Form Rdc - Application For Research And Development Expenses Tax Credit - 2016 Page 7
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9Application Instructions for the Research and Development Expenses Tax Credit
General Information
Determine Fixed Base Percentage:
The Research and Development Expenses Tax Credit may be
Step 1
Determine the average amount of Virginia qualified
claimed against individual and corporate income taxes for qualified
research and development expenses for the three
research and development expenses for taxable years beginning
taxable years preceding the year in which the tax credit is
on or after January 1, 2011, but before January 1, 2022.
being claimed. If the taxpayer has been in business for
less than three years, but at least one, use the number of
If the taxpayer elects the primary method of computing the credit,
years in business instead of three.
the tax credit amount is equal to (i) 15% of the first $300,000 in
Virginia qualified research and development expenses, or (ii) 20%
Step 2
Determine the average of the total gross receipts for the
of the first $300,000 of Virginia qualified research and development
three taxable years preceding the taxable year that the
expenses if the research was conducted in conjunction with a
tax credit is being claimed, or the number of years used
Virginia public or private college or university, to the extent the
in Step 1a, if less.
expenses exceed the base amount. The credit amount cannot
Step 3
Calculate the percentage of Virginia qualified research and
exceed $45,000 or $60,000 if the Virginia qualified research was
development expenses by dividing the average amount
conducted in conjunction with a Virginia public or private university.
determined in Step 1 by the average amount determined
For taxable years beginning on or after January 1, 2016, at the
in Step 2. This is the “Fixed Base Percentage.”
election of the taxpayer, an alternative simplified calculation may
Do not make any adjustments to account for a short taxable year
be used to determine the Research and Development Expenses
when computing the fixed-base percentage.
Tax Credit. The alternative simplified calculation of the Research
Determine the Virginia Base Amount:
and Development Expenses Tax Credit is equal to: 10% of the
difference of (i) the Virginia qualified research and development
Step 4
Determine average of the total gross receipts for the four
expenses paid or incurred by the taxpayer during the taxable
taxable years preceding the taxable year that the tax
year and (ii) 50% of the average Virginia qualified research and
credit is being claimed, or the number of years used for
development expenses paid or incurred by the taxpayer for the
Step 2, if less. For purposes of determining the Virginia
three taxable years immediately preceding the taxable year for
base amount, if any of the taxable years preceding the
which the credit is being determined. If the taxpayer did not pay or
credit year that must be accounted for when computing
incur Virginia qualified research and development expenses in any
the credit is a short taxable year, the gross receipts for
one of the three taxable years immediately preceding the taxable
such year(s) are deemed to be equal to the gross receipts
year for which the credit is being determined, the tax credit is equal
actually derived in that year, multiplied by 12, and divided
to 5% of the Virginia qualified research and development expenses
by the number of months in that year.
paid or incurred by the taxpayer during the relevant taxable year.
Step 5
Multiply the fixed base percentage in Step 3 by the
The aggregate amount of credits allowed to each taxpayer cannot
average gross receipts in Step 4.
exceed $45,000 or $60,000 if the Virginia qualified research was
conducted in conjunction with a Virginia public or private university.
Step 6
Determine the greater of the amount in Step 5 or 50% of
Virginia qualified research expenses for the credit year.
There is a $7 million cap on the total amount of credits allowed in
This is the “Virginia Base Amount.”
any fiscal year. If the total amount of tax credits applied for exceed
the $7 million limit, credits will be apportioned on a pro rata basis.
Refer to Schedule B, the Research and Development Expenses
Worksheet for Computing Virginia Base Amount, for detailed
If the total amount of approved tax credits is less than the $7 million
instructions on calculating the base amount.
credit cap, the Department will allocate the remaining amount,
on a pro rata basis, to taxpayers already approved for the credit
Computing the Average Amount of Virginia Qualified Research
that were subject to the $45,000 and $60,000 credit limitations.
and Development Expenses for Determining the Credit Using
Supplemental credits will be in the following amounts: if a taxpayer
the Alternative Simplified Method
elected the primary computation, an amount equal to 15% of the
If electing to compute the Research and Development Expenses
second $300,000 in qualified research expenses (or 20% of such
Tax Credit using the Alternative Simplified Method, the taxpayer
expenses if the research is conducted in conjunction with a Virginia
must complete Schedule C to determine the average amount of
public or private college or university); or if the taxpayer elected the
Virginia qualified research and development expenses on which
alternative simplified method of computing the credit, in an amount
the credit amount will be calculated. Taxpayers who calculate
equal to the excess of the limitation. The maximum supplemental
the credit based on less than 3 years of qualified research and
credit amount is $45,000, or $60,000 if the research is conducted
development expenses must complete Sections 1 and 2 on
in conjunction with a Virginia public or private university.
the Schedule C. Taxpayers who calculate the credit based on
Any taxpayer who is allowed a research and development
qualified research and development expenses for the 3 taxable
expenses tax credit is not allowed to use the same expenses as
years preceding the credit year must complete all sections of
the basis for claiming any other Virginia tax credit. No taxpayer may
Schedule C.
claim both this credit and the Major Research and Development
When determining the average amount of Virginia qualified
Expenses Tax Credit.
research and development expenses for the three years preceding
For additional information regarding the credit, see the Research
the credit year, if one or more of the three taxable years preceding
and Development Expenses Tax Credit Guidelines, which are
the credit year is a short taxable year, then the Virginia qualified
available on the Department’s website at
research and development expenses for such year must be
modified by multiplying that amount by 365 (366 in a leap year)
Determining the Virginia Base Amount for the Primary
and dividing the result by the number of days in the short taxable
Research and Development Expenses Tax Credit
year.
In order to determine the Virginia Base Amount for the primary
credit computation, follow these steps:
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