Massachusetts provides corporations a credit for increased spending in research and development. The credit is available only for expenditures for research activity conducted in Massachusetts. The Massachusetts research credit, in large part, is based on the research credit allowed under Internal Revenue Code (Code) § 41. In particular, the alternative simplified method for calculating the credit is modeled after the federal alternative simplified method. The credit can be shared among affiliated corporations that are members of the same combined group, subject to limitations.
There are two methods for calculating the Massachusetts research credit. Under one method, the amount of the credit is equal to: 10% of the difference between the current year's Massachusetts qualified research expenses and a "base amount" plus 15% of the Massachusetts basic research payments for the taxable year as determined under Code § 41(e)(1)(A). The actual computation of the credit under this method can be complex. Pursuant to legislation enacted in 2014, a taxpayer can now elect to determine its credit using the so-called "alternative simplified method." This method is based on the federal simplified method which was enacted in 2006. Using this method, the amount of the credit is equal to a percentage of the difference between the corporation's qualified research expenses for the current taxable year and 50% of the corporation's average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined. The percentage used to calculate the credit under the alternate simplified method is being phased in over a 7-year period. For calendar years 2015, 2016 and 2017, a rate of 5 percent was used to calculate the credit under the alternative simplified method, for calendar years 2018, 2019 and 2020, that rate was 7.5 percent and for calendar years beginning on or after January 1, 2021, the rate is 10 percent.
Regardless of which method the corporation uses to determine the credit amount to which it is entitled for a taxable year, the amount of research credit that can be used in a taxable year is limited to 100 percent of a corporation's first $25,000 of excise, plus 75 percent of the corporation's excise in excess of $25,000. A single $25,000 amount applies to affiliated groups of corporations. Credit not used because of the limitations generally can be carried over for 15 years. In certain instances, the credit can be carried forward indefinitely. The research credit is not transferable and generally is not refundable. However, a certified Life Science Company may apply to the Massachusetts Life Science Center for a refund of a portion of its available excess research credits in lieu of carrying such credits forward for use in later years.
Origin: M.G.L. c. 63, § 38M
Corporate Excise Tax
Credits Against Tax
2.604
Research Credit
Massachusetts provides corporations a credit for increased spending in research and development. The credit is available only for expenditures for research activity conducted in Massachusetts. The Massachusetts research credit, in large part, is based on the research credit allowed under Internal Revenue Code <a href="https://www.law.cornell.edu/uscode/text/26/41" target="_blank">(Code) § 41</a>. In particular, the alternative simplified method for calculating the credit is modeled after the federal alternative simplified method. The credit can be shared among affiliated corporations that are members of the same combined group, subject to limitations. <BR><BR>There are two methods for calculating the Massachusetts research credit. Under one method, the amount of the credit is equal to: 10% of the difference between the current year's Massachusetts qualified research expenses and a "base amount" plus 15% of the Massachusetts basic research payments for the taxable year as determined under<a href="https://www.law.cornell.edu/uscode/text/26/41" target="_blank"> Code § 41(e)(1)(A</a>). The actual computation of the credit under this method can be complex. Pursuant to legislation enacted in 2014, a taxpayer can now elect to determine its credit using the so-called "alternative simplified method." This method is based on the federal simplified method which was enacted in 2006. Using this method, the amount of the credit is equal to a percentage of the difference between the corporation's qualified research expenses for the current taxable year and 50% of the corporation's average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined. The percentage used to calculate the credit under the alternate simplified method is being phased in over a 7-year period. For calendar years 2015, 2016 and 2017, a rate of 5 percent was used to calculate the credit under the alternative simplified method, for calendar years 2018, 2019 and 2020, that rate was 7.5 percent and for calendar years beginning on or after January 1, 2021, the rate is 10 percent. <BR><BR>Regardless of which method the corporation uses to determine the credit amount to which it is entitled for a taxable year, the amount of research credit that can be used in a taxable year is limited to 100 percent of a corporation's first $25,000 of excise, plus 75 percent of the corporation's excise in excess of $25,000. A single $25,000 amount applies to affiliated groups of corporations. Credit not used because of the limitations generally can be carried over for 15 years. In certain instances, the credit can be carried forward indefinitely. The research credit is not transferable and generally is not refundable. However, a certified Life Science Company may apply to the Massachusetts Life Science Center for a refund of a portion of its available excess research credits in lieu of carrying such credits forward for use in later years.
<a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section38m" target="_blank">M.G.L. c. 63, § 38M</a>
387.6
411.2
436.3
462.9
491.1
