credits:

  • The credit is allowed in the taxable year in which qualified R&D expenses are reported on the federal income tax return.
  • Virginia’s R&D tax credit follows IRC Section 41 rules for qualified activities and expenses, and follows a modified version of the federal regular credit method.
  • The R&D credit is comprised of a base credit and a supplemental credit that is available only to the extent that the total amount of credits granted for a fiscal year is less than the annual credit cap ($6 million for tax year 2014; $5 million for tax years 2011 – 2013).
  • The base credit for tax year 2014 is equal to 15 percent (15%) of the first $234,000 ($167,000 for tax years 2011 – 2013) in Virginia QREs paid or incurred by the taxpayer during the credit year.
  • An increased credit rate (20%) is available for qualified expenses paid to a Virginia college or university.
  • If the total eligible credit requests exceed the $6 million credit cap for all credits ($5 million for tax years 2011 – 2013), each taxpayer will be granted a pro rata amount of credits as determined by the Department.
  • An eligible taxpayer must submit an Application for the Research and Development Expenses Tax Credit, Form RDC and any supporting documentation to the Department no later than April 1 of the year following the credit year.

Virginia R&D Tax Credit Case Study

A Norfolk firm designs components for the maritime industry. The company claims R&D credits each year for the design and development activities of its engineers. This project involved a multi-year study covering the tax years 2011 – 2014. The Company qualified for the federal R&D Tax Credits of $196,000 and an additional $98,235 in Virginia state R&D Tax Credits. Summary of credits:

FEDERAL VIRGINIA
Year Total QREs Credit Total QREs Credit
2014 $750,000 $70,000 $750,000 $35,100
2013 550,000 45,500 550,000 20,625
2012 500,000 42,000 500,000 21,000
2011 450,000 38,500 450,000 21,510
Total $2,250,000 $196,000 $2,250,000 $98,235

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