On July 1st one of the most generous research and development state tax credit programs suffered a huge blow. Louisiana’s Department of Revenue released a bulletin (Lousiana DoR) that made a huge change to the way the credit was awarded by making it nonrefundable. Essentially, a refundable credit means even if there wasn’t any tax liability to offset, the taxpayer would be awarded the full amount of the credit in cash. This change reversed a six year trend wherein the credit was fully refundable.
This change to the Louisiana research credit will greatly affect startups since usually, these companies tend to be smaller both in terms of headcount and tax liability. Previous to this, the credit program was really geared toward helping taxpayers within this fact pattern. In its original, fully-refundable form, the credit program allowed a credit equal to 40% of qualified research expenses for companies with less than 50 employees.
While the qualification and credit generation methodologies have not changed, the inability to return cash to the taxpayers may prevent many smaller companies from claiming the credit or utilizing what they have generated. Since the credit only allows for a 5 year carryforward, there is a very real scenario in which a small company could be generating substantial credits but are preventing from realizing the benefit.
Source: Louisiana Department of Revenue
