Are R&D Tax Credits
Available in Rhode Island?
Yes. The state of Rhode Island provides Research and Development (R&D) Tax Credits for taxpayers to claim credits on both research and development property and qualified research expenses (QREs). Only C corporations are eligible for the Rhode Island research credit.
Key Features of Rhode Island R&D Credits
1. Research Credit – Research and Development Property
- Rhode Island allows a credit for the cost or other basis of tangible property, including buildings and structural components, acquired, constructed, reconstructed, or erected for R&D purposes after July 1, 1994.
- The credit equals 10% of the cost of the R&D property
- Eligible property must:
- Be depreciable under IRC §167 or have a recovery period under IRC §168 (MACRS).
- Have a useful life of three or more years.
- Be purchased (IRC §179(d) applies).
- Be used principally for research and development in the experimental or laboratory sense.
- Be located in Rhode Island.
- The credit is not allowed for leased property, and it cannot reduce tax below the minimum corporate tax.
- Unused credit may be carried forward for up to 7 years.
2. Research Credit – Qualified Research Expenses
- The federal definition of QREs and base period research expenses applies for Rhode Island purposes, provided expenses were incurred after July 1, 1994.
- The credit is calculated as:
- 22.5% of the first $111,111 exceeding base period expenses
- 16.9% of the amount exceeding $111,111
- The investment tax credit and credit for R&D property must be applied before the credit for QREs.
- For consolidated returns, the credit is only available to the qualifying taxpayer.
- The credit cannot reduce tax liability by more than 50%, and must not reduce a corporation’s tax below the statutory minimum.
- Unused credit may be carried forward for up to 7 years.
Rhode Island R&D Tax Credit
Case Study:
A Providence company designs and manufactures medical instruments for the health services industry. The company claims R&D credits each year for its engineers’ development activities. This project involved a multi-year study.
The company qualified for federal R&D Tax Credits of $204,167 and an additional $271,347 in Rhode Island state R&D Tax Credits
FEDERAL | RHODE ISLAND | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $700,000 | $56,000 | $700,000 | $73,822 |
2023 | $650,000 | $52,500 | $650,000 | $69,597 |
2022 | $600,000 | $49,000 | $600,000 | $65,372 |
2021 | $550,000 | $46,667 | $550,000 | $62,556 |
Total | $2,500,000 | $204,167 | $2,500,000 | $271,347 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $700,000 | $56,000 |
| 2023 | $650,000 | $52,500 |
| 2022 | $600,000 | $49,000 |
| 2021 | $550,000 | $46,667 |
| Total | $2,500,000 | $204,167 |
Rhode Island R&D Tax Credit Summary
| Year | Rhode Island Credit |
|---|---|
| 2024 | $73,822 |
| 2023 | $69,597 |
| 2022 | $65,372 |
| 2021 | $62,556 |
| Total | $271,347 |
Qualifying Research Activities
The four-part test that defines what counts as qualified research activities under
the R&D Tax Credit program
Purpose of the Research
The activity should develop or improve a business component, such as a product, process, software, formula, technique, or invention, by enhancing functionality, performance, reliability, or quality.
Resolving Uncertainty
The work must address technical uncertainties, such as determining the optimal design, method, or approach to achieve the desired outcome. The results should not be known in advance.
Systematic Experimentation
Eligible research must follow a structured experimentation process, including trial and error, modeling, simulation, or testing alternatives to reach the intended improvement.
Technological Basis
The activity should develop or improve a business component, such as a product, process, software, formula, technique, or invention, by enhancing functionality, performance, reliability, or quality.
Why the R&D Tax Credit Matters ?
Since 1981, the R&D Tax Credit has helped businesses save billions in federal and state taxes. The credit enables companies to hire more staff, expand R&D, invest in facilities, and drive innovation. Thousands of businesses across multiple industries take advantage of this benefit each year.