State R&D Tax Credit to be Reestablished

A package of bills that would reestablish a state research & development (R&D) tax credit in Michigan – HBs 4368, 5099, 5100, 5101 and 5102 – passed by the Michigan Senate in bipartisan fashion 22-13 on March 19, 2024.

As proposed, taxpayers and authorized businesses with 250 or more employees could claim up to $2.0 million per taxpayer or business, respectively, per year. Taxpayers and authorized businesses with fewer than 250 employees (i.e., a “small” business) could claim up to $250,000 per taxpayer or business, respectively, per year. Additionally, taxpayers or employers could claim up to $200,000 in an additional credit for expenses from collaboration with a research university. The aggregate amount of R&D credits could not exceed $100.0 million (of which $25 million would be set aside solely for small businesses), and if they did, the Department of Treasury (DoT) would have to prorate the credits as prescribed by the bills. These tax savings are in addition to any federal R&D credit for which Michigan taxpayers are already eligible.

This is a significant win for Michigan technology companies, especially early-stage startups, and gives the state another competitive tool to spur innovation. Three bills in the package, HBs 4368, 5099, and 5102 are cleared for the governor’s signature. Meanwhile HB 5100 and 5101 need to return to the House for that chamber to agree to changes the Senate made.

While a great win, some minor tweaks were not taken up including lowering the threshold for defining a “small” business to 100 employees or less. This would ensure that true early-stage and growth stage ventures will have fair access to credit funds. Secondly, MichBio argued strongly that any tax credit for small businesses should be fully refundable if there are no tax liabilities, as this is a significant consideration for companies with no products on the market and nor profits. Also, the definition of a “research university” needs to be changed to “research institution” so that it encompasses any institution involved in academic or clinical research. Lastly, MichBio had suggested from the outset, that expenses related to initial patent and regulatory filings be eligible as research expenses. Such a qualification would be a boon to small start-ups who must expend precious funds to cover those activities.

MichBio will continue efforts to seek adjustments to the credit with the hope that such changes will be considered in the future.