Governor Gretchen Whitmer is expected to sign new legislation approving a Michigan Research and Development Tax Credit that would provide significant tax savings opportunities for Michigan businesses and create an attractive investment environment.
The state credit would be combined with any federal R&D credits and will be capped at $100 million, with $25 million specifically for small businesses. Here are some details you need to know when considering this tax strategy.
Effective date and credit amounts
The nonrefundable tax credit will be available beginning on or after Jan. 1, 2024 for qualified research in the state of Michigan. Employee headcount and financial thresholds will apply as follows:
- Businesses with 250 or more employees are eligible for 10 percent of its qualified research expenditures (QRE) exceeding its base amount up to $2,000,000
- Businesses with less than 250 employees are eligible for up to 15 percent of its QRE exceeding its base amount up to $250,000
- An additional five percent is available for businesses that partner with a research university within the state to perform QRE
- A business’s base amount is calculated by determining the annual QRE for the three years preceding the year the credit is utilized.
Qualifications for the credit
The activities defined under QRE must meet the requirements of IRC section 41 and must pass the IRS four-part test. The expenditures for activities conducted at a Michigan facility that qualify for the credit include:
- Employee wages for conducting research activities
- Employee wages for the direct supervision or support of an employee performing research activities
- Supplies used or consumed while performing research activities
- Portion of third-party research
Big win for Michigan, Michigan business owners
Business owners and industry leaders have been pushing for a Michigan R&D tax credit for years, saying that Michigan was at risk of losing money and businesses leaving for more tax-friendly state economies. The newly signed credit makes Michigan an attractive destination for new businesses and existing businesses to continue to grow. The immediate savings from the credit will allow business owners to hire employees, launch new products, test new markets or consider expansion.
Michigan business owners may receive a credit for up to 20 percent of its total QRE when utilizing the both the state and federal tax credits. This is a significant tax savings opportunity that every business in Michigan should consider. Fill out the form on this page to connect with a professional from our Research and Development Credit Practice.
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