By Natalie Grumhaus
Despite the chilly weather of Second Winter currently enveloping Michigan, hope “springs” eternal for businesses with R&D costs in the state. On Tuesday, March 19, 2024, the Michigan Senate approved three of the five bills in the R&D-focused economic development package and made some changes to the two others in the package that are now pending approval back in the House. For the bills that both the Senate and the House have approved, all that remains is the governor’s approval, and Governor Whitmer has already promised her full support of this package in her 2024 State of the State Address.
“Thanks to our leading universities and businesses, Michigan is home to a lot of research and development (R&D). Unfortunately, we are one of just a handful of states without a tax credit to incentivize R&D. Every other Midwestern state has one. An R&D tax credit will unleash innovation while lowering costs for businesses. Let’s get it done.”
While the three bills that have been passed are different from the substance of the new package, we are well on our way to a full state R&D tax credit in Michigan. Bills 4368, 5099, and 5102 lay the infrastructure for the substantive bills, 5100 and 5101. Those two bills are going back to the House with only a few minimal changes, so the prospects are good that they will be passed as they are written now, when the Senate returns in April from its legislative spring break.
The Michigan R&D tax credit would be available to both large and small companies, as well as additional credit opportunities for businesses working with research universities – of which, Michigan has several top-tier research universities. Employers will be able to take a credit of 3% of their R&D expenses up to the base amount, regardless company size.
Large companies employing over 250 employees will be allowed to take an additional 10% of their qualified R&D expenses that exceed the base amount. For these large employers, the tax credit can be at most $2,000,000 per tax year. Small employers with fewer than 250 employees will be able to take 15% of their qualified R&D expenses that exceed the base amount in addition to the 3% of the base amount. However, the small employer cap is set much lower, at $250,000 per tax year.
If the company – regardless of size – works in collaboration on the project with any research university, governed by a written agreement, the company is allowed to take a further additional credit of 5% of the qualified R&D expenses (in excess of the base amount) during the calendar year that falls within the company’s tax year, up to $200,000 per tax year.
However, in aggregate, the State only provides $100,000,000 in tax credits in a single calendar year. If the claims submitted exceed that amount, the State will prorate all disbursed funds to each claimant. Additionally, the State is not allowing any transfer or assignment of these credits.
In conclusion, the many businesses that perform research in Michigan are set to reap a huge benefit from these new bills. From Ford and General Motors automotive research (especially those working on electrical car batteries) to agricultural research done at Michigan State University and medical research performed in conjunction with the University of Michigan, Michigan holds many opportunities for innovative companies. The Michigan House is also considering additional bills that will require new jobs with significantly higher wages that will boost the Michigan economy even further. The Michigan manufacturing and engineering market has a bright future and Tri-Merit is here to help your company take advantage of it. With many of our partners and employees located in Michigan, we love this state and are very excited to work with your company on obtaining the maximum state R&D credit for your activities in Michigan.