The federal Research and Development Tax Credit has received plenty of attention over the last few years given the increased benefits now available from the 2015 PATH Act. However, life sciences companies exploring federal R&D credits should be mindful that numerous benefits are also available through state-run programs. Massachusetts offers research and development tax credits, for qualified life sciences companies, through a program that closely mirrors the federal research credit.
The following expenses qualify if the services were performed for research purposes, as defined under Section 41(b) of the Code, and the supplies were used to conduct research activity in Massachusetts:
When services or tangible personal property are employed both within and outside Massachusetts, the amount of the expense must be prorated based on the days within and outside of Massachusetts.
As of January 1, 2015, companies are able to choose between a revised regular research credit and an alternative simplified research credit:
The revised regular research credit is calculated as follows:
The alternative method is calculated as follows:
Taxpayers with no qualified research expenses in any of the three preceding years will be granted a credit of 5% of all qualified research expenses for the current year.
The taxpayer’s liability cannot be reduced below $456. Unused credits can be carried forward for up to 15 years to offset future corporate excise taxes. Unused credits arising from the 75% limitation rule can be carried over indefinitely. Corporations and S-Corporations apply the credit against their corporate excise tax. S-corporations do not pass any of the tax attributes to their members.
Companies that apply and are accepted into the Massachusetts Life Sciences Center tax incentive program may receive additional research and development tax benefits:
In addition to R&D tax benefits, the Massachusetts Life Sciences Center has numerous other tax benefits. Interested companies should visit the Massachusetts Life Sciences Center website to learn more. The application period typically runs from late December to early February each year.
To learn more about these government sponsored tax incentives and how they may benefit your biotech or life sciences company, please contact Taryn Bostjancic.