Delaware R&D Tax Credits

The state of Delaware offers a research credit that is calculated under similar requirements as IRC § 41. Until 2019, Delaware had a $5 million expenditure cap for R&D tax credits. That cap has been eliminated, which means that companies receive 100 percent of the expected credit. In addition, the tax credit is now refundable.

The Delaware credit offers two computation methods:

• The first method presents a credit equal to 10% of the company’s qualified Delaware QREs over the Delaware base amount.  
• The second method presents a credit that equals 50% of the apportioned share of the taxpayer’s federal ASC credit. Under Delaware law, if a portion of the credit is unusable due to liability limitations, the remainder will be paid out as a refund.

The Delaware Division of Revenue (DOR) must first approve any taxpayer electing to qualify for the Delaware Research & Development Tax Credits. After receiving tax credit approval from the Delaware DOR, the amount of approved credit on Delaware Form 2071AC must be transferred to the appropriate line on Delaware Form 700. Delaware Forms 700 and 2071AC must be attached to each annual income tax return approved for the credit.

Delaware is the only state in the country that combines a zero-expenditure cap with a refundable tax credit.

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Learn more about Delaware's R&D Tax Credit law.

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R&D Tax Credit Available:

Yes

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Eligible Entities:

C-Corporations, S-Corporations, LLCs, Partnerships

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Deadline for Tax Filing:

Application due by September 15th

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Data Required to Compute Credit:

Claim Period Qualified R&D Expenses (QREs)

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What Information is needed?

QREs for Prior 4 Years

Gross Receipts for Prior 4 Years

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Credit Carryforward:

Refundable Credit of any credits that exceed tax liability.

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The R&D tax credit equals:

• Method A: 10% of the excess of the taxpayer’s total Delaware QREs for the taxable year over the Delaware base amount; or for a small business with less than $20,000,000 in gross receipts, the credit is 20% of the excess of the taxpayer's total Delaware base amount.
• Method B: 50% of Delaware’s apportioned share of the taxpayer’s federal research and development tax credit calculated using the Alternative Simplified Credit method.

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Specific Items to Note:

• Delaware R&D credit may not exceed 50% of the amount eligible for the federal credit. That means if a company receives a federal credit of $1 million, it can receive an additional $500,000 tax credit from Delaware for the same R&D expenses (if all expenses tie to activities conducted in Delaware). Companies use federal R&D tax credit guidelines (IRC § 41) to determine whether their activities qualify for a tax credit.
• Any R&D activity conducted in Delaware that qualifies for a federal tax credit automatically qualifies for Delaware’s credit.