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R&D in Virginia

State and Local Tax Credits

Virginia

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

The tax credit is calculated at 15% on the first $300,000 of expenses that exceed a certain base amount, with a maximum limit of $45,000.

The eligibility for the tax credit extends to both C-Corporations and pass-through entities.

To qualify for the Virginia R&D Tax Credit, businesses may claim expenses related to qualifying research and development (R&D) activities performed within Virginia. These expenses may include wages and salaries paid to employees involved in R&D, supplies and materials used in R&D activities, contract research expenses paid to third-party service providers, equipment and facilities used in R&D activities, and certain expenses related to obtaining patents, including legal fees. It’s important to note that these expenses must be properly documented and substantiated to claim the credit. Furthermore, only expenses related to qualifying R&D activities within Virginia are eligible for the Virginia R&D Tax Credit.

To claim this tax credit, eligible taxpayers must complete and submit Form RDC, also known as the Application for the Research and Development Expenses Tax Credit, to the Department along with any necessary supporting documentation. Along with any other documentation required by the Department, the documentation typically includes a thorough account of the research activities and costs incurred during the tax year. It is important to note that this tax credit is refundable and transferable. All things considered, the Research and Development Costs Tax Credit gives qualified taxpayers the chance to get a refundable and transferable tax credit for qualifying research and development expenses.

State and Local Tax Credits in Virginia

Virginia provides the Research and Development (R&D) Tax Credit, which enables a refundable individual and business income tax credit for engaging in qualified research and development in Virginia, for taxpayers whose qualifying R&D expenses (QREs) exceed a base amount.

To be considered a qualified business, the company must either have its principal office or facility located within Virginia or be primarily engaged in business activities or production within the state. This means that the company’s main operations or manufacturing processes must take place in Virginia, indicating a significant contribution to the state’s economy. By meeting these criteria, a qualified business can potentially access benefits or incentives offered by the state of Virginia to support its growth and expansion, promoting economic development within the region.

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

The Virginia 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 Virginia. This includes payments made to subcontractors involved in the performance of such activities.

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