Did you know that if you’re filing a Form 6765 (Credit for Increasing Research Activities) for your business entity, you are most likely eligible for an R&D credit against your CAT also? The Ohio credit is called “Credit for Qualified Research Expenses.” It is a non-refundable credit, meaning it can only be used against a tax liability. However, keep in mind that the CAT is a tax based on Ohio gross receipts not net income. Therefore, even if you are not able to use the R&D credits on a federal level due to net operating losses, you may still have an Ohio CAT liability and can use the credit against this tax. Any R&D credit in excess of your current period CAT can be carried forward seven years.
It is computed as follows:
- Take the excess of qualified research expenses incurred in Ohio in the current period over the average annual qualified research expenses incurred in Ohio for the three preceding tax periods.
- Multiply that excess by 7% for the credit amount.
The definition of qualified research expenses has the same meaning as section 41 of the Internal Revenue Code. It is claimed on Form CAT CS (Commercial Activity Tax Credit Report).
Prior year returns can be amended to obtain refunds for credits missed. The refund is requested on Form CAT REF (Application for Commercial Activity Tax Refund).
Wonder if you qualify for the Ohio Credit for Qualified Research Expenses? Contact our Cleveland and Akron tax professionals at 440-449-6800.