A Huge Win for Michigan’s Innovation Economy – R&D Tax Credit Reestablished

In a milestone for Michigan’s innovation economy, the legislature passed a long-awaited and long-fought Research & Development (R&D) Tax Credit legislation – fifteen years in the making!

It was a protracted, and at times frustrating, journey for MichBio in its advocacy to reestablish an economic development incentive specifically aimed at R&D in Michigan. We watched numerous other states bolster their life sciences industry with competitive R&D tax credits while Michigan languished as one of the very few without such an incentive. Reestablishment of a R&D Tax Credit was MichBio’s #1 policy priority going back to 2010.

Michigan will now be one of the many states that offer a state-level R&D tax credit with the passage of HBs 5099-5102, and 4368. Part of the package passed earlier this year, but the bills that contained the credit, HB 5100-5101, didn’t get passed until mid- November with a House vote of 86-23. The Senate only concurred the bills in the latter part of the lame duck.

The newly reestablished tax credit is a vast improvement over what Michigan offered previously. MichBio led the charge with key legislation author, Rep. Julie Rogers (D) towards ensuring that this time, the credit had funding separate for “small” companies who typically would get lost in the shuffle and walk away with no access to a credit because large companies had already leveraged all the funds. In addition, MichBio fought for a premium add-on credit amount for R&D work that was contracted with a Michigan university, thereby bolstering economic and technology ties between the private sector and our institutional research prowess.

The state credit would be combined with any federal R&D credits and will be capped at $100 million, with $25 million specifically for small businesses. Here are some details you need to kno wwhen considering this tax strategy. If a business is eligible for the federal credit, then the business may claim the credits based on the size of the business and collaboration with an eligible Michigan-based research university:

• “Large” companies with 250 or more employees: a 10% credit, and the amount cannot exceed $2,000,000.
• Small” companies as defined by having less than 250 employees: 15%, credit cannot exceed $250,000.
• Companies can claim an additional 5% credit if working with a research university in the state, but the credit cannot exceed $200,000.
• A business’s base amount is calculated by determining the annual QRE for the three years preceding the year the credit is utilized.

Gov. Whitmer is expected to sign the new legislation making the Michigan R&D Tax Credit effective January 1, 2025, and provide significant tax savings opportunities for businesses.