                                 CODE OF VIRGINIA

RESEARCH AND DEVELOPMENT EXPENSES TAX CREDIT (§ 58.1-439.12:08)

A. As used in this section, unless the context requires a different meaning:
			&#8220;Virginia base amount&#8221; means the base amount as defined in §
41(c) of the Internal Revenue Code, as amended, that is attributable to
Virginia, determined by (i) substituting &#8220;Virginia qualified research and
development expense&#8221; for &#8220;qualified research expense&#8221;; (ii)
substituting &#8220;Virginia qualified research&#8221; for &#8220;qualified
research&#8221;; and (iii) instead of &#8220;fixed base percentage,&#8221;
using:

   1. The percentage that the Virginia qualified research and development expense
   for the three taxable years immediately preceding the current taxable year in
   which the expense is incurred is of the taxpayer&#8217;s total gross receipts
   for such years; or

   2. The percentage that the Virginia qualified research and development expense
   for the applicable number of taxable years immediately preceding the current
   taxable year in which the expense is incurred is of the taxpayer&#8217;s total
   gross receipts for such years, for the taxpayer that has fewer than three but
   at least one prior taxable year.
   				&#8220;Virginia gross receipts&#8221; means the same as &#8220;gross
   receipts&#8221; as defined in &#xA7; 58.1-3700.1.
   				&#8220;Virginia qualified research&#8221; means qualified research, as
   defined in &#xA7; 41(d) of the Internal Revenue Code, as amended, that is
   conducted in the Commonwealth.
   				&#8220;Virginia qualified research and development expenses&#8221; means
   qualified research expenses, as defined in &#xA7; 41(b) of the Internal
   Revenue Code, as amended, incurred for Virginia qualified research.

B. 1. For taxable years beginning on or after January 1, 2011, but before
January 1, 2021, a taxpayer shall be allowed a credit against the tax levied
pursuant to § 58.1-320 or 58.1-400 in an amount equal to (i) 15 percent of the
first $300,000 in Virginia qualified research and development expenses paid or
incurred by the taxpayer during the taxable year or (ii) 20 percent of the first
$300,000 in Virginia qualified research and development expenses paid or
incurred by the taxpayer during the taxable year if the Virginia qualified
research was conducted in conjunction with a public or private institution of
higher education in the Commonwealth, to the extent the expenses exceed the
Virginia base amount for the taxpayer.

   2. For taxable years beginning on or after January 1, 2021, but before January
   1, 2025, a taxpayer shall be allowed a credit against the tax levied pursuant
   to &#xA7; 58.1-320, 58.1-400, or 58.1-1202 in an amount equal to (i) 15
   percent of the first $300,000 in Virginia qualified research and development
   expenses paid or incurred by the taxpayer during the taxable year or (ii) 20
   percent of the first $300,000 in Virginia qualified research and development
   expenses paid or incurred by the taxpayer during the taxable year if the
   Virginia qualified research was conducted in conjunction with a public or
   private institution of higher education in the Commonwealth, to the extent the
   expenses exceed the Virginia base amount for the taxpayer.

C. 1. Effective for taxable years beginning on or after January 1, 2016, at the
election of the taxpayer, the credit otherwise allowed under this section shall
be computed under this subsection and shall equal 10 percent of the difference
of (i) the Virginia qualified research and development expenses paid or incurred
by the taxpayer during the taxable year and (ii) 50 percent of the average
Virginia qualified research and development expenses paid or incurred by the
taxpayer for the three taxable years immediately preceding the taxable year for
which the credit is being determined. If the taxpayer did not pay or incur
Virginia qualified research and development expenses in any one of the three
taxable years immediately preceding the taxable year for which the credit is
being determined, the tax credit shall equal five percent of the Virginia
qualified research and development expenses paid or incurred by the taxpayer
during the relevant taxable year.

   2. The aggregate amount of credits allowed to each taxpayer under this
   subsection shall not exceed $45,000 for the taxable year, except that the
   aggregate amount of credits allowed to each taxpayer shall not exceed $60,000
   for the taxable year if the Virginia qualified research was conducted in
   conjunction with a public institution of higher education in the Commonwealth
   or a private institution of higher education in the Commonwealth.

D. The aggregate amount of credits available under this section for each fiscal
year of the Commonwealth shall be as follows:

   1. For taxable years beginning on and after January 1, 2014, but before
   January 1, 2016, the total amount of credits granted for each of fiscal years
   2015 and 2016 shall not exceed $6 million.

   2. For taxable years beginning on and after January 1, 2016, but before
   January 1, 2021, the total amount of credits granted for each fiscal year of
   the Commonwealth beginning with fiscal year 2017 shall not exceed $7 million.

   3. For taxable years beginning on and after January 1, 2021, but before
   January 1, 2023, the total amount of credits granted for each fiscal year of
   the Commonwealth beginning with fiscal year 2022 shall not exceed $7.77
   million.

   4. For taxable years beginning on and after January 1, 2023, the total amount
   of credits granted for each fiscal year of the Commonwealth beginning with
   fiscal year 2024 shall not exceed $15.77 million.

E. A taxpayer meeting the requirements of this section shall be eligible to
receive a tax credit as provided herein. The Department shall develop and
publish guidelines for applications and such guidelines shall be exempt from the
Administrative Process Act (§ 2.2-4000 et seq.). Applications must be received
by the Department no later than September 1 of the calendar year following the
close of the taxable year in which the expenses were paid or incurred. In the
event that approved applications for the tax credits allowed under this section
exceed the amount of credits specified in subsection D for the taxable year, the
Department shall apportion the credits by dividing the amount of credits
specified in subsection D by the total amount of tax credits approved, to
determine the percentage of allowed tax credits each taxpayer shall receive. In
the event that the total amount of approved tax credits under this section for
all applications for any taxable year is less than the maximum amount of credits
for the year as specified in subsection D, the Department shall allocate credits
up to the maximum amount as specified in subsection D, on a pro rata basis, to
taxpayers who are already approved for the tax credit for the taxable year, in
the following amounts:

   1. If the taxpayer computed the credit pursuant to subsection B, in an amount
   equal to 15 percent of the second $300,000 in qualified research expenses
   during the taxable year or 20 percent of the second $300,000 in qualified
   research expenses if the Virginia qualified research was conducted in
   conjunction with a public institution of higher education in the Commonwealth
   or a private institution of higher education in the Commonwealth; or

   2. If the taxpayer computed the credit under subdivision C 1, in an amount
   equal to the excess of the limitation set forth in subdivision C 2, up to an
   additional $45,000 per taxpayer, or $60,000 per taxpayer if the Virginia
   qualified research was conducted in conjunction with a public institution of
   higher education in the Commonwealth or a private institution of higher
   education in the Commonwealth.

F. If the amount of the credit allowed exceeds the taxpayer&#8217;s tax
liability for the taxable year, the amount that exceeds the tax liability shall
be refunded to the taxpayer, subject to the limitations set forth in the
guidelines developed by the Department.

G. Any taxpayer who claims the tax credit for Virginia qualified research and
development expenses pursuant to this section shall not use such expenses as the
basis for claiming any other credit provided under the Code of Virginia.

H. Effective for taxable years beginning on or after January 1, 2016, no
taxpayer with Virginia qualified research and development expenses in excess of
$5 million for the taxable year shall claim both the credit allowed pursuant to
this section and the credit allowed under &#xA7; 58.1-439.12:11 for such year.

I. Credits granted to a partnership, limited liability company, or electing
small business corporation (S corporation) shall be allocated to the individual
partners, members, or shareholders, respectively, in proportion to their
ownership interests in such entities or in accordance with a written agreement
entered into by such individual partners, members, or shareholders, unless the
partnership, limited liability company, or electing small business corporation
(S corporation) elects for such credits not to be so allocated but to be
received and claimed at the entity level by the partnership, limited liability
company, or electing small business corporation (S corporation) pursuant to
guidelines that shall be issued by the Department for purposes of such election.

J. The Department shall adopt guidelines to prescribe standards for determining
when research and development is considered conducted in the Commonwealth for
purposes of allowing the credit under this section. In adopting guidelines, the
Department may consider (i) the location where the research and development is
performed; (ii) the residence or business location of the taxpayer or taxpayers
conducting the research and development; (iii) the location where supplies used
in the research and development are consumed; and (iv) any other factors that
the Department deems to be relevant.

K. The Tax Commissioner&#8217;s annual report to the Governor on revenue
collections by tax source shall include (i) the total number of applicants
approved for tax credits pursuant to this section for the applicable tax year
and (ii) the total amount of such tax credits approved for the applicable tax
year.

L. The Department shall require taxpayers applying for the credit to provide
information including (i) the number of full-time employees employed by the
taxpayer in the Commonwealth during the taxable year for which the credit is
sought; (ii) the taxpayer&#8217;s sector or sectors according to the 2012
edition of the North American Industry Classification System (NAICS) as
published by the United States Census Bureau; (iii) a brief description of the
area, discipline, or field of Virginia qualified research performed by the
taxpayer; (iv) the total gross receipts or anticipated total gross receipts of
the taxpayer for the taxable year for which the credit is sought; and (v)
whether the Virginia qualified research was conducted in conjunction with a
Virginia public or private college or university. The Department shall aggregate
and summarize the information collected and make it available to the Governor
and any member of the General Assembly upon request, regardless of the number of
taxpayers applying for the credit.

M. No tax credit shall be allowed pursuant to this section if the otherwise
qualified research and development expenses are paid for or incurred by a
taxpayer for research conducted in the Commonwealth on human cells or tissue
derived from induced abortions or from stem cells obtained from human embryos.
The foregoing provision shall not apply to research conducted using stem cells
other than embryonic stem cells.

HISTORY: 2011, cc. 742, 745; 2014, cc. 227, 306; 2016, cc. 300, 433, 661; 2020,
cc. 469, 470; 2021, Sp. Sess. I, cc. 47, 48; 2024, c. 661.