8. 5% R&D Income Tax Credit

Key Details:

• 5% tax credit for businesses conducting basic and qualified research
• 14-year carry forward
• Based on the increase in research activities over a base amount

ANALYSIS

The 5% Research and Development Income Tax Credit, while not explicitly limited to large businesses, provides significantly more value to larger companies with dedicated R&D budgets and activities. The structure of the credit, based on increased research activities, inherently favors businesses with the capacity for ongoing and expanding research programs.

Small Businesses

For small businesses under 20 employees, the 5% Research and Development Income Tax Credit offers limited practical benefits. While the credit is technically available to businesses of all sizes, several factors constrain its utility for small enterprises. Many small businesses, especially those under 20 employees, lack the resources to conduct significant R&D activities. The credit is based on the increase in research activities over a base amount, which assumes an ongoing R&D program - a rarity in most small businesses. Even for small businesses engaged in innovation, the scale of their R&D expenditures is often too small to generate substantial tax credits. The 14-year carry forward, while generous, assumes a level of longevity and future profitability that many small businesses may not achieve. Additionally, the complexity of documenting and claiming R&D expenses for tax purposes can be burdensome for small businesses with limited administrative resources. While this credit doesn't explicitly exclude small businesses, its structure and requirements align more closely with the operations of larger, established companies with dedicated R&D departments and the financial capacity to invest in ongoing research activities.

Big Businesses

For larger businesses, the 5% Research and Development Income Tax Credit offers a significant incentive to invest in innovation and expand research activities in Idaho. This credit can substantially reduce the after-tax cost of R&D, making Idaho an attractive location for research-intensive operations. The 5% credit rate, when applied to large-scale R&D budgets, can result in considerable tax savings. The credit's structure, based on increased research activities, rewards companies that are expanding their R&D efforts, aligning well with growth strategies of larger businesses. The 14-year carry forward provision offers valuable flexibility, allowing you to maximize the benefit of the credit over time, even if your tax liability fluctuates. This long-term perspective supports sustained investment in R&D programs. For technology companies, manufacturers, or any business with significant research activities, this credit can be a decisive factor in choosing to locate or expand operations in Idaho. It not only reduces the cost of existing research programs but also incentivizes the expansion of these activities. For out-of-state companies, this credit signals Idaho's commitment to fostering innovation and can make the state more competitive against other high-tech hubs. For large in-state businesses, it provides a strong incentive to keep and grow research activities within Idaho rather than relocating to other states. When combined with other Idaho incentives, this R&D credit contributes to a comprehensive package that can make Idaho an attractive location for knowledge-intensive industries and advanced manufacturing.