R&D Tax Credit Vermont

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 Vermont 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.

The process of claiming Enterprise Zone Tax Credits in Vermont begins with submitting a pre-certification application to the local enterprise zone administrator for review and approval. Upon approval, you must complete the certification application online to make the eligible activities conducted during the pre-certification period eligible for tax credits. Upon approval of the certification application, you will receive a tax credit certificate either via email or through the online application portal. This certificate replaces forms DR0074, DR0076, and DR007 and should be submitted with form DR1366 and the EZ Tax Credit Certificates with your Vermont income tax return. In the case of partnerships, an additional form, DR0078a, must also be completed and submitted for the distribution of credits.

In Vermont, 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 Vermont’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 Vermont

The Vermont R&D Tax Credit under the Enterprise Zone (EZ) Program incentivizes investment in research and development activities such as laboratory or experimental research and software development. Eligible businesses, both new and existing, located in the 16 designated enterprise zones with high unemployment, low income per capita, or slow population growth, can claim the credit if they comply with state and federal laws. This nonrefundable credit offers significant savings on state tax liabilities and to claim it, companies must maintain presence in the same enterprise zone for three years and submit a Vermont R&D Tax Credit application outlining research activities and expenses.

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

The Vermont 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 Vermont. 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.