R&D Tax Credits


The R&D tax credit can help a wide variety of businesses offset and reduce their income tax liability, in addition to providing many other benefits.

Businesses in Ohio can earn a 7% state income tax credit for the increase in their annual research and development expenses compared to the previous three years. To calculate the credit, the eligible expenses incurred for qualifying R&D activities must be identified and calculated, including wages, supplies, and contract research. Accurate records and documentation must be kept to determine eligible expenses.

To claim the Ohio Credit for Qualified Research Expenses, businesses must complete Schedule CAT CS, also known as the CAT Credit Schedule. This schedule is submitted alongside either the fourth quarter or the annual Ohio Commercial Activity Tax return. The credit is determined as 7% of the qualified research expenses (QREs) that surpass the base amount. This base amount is computed as the average of the QREs from the previous three tax years.

In Ohio, R&D tax credits are available to companies that engage in qualifying activities to advance knowledge or improve processes, products, or technologies. These must be technological, aid in product development, and involve experimentation. Eligible expenses exclude land, equipment, surveys, customer-specific costs, and government-funded research. Some of the qualifying R&D activities include: Development of new products, Testing and experimentation, Development of prototype, Solving technical problems and the like. Accurate record-keeping is crucial for claiming credits.

Only businesses subject to the Commercial Activity Tax can claim the credit. It is not available to pass-through entities.

R&D Tax Credits in Ohio

In Ohio, the R&D Investment Tax Credit serves as a financial incentive for companies to boost their research and development activities. This non-refundable tax credit is calculated at 7% of the qualified expenses that exceed the taxpayer’s average R&D investment over the prior three taxable years. The program aims to promote innovation and technological advancements across various industries within the state by providing a fiscal advantage to companies that increase their R&D spending.

What Goes into the Ohio R&D Tax Credit as a Qualified Research Expense?​

The Ohio research and development tax credit allows for businesses to claim a percentage of their qualifying research expenses.

In order for an expense to qualify it must meet specific research criteria:

  1. Products, services, processes, or software must be new or improved in some way 
  2. Uncertainty must be eliminated as a result of the research 
  3. The research must be technological 
  4. Research must include experimentation processes of some nature

The types of expenses that are applicable to claim under the credit include the following:

Wages paid to employees who are directly involved in the performance of research and development activities within the state of Ohio. This includes payments made to subcontractors involved in the performance of such activities.

Take Advantage of the
R&D Tax Credit with Source Advisors

Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and also determine any state R&D tax credit availability. Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.