Form 3523 - Research Credit - 2015 Page 4

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2015 Instructions for Form FTB 3523
Research Credit
References in the form and instructions are to the Internal Revenue Code (IRC) as of January 1, 2015, and to the California Revenue and Taxation Code (R&TC).
Important Information
B Description
Federal/State Conformity
The credit is 15% of the excess of qualified research expenses for the
In general, for taxable years beginning on or after January 1, 2015,
taxable year over the base period research expenses. Corporations are
California law conforms to the Internal Revenue Code (IRC) as of
allowed the 15% credit amount plus credit for 24% of the basic research
January 1, 2015. However, there are continuing differences between
payments.
California and federal law. When California conforms to federal tax law
Instead of the regular credit, taxpayers may elect the alternative
changes, we do not always adopt all of the changes made at the federal
incremental credit in which taxpayers are assigned a smaller three‑tiered
level. For more information, go to ftb.ca.gov and search for conformity.
fixed‑base percentage and a reduced three‑tiered credit rate (1.49%,
Additional information can be found in FTB Pub. 1001, Supplemental
1.98%, and 2.48%).
Guidelines to California Adjustments, the instructions for California
To claim the California research credit, you do not have to claim the
Schedule CA (540 or 540NR), and the Business Entity tax booklets.
federal research credit.
The instructions provided with California tax forms are a summary of
California conforms to the federal definition for qualified research
California tax law and are only intended to aid taxpayers in preparing
expenses under IRC Section 41(b).
their state income tax returns. We include information that is most
IRC Section 41(b) states that the “qualified research expense” means
useful to the greatest number of taxpayers in the limited space available.
the sum of the following amounts which are paid or incurred by the
It is not possible to include all requirements of the California Revenue
taxpayer during the taxable year in carrying on any trade or business of
and Taxation Code (R&TC) in the tax booklets. Taxpayers should not
the taxpayer:
consider the tax booklets as authoritative law.
• In‑house research expenses and contract research expenses.
California has not conformed to the federal law for the additional
• “Qualified services,” means engaging in qualified research, or direct
first‑year depreciation of certain qualified property placed in service
supervision or direct support of research activities.
after January 3, 2008, and the election to claim additional research and
• “Qualified supplies,” means any tangible property other than land
minimum tax credits in lieu of claiming the bonus depreciation made to
or improvements to, and property of a character subject to the
the IRC by the Economic Stimulus Act of 2008 (Public Law 110‑185,
allowance for depreciation.
enacted on February 13, 2008).
• Qualified wages.
California has not conformed to the extension and modifications of
Qualified research expenses do not include any amounts paid or incurred
the Research Credit made to the IRC by the Tax Relief and Health
on or after January 1, 1999, for tangible personal property eligible for
Care Act of 2006 (Public Law 109‑432, Section 104 enacted on
the exemption from sales or use tax under R&TC Section 6378. The
December 20, 2006).
eligible property is tangible personal property used primarily for the
California has not conformed to the federal changes made to the IRC by
following:
the 2005 Energy Tax Act (Public Law 109‑58), including, but not limited
1. In teleproduction or other postproduction services
to federal changes creating the “energy research consortium” credit
2. To maintain, repair, measure, or test any property described in item 1
(Public Law 109‑58, Section 1351(a) enacted on August 8, 2005).
Get federal Form 6765, Credit for Increasing Research Activities, for
Registered Domestic Partners (RDP)
additional information on the federal definition. For the full definition
For purposes of California income tax, references to a spouse, husband,
of “qualified research expenses,” the taxpayer should refer to IRC
or wife also refer to a California registered domestic partner (RDP),
Section 41(b).
unless otherwise specified. When we use the initials RDP they refer
to both a California registered domestic “partner” and a California
For payments made to certain nonprofit qualified research consortia,
registered domestic “partnership,” as applicable. For more information
75% (instead of 65%) of the payments are treated as qualified research
on RDPs, get FTB Pub. 737, Tax Information for Registered Domestic
expenses. A qualified research consortium is a tax‑exempt organization
Partners.
described in IRC Section 501(c)(3) or Section 501(c)(6) that is
organized and operated primarily to conduct scientific research and is
General Information
not a private foundation.
A Purpose
C Limitations
Use form FTB 3523, Research Credit, to compute and claim the research
The research credit is not refundable.
credit for increasing the research activities of a trade or business.
• The basic and qualified research must have been conducted within
Also use this form to claim pass‑through research credits received
California.
from S corporations, estates, trusts, partnerships, and limited liability
companies (LLCs).
If your business is conducted both within and outside of California,
for purposes of determining the base amount, gross receipts are the
S corporations, estates, trusts, partnerships, and LLCs should complete
receipts from the sale of property that is held primarily for sale to
form FTB 3523 to compute the amount of research credit generated.
customers (in the ordinary course of your trade or business) and that
Attach this form to Form 100S, California S Corporation Franchise
is delivered or shipped to customers in California.
or Income Tax Return; Form 541, California Fiduciary Income Tax
Return; Form 565, Partnership Return of Income; or Form 568, Limited
• A taxpayer and spouse/RDP may claim only one credit. If separate
Liability Company Return of Income. Show the distributive share of the
tax returns are filed, the credit may be taken by either or divided
pass‑through credit for each shareholder, beneficiary, partner, or member
equally between them.
on Schedule K‑1 (100S, 541, 565, or 568), Share of Income, Deductions,
Credits, etc. Get Schedule K‑1 (100S, 541, 565, or 568) instructions for
reporting requirements.
FTB 3523 Instructions 2015 Page 1

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