Virginia extends and increases regular and major R&D tax credit cap

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July 2020

Overview

The Virginia Department of Taxation has issued updated guidelines for the Research and Development Expense Tax Credit (Regular R&D) and the Major Research and Development Expense Tax Credit (Major R&D) programs. The guidelines provide additional information on the computation of the credit, credit caps and applicability of the credit, as well as application and filing requirements.

The two Virginia R&D tax credits, each previously set to sunset on January 1, 2022, have been extended to January 1, 2025. For tax years beginning on and after January 1, 2021, the annual credit limit for the Regular R&D credit has been increased to $7.77 million from $7 million, while the annual credit limit for the Major R&D credit increased by $4 million from $20 million to $24 million.

An eligible taxpayer must submit an application to the Department in the year following the credit year for either program as no taxpayer may claim both for the same tax year. Effective beginning with applications due in 2020, the application deadline is September 1, 2020. The department stated it will review all applications by November 1.

The takeaway

Virginia’s annual application deadline​ has been extended from July 1 to September 1, 2020, for the 2019 tax year, allowing applicants more time to collect qualified research credit data.

For taxpayers that incur more than $5 million of qualified R&D expenses, taxpayers need to choose between the Regular R&D program, which has a smaller allocation of monies but offers an appealing refundable feature, and the Major R&D credit program, which has more monies available to distribute but more limitations on the ability to use allocated sums.

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Peter Michalowski

State and Local Tax Leader, PwC US

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