Indiana R&D Tax Credits

The state of Indiana offers two tax incentives targeted at encouraging investments in research and development. Taxpayers may receive a credit against their Indiana state income tax liability calculated as a percentage of qualified research expenses (QREs). In addition, taxpayers may be refunded for sales tax paid on purchases of qualified R&D equipment. The Indiana Department of Revenue oversees these incentive programs.

‍Research Expense Credits

‍‍Under Indiana Code § 6-3.1-4-1, the state of Indiana offers a research credit that is calculated under similar requirements as IRC § 41. The Indiana credit is worth 15% of the qualified expenditures over a base amount of $1 million. Starting in 2009, Indiana now allows taxpayers to compute the credit using an alternative method or a regular method. The credit may be applied toward any taxes on Gross, Adjusted Gross, and Supplemental Net Income Tax.

For pass-through entities, in the event of unused credit, the remaining credit will pass through to each partner or shareholder based on the percentage distribution of income. Unlike federal credits, Indiana R&D credits may not pass through to trusts or estates. At the time of filing, Indiana requires proof that the research was conducted in Indiana. The state wants to know:

1. The place(s) in Indiana where R&D activities are performed;
2. The Indiana location of the personnel performing the services;
3. The Indiana location where supplies and raw materials are consumed during the R&D process; and
4. Any other factors relevant to R&D activities in Indiana.

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Indiana Research & Development Sales Tax Exemption

‍There is a 100% sales tax exemption available for the purchase of qualified R&D equipment and property. Taxpayers can file a refund claim for sales tax paid on a retail transaction if they didn't purchase it as tax-exempt at the time of the transaction.

Research and development equipment and property is defined as tangible personal property that has not previously been used in Indiana for any purpose and is acquired by the purchaser for the purpose of conducting activities devoted to experimental or laboratory R&D for new products, new uses of existing products, or improving or testing existing products.

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Learn more about Indiana's R&D Tax Credit law or claim Indiana's R&D Tax Credits.

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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:

Due with Indiana Tax Return

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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 3 Years

Gross Receipts for Prior 4 Years

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Credit Carryforward:
10 Years

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The R&D tax credit equals:

• Regular Credit Method: 15% of the increase in Indiana qualified research expenses over the base amount up to $1 million. The credit is 10% if the amount is in excess of $1 million.
• Alternative Incremental Credit Method: 10% of the difference in current-year Indiana QREs over 50% of the average of the preceding three years' QREs. Credit amount is 5% of Indiana QREs if there are no expenses in the three prior years.