Rhode Island R&D Tax Credits

State and Federal Credits Available

22.5% Credit Rate

On first tier of RI excess QREs

16.9% Credit Rate

On RI excess QREs above first tier

7 Year Carry forward

Use credits over multiple years

50% Tax Offset Limit

Cannot reduce below $250 minimum

RI Research Required

Only in-state QREs qualify

The Rhode Island Research & Development Tax Credit (R.I. Gen. Laws § 44-32-3), administered by the Rhode Island Division of Taxation, provides a tiered incentive for qualified research expenses incurred in the state after July 1, 1994. This nonrefundable credit offsets Rhode Island income tax liabilities for businesses engaged in innovative activities, aligning closely with federal IRC § 41 standards while focusing on in-state expenditures.

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22.5% Credit Rate

On first tier of RI excess QREs

16.9% Credit Rate

On RI excess QREs above first tier

7 Year Carry forward

Use credits over multiple years

50% Tax Offset Limit

Cannot reduce below $250 minimum

RI Research Required

Only in-state QREs qualify

Key Highlights

Tiered credit on the Rhode Island-apportioned portion of federal excess qualified research expenses (QREs)
Available to corporations and pass-through entities, with credits flowing to owners via Schedule K-1
Cannot reduce tax below the $250 minimum corporate franchise tax (R.I. Gen. Laws § 44-11-2(e))
Rhode Island requires using federal definitions and the federal excess-QRE computation from Form 6765; state credit applies only to post-1994 in-state excess
Rhode Island businesses frequently utilize the credit, particularly in life sciences and manufacturing

Who Qualifies for the Rhode Island R&D Tax Credit

Eligibility mirrors federal IRC § 41 for qualified research activities (e.g., developing new products, processes, or software with technological uncertainty), but expenses must be incurred in Rhode Island. Businesses must compute their qualified research expenses and excess using federal Form 6765 and section 41 rules; Rhode Island then applies its own percentage and in-state limitation.

Eligible Entities

C Corporation May claim both the regular and basic research credit
S Corporation Limited entity-level use; can pass credits to shareholders
Partnerships / LLCs Credits pass through to owners via Schedule K-1

Qualified Research Expenses (QREs)

How to Calculate the Rhode Island R&D Tax Credit

Rhode Island's credit is calculated using an incremental approach tied to your federal R&D credit computation, but limited to the portion of excess QREs incurred in the state. There is no alternative simplified credit (ASC) option. Use federal Form 6765 to determine your overall excess, then apportion to Rhode Island based on where the research was performed.

Regular Method

Determine Federal Excess QREs: From federal Form 6765, subtract the federal base amount (fixed-base percentage × average gross receipts for prior 4 years, minimum 50% of current QREs) from total qualified research expenses (QREs).
Apportion to Rhode Island: Identify the Rhode Island-sourced portion of the federal excess (research performed in RI after July 1, 1994).
Apply Tiered Rates: 22.5% on the first $111,111 of RI excess; 16.9% on the amount exceeding $111,111.
Total Available Credit: Add any carryforward from prior years (up to 7 years).
Limitation: The usable credit is capped at 50% of your Rhode Island tax liability after other nonrefundable credits (e.g., R&D Property Credit must be applied first). Excess carries forward for up to 7 years.

Example Calculation

QREs =$1,000,000

Federal Base = $600,000 → Federal Excess =$400,000

Rhode Island portion of excess = $200,000 → Credit = 22.5% × $111,111 ($25,000) + 16.9% × $88,889 ($15,022) =$40,022

Base Calculation for Rhode Island R&D Tax Credit

Compute federal base amount using IRC §41 rules: fixed-base percentage × average gross receipts for prior 4 years (minimum 50% of current federal QREs). The base calculation is strictly federal, not apportioned.
Federal Excess = Current federal QREs - Federal base.
Identify the portion of federal excess incurred in Rhode Island after July 1, 1994. Only the excess QRE portion is apportioned to Rhode Island based on where the research occurred.
Apply tiers to that RI excess amount (if no prior base or all current in RI, full apportioned QREs may qualify as excess).

Example Calculation

Federal QREs =$1,000,000

Federal Base = $600,000 → Federal Excess =$400,000 RI portion: $200,000

→ RI Excess =$200,000 If no federal base (e.g., startup)

→ Federal Excess =$1,000,000

RI portion $200,000 qualifies fully as excess

Gross Receipts for Base Calculation

Use federal gross receipts for base; the excess is apportioned to RI based on in-state research location.
Startups: For new companies without historical gross receipts and QREs, the federal fixed-base percentage defaults to 3 percent in the first five years and phases in to 16 percent by the tenth year; no state-specific startup rule beyond federal alignment.
No RI-apportioned excess? Credit = $0.

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Rhode Island-Specific Rules

Rhode Island's R&D credit features targeted provisions to encourage in-state innovation, with limitations on utilization and entity treatment.

High Initial Rate for Small-Scale Research

The 22.5% rate on the first $111,111 of excess QREs provides strong incentives for early-stage or smaller projects, driving high utilization among emerging tech and biotech firms.

7-Year Carryforward

Unused credits carry forward for up to 7 years, offering flexibility for growing businesses but shorter than federal 20-year period - maximizing value requires strategic planning.

50% Liability Cap

Credits offset up to 50% of tax due after other credits, protecting state revenue while allowing significant savings; cannot go below $250 minimum tax.

Other Important Rules

Pass-Through Entities: Credits pass through to owners via Schedule K-1; S corporations and partnerships compute at entity level but allocate pro-rata.
Combined Filers: Rhode Island combined filers compute credits at the entity level; credits generally cannot be shared across affiliates unless specifically permitted.
Audit Guidelines: Retain records for 4 years; must document RI location(s) of research and tie to federal Form 6765.
Order of Credits: Apply R&D Property Credit (10% of qualifying asset costs) before this expense credit.

High Initial Rate for Small-Scale Research

The 22.5% rate on the first $111,111 of excess QREs provides strong incentives for early-stage or smaller projects, driving high utilization among emerging tech and biotech firms.

7-Year Carryforward

Unused credits carry forward for up to 7 years, offering flexibility for growing businesses but shorter than federal 20-year period - maximizing value requires strategic planning.

50% Liability Cap

Credits offset up to 50% of tax due after other credits, protecting state revenue while allowing significant savings; cannot go below $250 minimum tax.

Other Important Rules

Pass-Through Entities: Credits pass through to owners via Schedule K-1; S corporations and partnerships compute at entity level but allocate pro-rata.
Combined Filers: Rhode Island combined filers compute credits at the entity level; credits generally cannot be shared across affiliates unless specifically permitted.
Audit Guidelines: Retain records for 4 years; must document RI location(s) of research and tie to federal Form 6765.
Order of Credits: Apply R&D Property Credit (10% of qualifying asset costs) before this expense credit.

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Rhode Island R&D Tax Credits Case Study

A Rhode Island-based software startup recovered significant credits to fuel expansion.

$40,022

total state R&D tax credits earned

60%

of wages qualified for credits

$150,000

total R&D tax credits earned (federal + state combined)

Frequent Asked Questions

What is the Rhode Island R&D tax credit?

The Rhode Island Research & Development Expense Credit offers 22.5% on the first $111,111 of in-state excess QREs and 16.9% on amounts above, based on federal excess apportioned to RI (R.I. Gen. Laws § 44-32-3). It offsets up to 50% of tax liability.

What activities qualify for Rhode Island’s R&D tax credit?

Activities must meet federal IRC § 41 criteria - technological experimentation to develop or improve products, processes, or software - and occur in Rhode Island after July 1, 1994. Strike Tax identifies qualifying projects like software prototyping or manufacturing enhancements.

How much can my business save with Rhode Island’s R&D tax credit?

For $200,000 in RI excess QREs, you could save up to $40,022 ($25,000 + $15,022). Stack with federal credits for more. Use Strike Tax’s R&D Credit Calculator for personalized estimates.

Are Rhode Island R&D tax credits refundable?

No, credits are nonrefundable but carry forward for 7 years. They cannot reduce tax below the $250 minimum. Strike Tax optimizes carryforwards for maximum use.

How do I apply for Rhode Island’s R&D tax credit?

Attach RI-7695 and Schedule B-CR to your applicable Rhode Island return (e.g., RI-1120C for corporations). Ensure federal Form 6765 computation compliance first. Strike Tax handles documentation and filing.

Can Rhode Island businesses claim both state and federal credits?

Yes, the state credit applies to the same QREs as federal, allowing stacking for enhanced savings. Strike Tax coordinates both claims seamlessly.

What are the tiers in Rhode Island’s R&D credit?

The credit tiers at 22.5% on excess QREs up to $111,111 and 16.9% above, applied only to the RI portion of federal excess - ideal for scaling research investments.

How does the 50% liability cap work for Rhode Island R&D credits?

After other credits, the R&D credit offsets up to 50% of remaining tax; excess carries forward 7 years, ensuring balanced state incentives.

Can pass-through entities claim Rhode Island R&D credits?

Yes, S corporations, partnerships, and LLCs compute the credit at the entity level and pass it through to owners via K-1, with pro-rata allocation.

What documentation is needed for Rhode Island R&D audits?

Retain 4 years of records, including RI project locations, time tracking, and federal Form 6765 ties. Follow current IRS Form 6765 instructions for Section G. Even when optional, including Section G style project and business component detail is a strong documentation best practice for audits. Strike Tax prepares audit-ready files.

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