The Michigan Senate passed legislation in March 2024 expanding the state’s Research and Development (R&D) Tax Credit from the past credit that offered a mere 1.9% credit on qualifying expenses incurred in Michigan.
This new legislation has been expanded to provide up to 15% of the qualifying expenses, making it a far more advantageous program for taxpayers. The passed legislation included House Bill 5100, a bill to amend 1967 PA 281 (entitled “Income Tax Act of 1967”), which aims to not only incentivize Michigan businesses to expand workforces within the state but also attract new companies that are currently outside the state to claim this lucrative benefit.
Eligibility Criteria
Starting with tax years beginning on or after January 1, 2024, Michigan taxpayers who conduct qualified research within the state are eligible for a non-refundable tax credit. The credit amount varies based on the size of the taxpayer’s workforce and their collaboration with a state research university.
Qualified research expenditures (QREs) for the Michigan R&D tax credit follow federal U.S. Code § 41:
- Any “wages” paid or incurred to an employee for “qualified services” performed by such employee at a Michigan-based facility.
- Supplies used or consumed while performing research activities at a facility in Michigan.
- 3rd party research conducted in Michigan on behalf of the taxpayer.
- Any amount paid or incurred to another person for the right to use computers in the conduct of qualified research.
Credit Calculation
- For a taxpayer with 250 or more employees, an amount equal to the sum of 3% of the taxpayer’s qualifying research and development expenses incurred during the calendar year ending with or within the tax year up to the base amount and 10% of the taxpayer’s qualifying research and development expenses incurred during the calendar year ending with or within the tax year in excess of the base amount. The credit amount calculated under this subdivision must not exceed $2,000,000 per tax year per taxpayer.
- For a taxpayer with less than 250 employees, an amount equal to the sum of 3% of the taxpayer's qualifying research and development expenses incurred during the calendar year ending with or within the tax year up to the base amount and 15% of the taxpayer's qualifying research and development expenses incurred during the calendar year ending with or within the tax year in excess of the base amount. The credit amount calculated under this subdivision must not exceed $250,000 per tax year per taxpayer.
- Taxpayers who partner with a research university within Michigan can unlock an additional 5% credit on their QRE that exceeds the base amount, up to a limit of $200,000.
How to Apply
To apply, a Michigan taxpayer must submit a claim by March 15 of the following year. If the budgeted state’s $100,000,000 cap is reached, the credits would be prorated for each claimant.
Uncovering R&D-qualified research expenses for specific taxpayers is a challenging undertaking that should only be performed by qualified R&D tax credit specialists. Withum’s R&D tax credit team has performed R&D studies (as well as supporting those claims on audits) for all industries and sizes of taxpayers ranging from start-ups to large enterprises. Please reach out to schedule a free R&D tax credit assessment or to learn more regarding available federal and state credits.
Author: Naveen Metta | [email protected]
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