Illinois R&D Tax Credit Reinstated with Retroactive Application

On July 6th, the Illinois General Assembly voted to override Governor Bruce Rauner’s veto of its $36 billion spending plan.  The veto override resulted in the passage of Senate Bill 0009, which included the reinstatement of the state’s research and development (“R&D”) tax credit.  The credit had expired on December 31, 2015, which was the fourth expiration of the credit since its inception in 1990.

As part of the reinstatement of the R&D tax credit, the bill included a clause stating the intent of the General Assembly is “that the research and development credit…shall apply continuously for all tax years ending on or after December 31, 2004 and ending prior to January 1, 2022, including, but not limited to, the period beginning on January 1, 2016 and ending on the effective date of this amendatory Act of the 100th General Assembly.” Consequently, the legislation made the reinstatement of the R&D tax credit retroactive for the 2016 calendar year. 

Due to the retroactive application, Illinois taxpayers may claim the R&D tax credit on their 2016 Illinois income tax returns.  If a taxpayer has already filed the 2016 return, the credit may be claimed on an amended return.  However, since the applicable tax forms (Schedule 1299-A and Schedule 1299-D) still need to be updated to incorporate the reinstated R&D tax credit, the Illinois Department of Revenue is currently working to determine how best to instruct taxpayers to file amended returns to claim the credit.

The Illinois R&D tax credit provides a nonrefundable credit of 6.5% of the qualified research expenses incurred during the taxable year that exceed the average of the prior three taxable years’ qualified research expenses.  Any excess credit can be carried forward up to five taxable years.

 

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