Section 9.17. Research and development tax credit implementation issues

(a) The Research and Development Tax Credit Law (72 P. S. § §

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) provides for a credit against a taxpayer’s liabilities imposed under Article III, IV or VI of the TRC (72 P. S. § § 7301—7361, 7401—7412 and 7601—7606). The credit is available to those businesses who incur expenses for qualified research and development activities performed within this Commonwealth. This statement of policy provides an explanation of eligible taxpayers.

(b) The Research and Development Tax Credit Law’s definition of Pennsylvania base amount requires that a taxpayer have at least 1 taxable year preceding the taxable year in which the Pennsylvania qualified research and development expenses are incurred. A taxpayer may not apply for a research and development credit until the calendar year beginning after the close of the taxpayer’s second taxable year in which Pennsylvania research and development expenses are incurred which are effectively connected with the conduct of a trade or business within this Commonwealth.

(c) A taxpayer with Pennsylvania qualified research and development expenses which are effectively connected with the conduct of a trade or business within this Commonwealth in at least 2 preceding taxable years, the second which ended on or before December 31, 1996, may apply for a research and development tax credit by September 15, 1997. The credit will be for those research and development expenses incurred in the taxpayer’s taxable year that ended in 1996. A taxpayer shall apply for the credit on the form prescribed by the Department. The form is available by contacting the Bureau of Corporation Taxes, Taxing Division—R & D Unit, Department 280703, Harrisburg, Pennsylvania, 17128-0703.

(d) Section 306 of the TRC (72 P. S. § 7306) explains that a partnership is not subject to Personal Income Tax, but the income of a member of a partnership is subject to the tax on his share of the income received by the partnership. As the partner is the entity subject to tax under Article III of the TRC, and not the partnership, each partner is entitled to a research and development tax credit. The research and development credit applicable to a partnership may be claimed by each partner on a pass through basis with each partner (taxpayer) computing the credit on a pro rata basis.

The provisions of this § 9.17 adopted August 15, 1997, effective August 16, 1997, 27 Pa.B. 4115.