Wisconsin R&D Tax Credit Overview

In 2015, the Wisconsin R&D tax credit percentages were increased, and taxpayers are eligible for a credit of 5.75% of the amount of qualified research expenses (QREs) for the year that exceed 50% of the average QREs for the prior three years.  If the taxpayer has no QREs in the prior three years, the credit rate is 2.875%.  Furthermore, qualified activities related to internal combustion engines for vehicles, the design of vehicles powered by such engines, and improving the production processes thereof are calculated at 11.5%.  Also calculated at 11.5% are activities related to the design and manufacturing of energy efficient lighting systems, building automation and control systems, or automotive batteries for use in hybrid-electric vehicles that reduce the demands for natural gas or electricity or improve the efficiency of its use.  If the business has no QREs in the prior three years, these percentages are also halved.

Wisconsin follows the IRS definitions of “qualified research” and “qualified research expenses,” to qualify for the Wisconsin R&D tax credit, but the QREs must be incurred for R&D conducted in Wisconsin.  Wages that qualify for the Development Zones Credit are also excluded from QREs.  Furthermore, Wisconsin excludes several of the special rules in the IRC: Sections 41(f)(1)-(2) and (5)-(6).  The Research Credit is also income, and it must be reported in the year computed.  The credit is nonrefundable, must be claimed within four years, can be carried forward 15 years, and may not be offset against the economic development surcharge.

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