Michigan Introduces New R&D Tax Credit
In a significant move to bolster Michigan's innovation landscape, Governor Gretchen Whitmer signed into law a series of bipartisan bills on January 13, 2025, introducing the Michigan Innovation Fund and a Research and Development (R&D) Tax Credit. The most widely applicable of these bills are House Bills 5100 (Public Act 186 of 2024) and 5101 (Public Act 187 of 2024), re-establishing a Michigan R&D tax credit.
This initiative is designed to foster innovation, stimulate job growth, help leverage Michigan universities, and reinforce Michigan's position as a leader in technological advancement.
R&D Tax Credits: A New Incentive for Innovation
The newly introduced R&D tax credits are set to take effect for tax years beginning on or after January 1, 2025. These credits are structured to provide substantial financial incentives for corporate and flow through businesses engaging in research and development activities within the state.
• Large Businesses (250+ Employees)
Large businesses are eligible for a tax credit calculated as 3% of their qualifying R&D expenses up to a predefined base amount. For expenses that exceed this base amount, the credit increases to 10%. However, the total credit a large business can claim is capped at $2,000,000 per tax year.
• Small Businesses (<250 Employees)
Smaller businesses can claim a more generous credit of 15% of R&D expenses exceeding the base amount, while the rate remains 3% for expenses up to the base amount. The cap for small businesses is set at $250,000 per tax year.
• Credit Limitations
The aggregate amount of credit available is capped at $100,000,000 per calendar year. If the aggregate amount of tentative claims exceed this limit, a proration system is applied.
• Refundability
If the amount of the credits allowed under this section exceeds the taxpayer’s tax liability for the tax year, the portion of the credit that exceeds the taxpayer’s tax liability for the tax year must be refunded.
Additional Incentives for University Collaboration
Collaboration between businesses and research universities can lead to groundbreaking innovations. To promote such partnerships, an additional 5% tax credit is available for R&D expenses incurred through collaborations with state research universities and used to calculate the credit above. This credit is capped at $200,000 per year and requires a formal agreement between the business and the university. This provision not only supports businesses but also strengthens the ties between industry and academia, fostering an ecosystem of shared knowledge and resources.
Claim Submission and Deadlines
To benefit from these credits, businesses must adhere to strict submission guidelines. Regardless of a taxpayer’s year end, tentative claims must be filed by March 15 for the preceding calendar year activities, except for calendar 2025 (due date is April 1, 2026).
A Brief History of Michigan's R&D Credit
The introduction of the Michigan Innovation Fund and R&D Tax Credit marks a bold step forward in Michigan's economic strategy. By incentivizing research and development, the state aims to attract high- tech industries, create high-paying jobs, and solidify its reputation as a hub for innovation. These measures reflect Michigan's commitment to nurturing its entrepreneurial spirit and leveraging its rich history of innovation to build a prosperous future.
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Article sourced from BDO Alliance.
