At the end of 2014, the Wisconsin Legislature enacted laws that provide tax incentives for conducting certain types of research in the state. According to the Department of Revenue’s Publication 131 interpreting the laws, a sales and use tax exemption is available for machinery, equipment, and certain other items, property, and goods “that are used exclusively and directly in qualified research by eligible purchasers.”
In addition, income and franchise tax credits are available for increasing qualified research. The research expense credit is equal to five percent of the difference between the claimant’s qualified research expenses incurred for research conducted in Wisconsin and its Wisconsin base amount, but this amount increases to 10 percent for certain qualified research activities.
Publication 131 defines “qualified research” as that which is undertaken for the purpose of discovering information that is, among other things:
- Technological in nature;
- The application of which is intended to be useful in the development of a new or improved business component of the taxpayer; and
- Substantially all of the activities of which constitutes elements of a process of experimentation relating to a new or improved function, performance, reliability, or quality.
Eligibility has been expanded to allow not only corporations, but individuals, partnerships, S corporations, and LLC's to compute the credit.
Publication 131 notes that the amount of credit must be reported as income on the claimant’s Wisconsin franchise or income tax return in the year in which the credit is computed, regardless of the extent to which the credit computed is used in that tax year to offset tax liability or is carried forward to future years.
In addition, the amount of the unused credit may be carried forward and credited against state income or franchise taxes for up to 15 years.