As part of its “Government that Works” program, the Pennsylvania Department of Revenue (DOR) recently introduced a new online-based application process for taxpayers who apply for the state’s Research and Development (R&D) tax credit. Per DOR’s Electronic Filing Notice, all Pennsylvania R&D tax credit applications must be submitted through the new online platform, which will be accessible June 21, 2018, through the filing deadline of September 15, 2018. Both taxpayers and tax practitioners will be able to access the system, and the application process will require users to create a DOR-specific electronic signature and log-in name.

Background

The Pennsylvania R&D Tax Credit Program – Act 7 of 1997 created the Pennsylvania R&D tax credit program, which later became Article XVII-B of the Tax Reform Code of 1971. Its goal is to incentivize taxpayers to try to develop or improve their products, processes, software, techniques, inventions, or formulas, for example, by making them better, faster, cheaper, or greener.

Pennsylvania Act 85 of 2016 most recently authorized the DOR to approve up to $55 million in total R&D tax credits per fiscal year for all applicants, with $11 million of the total set aside for “small businesses,” i.e., for-profit corporations, limited liability companies, partnerships, or sole proprietorships with a net book value of assets totaling less than $5 million.

Per the publicly available Report to the Pennsylvania General Assembly on the Research and Development Tax Credit (March 15, 2018), the entire $55 million in R&D tax credits made available this past year was awarded to 1,126 applicants in December 2017. Without the $55 million cap, over $108 million in credits would have been awarded. There were 531 small business applicants, and without the $11 million cap, there would have been over $22 million in credits awarded to those applicants.

The awarded credit may be claimed against Pennsylvania capital stock and franchise tax, the corporate net income tax, and the personal income tax. Taxpayers who are awarded R&D tax credits may carry over and apply unused tax credits for up to fifteen succeeding taxable years. Additionally, one of the more noteworthy features of the R&D tax credit program is the ability for taxpayers to sell or assign unused tax credits to other taxpayers. To qualify, expenses must be for activities performed in Pennsylvania.

Contact your CPA for more information on these credits and how they affect you.

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