Letter — Department of Commerce, Research and Development Incentives in Other States (January 5, 2023)
Summary
This letter from the Department of Commerce is dated January 5, 2023 and is addressed to the Secretary of the Senate and the Chief Clerk of the House of Representatives. It is a report on research and development incentives in other states, submitted to satisfy the reporting requirements in Section 6 of Substitute House Bill 1170 (Chapter 64, Laws of 2021). It lists points of interest on state research and development tax credits, including that some states cap overall funding for the credit. It quotes research that it may take a decade or more for the credits to affect the economy through entrepreneurship, and gives 1982 spending of $37.8 billion by government and $40.7 billion by the private sector.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“Letter — Department of Commerce, Research and Development Incentives in Other States (January 5, 2023).”
Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2023-commerce-rd-incentives-for-1170-2695fa7e-1919-425d-a637-9f4126978-72382307d9/
, SHA-256 50ac4013c522c40894367adbc57eea334c6561971e2c49f5c1400bda367576e8.Full text
STATE OF WASHINGTON
DEPARTMENT OF COMMERCE
2001 Sixth Avenue Suite 2600 Seattle, Washington 98121-2895 206-256-6100 Fax 206-256-6158
www.commerce.wa.gov
January 5, 2023
Ms. Sarah Bannister, Secretary of the Senate
312 Legislative Bldg.
PO Box 40482
Olympia, WA 98504-0482
Mr. Bernard Dean, Chief Clerk of the House of Representatives
338B Legislative Bldg.
PO Box 40600
Olympia, WA 98504-0600
Re: SHB1170 Report on Research and Development Incentives in Other States
Dear Ms. Bannister and Mr. Dean,
The Department of Commerce (Commerce) submits this letter and research to satisfy the
reporting requirements in Section 6 of Substitute House Bill 1170 (Chapter 64, Laws of 2021).
SHB 1170 states:
“Within existing resources, the department must report …the progress made in
developing, recruiting, and retaining research and development employers and
workforce; and a description of how the state's policy toolkit for developing strength in
research and development as a sector compares to competitor states.”
Points of Interest in State Research and Development Tax Credits in the United States
The following summary of research and development (R&D) tax incentives in every state in the
United States is intended as a first step in providing a national context. This analysis sets the
stage for further research on successful R&D in specific states, especially as it relates to tax
incentives available at the federal and state level.
Some items are worth mentioning should the Legislature consider creating or renewing its
previous R&D tax incentive:
Page 2 of 15
A federal R&D tax credit based on qualified expenditures is available to every state.
State R&D tax credits are determined by each state and not all states have adopted one.
Washington is one of 12 states without a R&D tax incentive.
Each state’s R&D tax credit differs slightly. All of their qualified expenditures are based
on the definitions by the IRS associated with the federal R&D tax credit.
Many states allow tax credits to be carried over to subsequent tax years.
Some states cap overall funding dedicated to the tax credit, and limit the amount claimed.
Some states focus their R&D tax credits on specific types of R&D, such as technology,
life sciences or energy efficiency.
States can also attempt to incentivize expansion in R&D spending by focusing their
credits on the growth in spending.
Of interest is the difficulty finding information on R&D tax credits from most states. In
fact, there are several businesses thriving in their efforts to assist interested businesses to
find states with R&D tax credits most favorable to their respective enterprises, since these
credits are so difficult to find and decipher. Importantly, there are several states with
exceptionally clear and accessible R&D online tax credit information provided by the
state (usually their departments of commerce or revenue). Transparency in available tax
credits seems a laudable goal to democratize the availability of tax credits to eligible
large and small businesses.
What the Research Says about R&D Tax Credits in the United States
“Though initially aimed at fostering innovation by established enterprises, state R&D tax
credits also increase the rate of entrepreneurship, and importantly, the formation of high
growth potential startups needed to achieve economic development objectives. However,
the R&D tax credit does not offer a ‘quick fix’ for states seeking to catalyze regional
economic growth through entrepreneurship. Importantly, increases in the formation of
high potential growth firms only materialize over time in response to R&D credits. Thus,
it may take a decade or more for state R&D tax credits to have an impact on the economy
through entrepreneurship. More generally, tax incentives might be more effectively
leveraged as one part of a broader complement of initiatives aimed at encouraging the
formation and scaling of growth-oriented firms. Overall, our findings counsel in favor of
‘patient’ and targeted policy-- offering longstanding tax incentives tailored towards the
revenue trajectories of high-potential growth startups and encouraging investment in
initiatives, including public-private partnerships, that support this important category of
newly-founded firms.”1
For those interested in reading state evaluations of R&D tax credits, please see the National
Conference for State Legislatures: State Tax Incentive Evaluations Database.
Another significant finding is a major shift in R&D expenditures in the U.S. since 1982. In 1982,
R&D spending was roughly equal between the government ($37.8 billion) and private sector
1
Catherine Fazio, J. G. (2019). The Impact Of State-Level R&D Tax Credits On The Quantity And Quality
Of Entrepeneurship. National Bureau of Economic Research Working Paper Series, 4-5.
Page 3 of 15
($40.7 billion). By 2020, the private sector was investing $517.4 billion, nearly four times that of
the public sector ($142.8 billion).2
“At one level, there is nothing wrong with businesses having primacy over government in
R&D spending. America has a vibrant private sector that enables business leaders to scan
the landscape, decide where there are investment opportunities, and position their firms
for future value. It is a virtue of market capitalism that such decisions are privately-made
and decentralized across a range of chief executives.
“But at another level, there are problems with the bulk of R&D coming from the business
community. First, vital national interests may get overlooked to the detriment of the
overall country. Second, profitable consumer products likely will get advantaged over
unprofitable societal innovations, even if the latter are important for public health and
national security. Third, innovations that need to get financed in order to promote
longterm public goods may receive short shrift over items that promise a quick payoff.
Corporate leaders are under enormous pressure to meet quarterly revenue projections and
that can skew their R&D allocation decisions.”3
Please contact my by phone at (206) 256-6140 or email at Carolyn.Busch@commerce.wa.gov if
you have any questions regarding this report or need additional information.
Sincerely,
Carolyn Busch
Workforce Innovation Sector Lead
Office of the Economic Development and Competitiveness
Department of Commerce
2
West, D. M. (2022). R&D for the Public Good: Ways to Strengthen Societal Innovation in the United
States. Brookings.
3
Ibid.
Page 4 of 15
2022 R&D tax incentives in the 50 states
State R&D incentive Description
Alabama None
Alaska None
Arizona State income tax credit The Research and Development (R&D) incentive provides an Arizona
income tax credit for increased research and development activities
Arizona Incentives - Research
conducted in this state, including research conducted at a state university and
and Development Tax Credit
funded by the company. The goal is to encourage Arizona businesses to
Program for Business
continue investing in research and development activities.
Arkansas State income tax credit The Research & Development Tax Credit Program allows credits against a
taxpayer's Arkansas state income tax for making certain qualified research
Arkansas Research &
expenditures as well as certain donations or sales below cost of new
Development Income Tax Credit
machinery and equipment to a qualified research program. Income tax
Incentive
credits are intended to provide incentives for university-based research, in-
house research of several kinds, and research and development in start-up,
technology-based enterprises.
California State income tax credit This credit is based on the federal research credit, with modifications.
Businesses may qualify for this credit if they engaged in qualified research
California state income tax credit
activities in California.
Page 5 of 15
State R&D incentive Description
Colorado Enterprise Zone Research & The credit helps businesses invest in research and development. Businesses
Development State Tax Credit can earn a state income tax credit for 3% of the increase in annual research
and development expenses compared to what the business spent the prior
Colorado Enterprise Zone
two years. The Colorado Legislature created the Enterprise Zone (EZ)
Research and Development Tax
Program to encourage development in economically distressed areas of the
Credit
state. The 16 designated enterprise zones have high unemployment rates,
low per capita income, or slow population growth
Connecticut Research and Experimental A tax credit may be applied against the tax imposed under Chapter 208
(Incremental) Expenditures Tax (Corporation Business Tax) for the incremental increase in research and
Credit experimental expenditures conducted in Connecticut.
Connecticut Research and
Experimental Incremental
Expenditures Tax Credit
Delaware Research and Development Tax Delaware companies can receive a tax credit for all eligible spending on
Credits research and development activities conducted in the state. The Delaware
credit is 50% of the amount eligible for the federal credit.
Delaware Tax Incentives &
Financing
Florida Research and Development Tax Florida provides a corporate income tax credit for eligible businesses for
Credit Program certain qualified research expenses. The Florida Corporate Income Tax
Credit is contingent, in part, on the eligible business having received the
federal research and development tax credit. Taxpayers will be able to apply
to the Florida Department of Revenue (DOR) for an allocation of the Florida
Research and Development Credit beginning on March 20, 2022.
Page 6 of 15
State R&D incentive Description
Georgia Research and Development Tax R&D tax credits are available to any company that increases its qualified
Credit research spending. New companies, existing companies embarking on R&D
for the first time, established companies expanding their R&D budget - all
Georgia Research and
are eligible for R&D tax credits. The tax credit earned is a portion of the
Development Tax Credit
increase in R&D spending. The credit can be used to offset up to 50% of net
Georgia income tax liability, after all other credits have been applied.
Hawaii Hawaii Research Credit The Tax Credit for Research Activities (R&D Tax Credit) is a refundable
income tax credit for a qualified high technology business equal to the credit
Hawaiia Film Tax Credit and
for research activities provided by section 41 of the Internal Revenue Code
Hawaii Research Credit
and as modified by HRS 235-110.91. The maximum credit available per
year is $5 million. Certifications will be provided on a first-come, first-
served basis until the cap is reached. The tax credit will be repealed from
statute on December 31, 2024.
Idaho Sales tax exemption for research Sales tax exemption for the lease, rental, purchase, sale at retail, storage, use
and development activities or other consumption in this state of tangible personal property which is
primarily used in research and development activities.
Idaho State Legislature - Section
63-3622RR
Illinois Research and development The income tax credit is 6.5% of the qualifying expenditures for increased
income tax credit research activities. Qualifying expenditures are equal to the federal credit for
increasing research activities which would be allowable under Section 41 of
Illinois General Assembly -
the Internal Revenue Code.
Illinois Compiled Statutes
Page 7 of 15
State R&D incentive Description
Indiana Research expense credits There are two tax incentives targeted at encouraging investments in research
R&D sales tax exemption and development. Taxpayers may receive a credit against their Indiana state
income tax liability calculated as a percentage of qualified research
Indiana Overview
expenses. In addition, taxpayers may be refunded sales tax paid on
purchases of qualified research and development equipment. The Indiana
Department of Revenue oversees these incentive programs.
Iowa Research activities credit Using average annual gross receipts for the four preceding years to the
taxable year for which the credit is being determined; the base amount
Iowa Research Activities Credit
cannot be less than 50% of the qualified research expenses for the credit
(RAC)
year. Allowed for Federal Research Credit for qualified research expenses
under Internal Revenue Code section 41 for the same taxable year. The
credit is only for manufacturing, life sciences, software engineering, and
aviation/aerospace.
Kansas Research and development The Kansas research and development credit allows a taxpayer who makes
income tax credit expenditures in research and development activities in Kansas to claim an
income tax credit. Expenditures made for research and development
Kansas Department of Revenue
purposes must be allowable under the provisions of the federal internal
Tax Policy - Research and
revenue code of 1986. The credit is 6.5% of the difference between the
Development Credit
actual qualified research and development expenses for the year and the
average of the actual expenditures made during the year and the two
previous tax years. The credit allowed in any one tax year is limited to 25%
of the credit plus any carry forward. Any remaining unused credit may be
carried forward in 25% increments until the total amount of credit is used.
Page 8 of 15
State R&D incentive Description
Kentucky Qualified Research Facility A nonrefundable credit equal to 5% of the qualified costs of construction of
Income Tax Credit research facilities that may be applied against individual, corporate, or
limited liability entity income taxes. Qualified research as defined in Section
Kentucky Qualified Research
41 of the Internal Revenue Code.
Facility Tax Credit
Louisiana Research and Development Encourages existing businesses with operating facilities in Louisiana to
Income Tax Credit establish or continue research and development activities within the state.
Provides up to a 30% tax credit on qualified research expenditures incurred
Louisiana Research and
in Louisiana — with no cap and no minimum requirement.
Development Tax Credit
Maine Research Expense Income Tax Is limited to 5% of the excess qualified research expenses that exceed the
Credit previous three-year average and 7.5% of basic research payments. The credit
is also limited to 100% of the first $25,000 in tax liability plus 75% of the
Maine Title 36, §5219-
liability over $25,000.
K: Research expense tax credit
Maryland Research and Development The tax credit is equal to 10% of eligible R&D expenses (as defined by the
Income Tax Credit IRS) incurred during the taxable year in excess of the Maryland Base
Amount. If the total credits applied for exceed the statutory caps, the
Maryland Business Tax Credits |
business's R&D tax credit is prorated. The total statutory cap is $12 million
Research and Development
with a small business set-aside of $3.5 million. A single applicant may not
receive a tax credit exceeding $250,000.
Massachusetts Research Credit May be available to business corporations subject to the corporate excise
that incurred “Massachusetts qualified research expenses” in Massachusetts.
Massachusetts Research Credit
The credit closely parallels the federal research credit. May not reduce a
taxpayer’s liability below $456. The credit amount is limited to: 1) The first
$25,000 of corporate excise due, plus 2) 75% of any excise due in excess of
$25,000.
Page 9 of 15
State R&D incentive Description
Michigan Research and Development A new credit for 1.9% of Michigan research and development expenses.
Expenses Along with two other tax credits (compensation and investment), the three
credits are limited to 75% of a taxpayer’s tax liability.
Michigan New, Retained, and
Expanded Credits
Minnesota Research and Development Tax Equal to 10% of qualifying expenses up to $2 million, and 4% for expenses
Credit above that level. Qualifying expenses are the same as for the federal R&D
credit. Contributions to qualified nonprofit organizations that make grants to
Minnesota Research and
early-stage technology businesses in Minnesota also may qualify.
Development (R&D) Tax Credit
Mississippi None
Missouri Research and Development Tax Income/franchise credit based on increased research and development
Credits spending. Exemption from state and local sales/use tax related to total
research and development equipment expenditures. $300,000 cap per
Missouri Revisor of Statutes -
taxpayer. Initial $5 million of $10 million for this program prioritized to
RSMo Section 620.1039
women and minority taxpayers annually.
Montana None
Nebraska Advantage Research and Research and experimental expenditures equal to 15% of the federal tax
Development Credit credit and 35% if made at a college or university in Nebraska. The tax credit
may be a refund of sales/use taxes or income taxes paid. If eligible,
Nebraska Advantage Research
businesses may claim the credit for no more than 20 years, unless claimed
and Development Act FAQs
through a college/university when the limit is 4 years.
Nevada None
Page 10 of 15
State R&D incentive Description
New Hampshire Research and Development With an annual program appropriation of $7 million, the amount of the
Income Tax Credit credit shall be the lesser of 10% of the business organization's qualified
manufacturing research and development expenditures or $50,000 in any
New Hampshire Research and
given fiscal year (qualified expenditures based on IRS specifications).
Development Tax Credit (R&D)
FAQ
New Jersey Research and Development Provides a credit for increased research activities based on qualified
Business Tax Credit expenditures (based on IRS). This credit is calculated in the same manner as
the federal tax credit for increasing research activities. It provides a credit of
New Jersey | What tax credit
10% of excess qualified research expenditures over a base amount, plus 10%
programs are available to New
of basic research payments.
Jersey businesses?
New Mexico Technology Jobs and Research A taxpayer conducting qualified research at a qualified facility and making
and Development Tax Credit qualified expenditures of no more than $5 million is eligible to claim the
basic technology jobs and research and development tax credit of 5% against
New Mexico Technology Jobs
the taxpayer’s compensating tax, withholding tax or gross receipts tax,
and Research and Development
excluding local option gross receipts tax. The tax credit will double to 10%
Tax Credit
for expenditures in facilities located in rural New Mexico. Taxpayers may
apply for an additional tax credit of 5% against the taxpayer’s income tax or
corporate income tax liability. The additional credit will double to 10% for
taxpayers located in rural New Mexico. To qualify for the additional credit,
the taxpayer must increase the annual payroll expense $75,000 for every $1
million in qualified expenditures claimed. The taxpayer may not claim an
amount that exceeds the taxpayer’s personal or corporate income for that
reporting period. Businesses with 50 or fewer employees may receive
additional incentives.
Page 11 of 15
State R&D incentive Description
New York Life Sciences Research and For new businesses, the credit is equal to 15% of the qualified life sciences
Development Tax Credit company’s research and development expenditures for a company that
employs 10 or more persons, or 20% of the qualified life sciences
New York Life sciences research
company’s research and development expenditures for a company that
and development tax credit
employs fewer than 10 persons. The credit is allowed for up to three
consecutive years and is limited to $500,000 per year.
North Carolina None
North Dakota Research Expense Income Tax This is an income tax credit for conducting research. The credit is equal to a
Credit percentage of the excess of qualified research expenses (QRE) over a base
amount of 1) 25% for the first $100,000 of excess QRE in a tax year and 2)
North Dakota Research Expense
8% for excess ORE over $100,000 in a year. A taxpayer may elect to use an
Income Tax Credit
alternative simplified method to calculate the credit, under which the credit
is a percentage of QRE in excess of 50% of the average QRE for the
preceding three tax years. The credit is 17.5% of the first $100,000 of excess
QRE plus 5.6% of the excess QRE over $100,000. Taxpayers may choose
either method.
Ohio Research and Development Creating at least five new jobs, an R&D Center Grant may provide funding
Center Grant Program for a portion of the costs related to a new center over five years. The R&D
Center Grant Program will have an initial total funding authorization of
JobsOhio Research &
$100 million. To be eligible to receive an R&D Center Grant, a center must
Development (R&D) Center
represent at least $3 million in new cash investment by a corporation
Grant Program
Oklahoma None
Oregon None
Page 12 of 15
State R&D incentive Description
Pennsylvania Research and Development Businesses and individuals eligible for the tax credit must have at least two
Income Tax Credit years of qualified expenditures (as defined by the IRS). Pennsylvania caps
its total R&D credit at $55 million ($11 million set aside for qualified small
Pennslyvania DOR
businesses). The credit rate in Pennsylvania is 10% (20% for qualified small
businesses). Pennsylvania offers a modified Alternative Simplified Credit.
Rhode Island Research and Development The credit is available to corporations for qualified research expenses (based
Expense Credit on IRS definitions). The amount of the credit is equal to 10% of the cost of
the research and development property. Eligible properties are tangible
State of Rhode Island R&D
personal property and other tangible property, including buildings and
Expense Credit
structural components of buildings, that are acquired, constructed,
reconstructed, or erected for certain research and development purposes. To
be eligible for the credit, the property must be: 1) Depreciable or recovery
property with respect to which a deduction is allowable; 2) Classified as
having a useful life of three or more years acquired by purchase and used
principally for purposes of research and development in the experimental or
laboratory sense.
South Carolina Research Expenses Credit Qualified research and development expenses are defined by the IRS. The
credit is 5% of the qualified research expenses made by the taxpayer during
South Carolina Department of
the tax year. The credit taken in any tax year may not exceed 50% of the
Revenue Tax Credits
taxpayer's tax liability remaining after all other credits are applied.
South Dakota None
Tennessee None
Page 13 of 15
State R&D incentive Description
Texas Sales Tax Exemption or A person engaged in qualified research (as defined by IRS) can claim either:
Franchise Tax Credit for a) a sales and use tax exemption on the purchase, lease, rental, storage or use
Qualified Research of depreciable tangible personal property directly used in qualified research,
or b) a franchise tax credit based on qualified research expenses. A person
Texas Sales Tax Exemption or
cannot claim both the sales tax exemption and the franchise tax credit for the
Franchise Tax Credit for
same period. The election to claim the sales tax exemption or take the
Qualified Research
franchise tax credit is not permanent and can be changed.
Utah Credit for Research Activities in This credit is: 1) 5% of your qualified expenses (defined by IRS) for
Utah increasing research activities in Utah above a base amount; 2) 5% of certain
payments made to a qualified organization increasing basic research in Utah
Utah Income Taxes - Research
above a base amount; and 3) 7.5% of your qualified research expenses in
Activities
Utah for the current taxable year.
Vermont Research and Development Businesses/individuals eligible for the federal research and development tax
Income Tax Credit credit may qualify for a state R&D credit. The credit can be taken in an
amount equal to 27% of the federal tax credit allowed in the taxable year.
Vermont Tax Credits for
This credit applies to personal income tax or business or corporate income
Business
tax. Names of recipients are published the year after taking the tax credit.
Page 14 of 15
State R&D incentive Description
Virginia Research and Development The base credit for a taxpayer using the primary method is equal to: (i) 15%
Expenses Tax Credit of the Virginia qualified research and development expenses paid or
incurred by the taxpayer during the credit year (up to a $45,000 credit), or
Virginia Research and
(ii) 20% of the Virginia qualified research and development expenses paid
Development Expenses Tax
or incurred by the taxpayer during the credit year if the Virginia qualified
Credit Guidelines
research was conducted in conjunction with a Virginia public or private
college or university (up to a $60,000 credit), to the extent such expenses
exceed the taxpayer’s Virginia base amount. Qualified expenses are defined
by the IRS.
Washington None
West Virginia Research and Development Sales Purchases of tangible personal property and services directly used in
Tax Exemption research and development are exempt from the consumer sales tax.
West Virginia's Business
Development Incentives
Page 15 of 15
State R&D incentive Description
Wisconsin Research Credits There are 3 types of research tax credit: 1) Increasing research; 2) Related to
internal combustion engines; and 3) Activities related to certain energy
Wisconsin Research Credits
efficient products. The credit is equal to a percentage of the amount of
qualified research expenses for the taxable year exceed 50% of the average
qualified research expenses for the 3 taxable years immediately preceding
the taxable year for which the claimant claims the credit. If the claimant had
no qualified research expenses in any of the 3 taxable years immediately
preceding the taxable year for which the claimant claims the credit, the
claimant may claim an amount equal to a percentage of the qualified
research expenses for the taxable year for which the credit is claimed with
percentages varying by the tax credit focus. The percentage for research is
5.75 and 11.5 for combustion engines and energy efficient products. If the
claimant did not have qualified research expenses in the preceding 3 years,
the percentage is 2.875 for research and 5.75 for combustion engines and
energy efficient products. Qualified expenses are defined by the IRS.
Wyoming None
File and source
- File
- 2023_commerce-rd-incentives-for-1170-2695fa7e-1919-425d-a637-9f4126978ce2.pdf
- Size
- 413,649 bytes
- SHA-256
- 50ac4013c522c40894367adbc57eea334c6561971e2c49f5c1400bda367576e8
- Original
- No public link identified.