March 21, 2013

Update: New Florida R&D Tax Credit

Update: New Florida R&D Tax Credit Tax & Business

The State of Florida recently enacted a Research and Development (R&D) tax credit for tax years beginning on or after January 1, 2012 for qualified business enterprises with qualified research expenses in the state of Florida. The state R&D credit is computed based on 10% of qualified research expenses (“QREs”) incurred in Florida.

The application for the Florida research and development tax credit was activated at 8:00AM on March 20th on the Florida Department of Revenue website. The FL DOR will take applications for the 2012 credit through December 31st of this year, or until the $9,000,000 maximum credit offered by the state has been allocated to taxpayers. Since the credit is being allocated on a first come first serve basis to taxpayers, it is important to apply as soon as possible.

Florida is the most recent state to enact a state based R&D Credit. The Federal R&D tax credit was instituted to encourage companies to invest in well paying development jobs in the U.S. States followed suit, and at this time, more than 75% of states have some form of a state R&D tax credit.

For Florida credit purposes, for tax years beginning on or after January 1, 2012, a “business enterprise” that is eligible for the federal R&D credit may apply for a credit against Florida income tax. A “business enterprise” is any corporation that is a “target industry business”, which is any business that has the potential for future growth, pays high wages compared to average, market and resource independent, is in an industry which contributes toward expanding or diversifying the economic base, and has positive economic impact. (Partnerships and LLCs taxed as partnerships are specifically excluded from this definition as are businesses that are identified in the retail industry, electrical utility, phosphate or solid mineral severance, mining, or processing operations, oil and gas exploration or production, or any business in the hotel or restaurant industry.)

The credit is equal to 10% of the excess current year’s QRE’s over the base amount, which is the average of the business enterprise’s previous four taxable years’ qualified research expenditures. If the business enterprise has not been in existence for four years, the credit must be reduced by 25% for each taxable year that it was not in existence. The credit cannot exceed 50% of the business enterprise’s remaining net income tax liability for the year after all other credits have been applied. Any unused credit may be carried forward for up to five years.

In order to qualify for the Florida R&D tax credit a business enterprise must submit an on line application on or after March 20 of the following year. There is a yearly cap of $9 million and the credit is on a “first-come-first-serve” basis. Therefore, companies wishing to take advantage of the new Florida R&D credit for 2012 should file their application on or very soon after March 20, 2013 in order to be as close to the front of the line of applicants as possible.

With the passing of this state legislation, now is the time for businesses to re-evaluate their activities in order to determine eligibility, not only for Florida R&D credit purposes, but Federal and other states, as well. Research and development tax credits are often overlooked by many business owners, who assume they must have laboratories or breakthrough research to claim the credits. Others fear they’ll be subject to complex tax calculations or trigger an audit. But many businesses that employ engineers, develop software or outsource product testing are perfect candidates to claim R&D credits. In recent years, various credit computations have been simplified and can be taken retroactively.

Marcum’s dedicated Tax Credits and Incentives Services Professionals will continue to monitor the federal and state R&D credits to benefit your business, as well as any other emerging credits and incentives programs. Please reach out to your Marcum tax professional with any questions related to the new Florida application or eligibility in other states.

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