Michigan House Approves $100M in R&D Tax Credits

Michigan taxpayers might be able to claim the Research and Development (R&D) tax credit, reducing their income tax. HB 5100 passed the Michigan House on October 31st, 2023 and now moves to the Michigan Senate for further consideration. 

The R&D tax credit incentivizes research and development activity in Michigan. It can help taxpayers who paid for qualified research activities increase cash flow and receive a state dollar-for-dollar income tax reduction, potentially resulting in significant cost savings. This would apply to many industries across the state of Michigan, including (but not limited to) manufacturing, software, engineering, and financial services.

HB 5100 Summary

Michigan Gov Whitmer has indicated her support for a Michigan R&D tax credit. It’s expected she will sign the legislation. HB 5100 would take effect for tax years beginning on or after January 1, 2024:

Qualifying Expenditures

R&D Tax Credit qualifying expenditures can include salary, supply costs, computer rentals or leases, and contractor costs. Specifically, this includes the following:

Four-Part Test

Documentation is extremely important to defending any R&D tax credit claims. For an expenditure to qualify in Michigan, it must meet the criteria outlined in IRC §41:

Permitted Purpose:

This means the purpose of the research activity was to improve the performance, reliability, functionality, or quality of a product (or software). 

Technological Uncertainty:

There is uncertainty relating to how the product (or software) should be developed or designed.

Process of Experimentation:

There is a trial and error period to attempt to eliminate the above-mentioned uncertainty. 

Technological in Nature:

The activity must be determined by principles of one or more of the following: Engineering, physical sciences, biological sciences, or computer science. 

The legislation for the new R&D tax credit would provide Michigan taxpayers and businesses with economic development incentives and significant cost savings. 

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