Rhode Island

R&D Tax Credits

Rhode Island

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 Rhode Island can earn a 3% state income tax credit for the increase in their annual research and development expenses, compared to the previous two 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. The credit must be claimed 25% each year for four years. Accurate records and documentation must be kept to determine eligible expenses.

To claim the credit, you’ll need to complete forms RI-7695E for Research & Development Expense Credit and input the information on Schedule B-CR, the Business Entity Credit Schedule. Furthermore, the amount of credit that can be utilized is capped at 50% of the remaining tax due, after all other available credits to the taxpayer have been applied.

In Rhode Island, 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.

Eligible businesses in Rhode Island’s enterprise zones can claim for R&D tax credit if they meet legal requirements under the state and federal law. The credit requires 3 years of presence in the same enterprise zone, with prorated credit for businesses opening mid-year. Qualifying R&D activities must advance knowledge or improve processes, products or technologies. It even includes C-corporations and pass-throughs.

R&D Tax Credits in Rhode Island

The Rhode Island Research & Development Expenses credit is accessible to various business structures, including C corporations, sole proprietorships, partnerships, joint ventures, and S corporations. The credit rate is 22.5% for expenses up to $111,111 and 16.9% for any additional expenses beyond that threshold. It’s essential that these expenses are incurred in Rhode Island after July 1, 1994. The credit claimed in a single taxable year can’t exceed 50% of the company’s remaining tax liability after all other credits have been used. Moreover, the credit is only applicable to the tax liability of the specific corporation that qualifies for it, even if part of a consolidated tax return.

What Goes into the Rhode Island R&D Tax Credit as a Qualified Research Expense?

The Rhode Island 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 Rhode Island. 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.