April 29, 2015

California Research and Development Small Business Grant Program

California Research and Development Small Business Grant Program Tax & Business

The California State Assembly has introduced a bill to establish a Research and Development (R&D) Small Business Grant Program that would allow qualified small businesses to obtain grant payments for unused tax credits. The bill would provide small businesses with the ability to obtain cash grants to maximize the utilization of the research and development credits regardless of tax liability.

The tax provisions will be applicable for taxable years beginning on or after January 1, 2016, and before January 1, 2025. The bill also provides that as of January 1, 2016, qualified taxpayers may apply for one-time cash grants for a percentage of the excess credit amount from a taxable year beginning on or after January 1, 2015.

“Qualified small business” would be defined as a taxpayer that meets all of the following requirements for the taxable year with respect to the credit for which a grant is authorized:

  • The taxpayer is allowed a research credit.
  • The taxpayer has gross receipts of $5 million dollars or less for the taxable year.
  • The taxpayer is not an affiliated corporation that is properly treated as a member of a combined reporting group, and no grant is awarded with respect to a credit that may be assigned.
  • The taxpayer has been certified by the Governor’s Office of Business and Economic Development as an eligible qualified small business.

Many other states offer R&D credits but, so far, no other state has a comparable grant payment program for capitalizing unused tax credits. The Franchise Tax Board estimates that $160 million of unused R&D credits would be available for eligible taxpayers to receive grants.

The Tax team at Marcum will continue to alert you to California legislative changes and enactment if this bill is signed into law. If you have any questions about federal and state R&D credits and other state and local matters, just Ask Marcum!

A special thanks to article contributor Mark Solone, Senior Manager, Tax & Business Services.

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