What is the Research and Development Tax Credit?

Research and Development (R&D) is critical in advancing technology, growing a business, and diversifying a product line. Important to a strong electronics industry, R&D enables businesses to develop new processes and products.

R&D Tax Credits allow businesses to apply for a dollar for dollar reduction of tax for qualified expenditures. Currently, business can claim tax credits up to 3 years retroactively and defer taking credit for up to 20 years. R&D tax credits allows for business to be rewarded not simply for the final product, but all the changes, variations, and experiments involved in getting to their final result.

The federal R&D tax credit was renewed for the 14th time since originally enacted into law in 1981 as part of H.R. 4853, the "Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act" (Public Law #111-312), on December 17, 2010. Specifically, the new law includes a 1 year retroactive and 1 year prospective extension of the R&D tax credit from January 1, 2010, through December 31, 2011. The Alternative Simplified Credit (ASC) rate remains at 14% for 2010 and 2011.

Unfortunately, the credit—used by companies of all sizes—is set to expire December 31, 2011, for the 15th time. The uncertainty of an on-again, off-again credit influences companies’ future R&D budgets, particularly when manufacturers are courted by other countries with more generous and permanent R&D tax incentives and lower corporate tax rates. A strengthened, permanent credit will enhance the credit’s value. Companies will know the credit will be available for the duration of an R&D project.

The credit is needed to keep the U.S. competitive in the global race for R&D investment dollars. In 2009, the United States ranked 24 among 38 industrialized countries offering R&D tax incentives. From 1996 to 2009, the number of OECD countries offering R&D tax incentives increased by 75 percent, reflecting the fierce competition among countries vying to become world leaders in research. The U.S. share of global R&D fell from 39 percent in 1999 to 33 percent in 2007.

For more information, see the Deloitte study of 2011 Global R&D Tax Incentives (.pdf)

Unless extended by Congress the R&D tax credit will expire on December 31, 2011.

R&D Knowledge Center

There are currently two methods used to compute R&D tax credits, the traditional credit and the an alternative method, the Alternative Simplified Credit (ASC). Companies using the ASC computation may be able to claim a credit even if they do not qualify for the traditional tax credit claims.

Learn more: Slideshow Presentations:

Additional Knowledge:
Free White Paper
How your company could be losing hundreds of thousands of dollars (by not taking advantage of the R&D Tax Credit provisions)

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