                                 CODE OF VIRGINIA

MAJOR RESEARCH AND DEVELOPMENT EXPENSES TAX CREDIT (§ 58.1-439.12:11)

A. As used in this section, unless the context requires a different meaning:
			&#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, 2016, but before
January 1, 2021, a taxpayer with Virginia qualified research and development
expenses for the taxable year in excess of $5 million shall be allowed a credit
against the tax levied pursuant to § 58.1-320 or 58.1-400 in an amount equal to
10 percent of the difference between (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. For taxable years beginning on or after January 1, 2021, but before January
   1, 2023, a taxpayer with Virginia qualified research and development expenses
   for the taxable year in excess of $5 million 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 10 percent of the difference between (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.

   3. For taxable years beginning on or after January 1, 2023, but before January
   1, 2025, a taxpayer with Virginia qualified research and development expenses
   for the taxable year in excess of $5 million 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:
   				a. Ten percent, up to the first $1 million, of the difference between (i)
   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.
   				b. Five percent of the difference in excess of $1 million between (i) any
   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.
   				The aggregate amount of credits allowed to each taxpayer under this
   subdivision 3 shall not exceed $300,000 for the taxable year, except that the
   aggregate amount of credits allowed to each taxpayer shall not exceed $400,000
   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.

C. 1. For taxable years beginning before January 1, 2021, the aggregate amount
of credits granted for each fiscal year of the Commonwealth pursuant to this
section shall not exceed $20 million.

   2. For taxable years beginning on and after January 1, 2021, but before
   January 1, 2023, the aggregate amount of credits granted for each fiscal year
   of the Commonwealth pursuant to this section shall not exceed $24 million.

   3. For taxable years beginning on or after January 1, 2023, the aggregate
   amount of credits granted for each fiscal year of the Commonwealth pursuant to
   this section shall not exceed $16 million.

D. In the event that approved applications for the tax credits allowed under
this section exceed the limit described in subsection C for any taxable year,
the Department shall apportion the credits by dividing such limit by the total
amount of tax credits approved, to determine the percentage of allowed tax
credits each taxpayer shall receive.

E. The amount of the credit claimed for the taxable year shall not exceed 75
percent of the total amount of tax imposed by this chapter upon the taxpayer for
the taxable year. Any credit not usable for the taxable year for which the
credit was first allowed may be carried over for credit against the income taxes
of the taxpayer in the next 10 succeeding taxable years or until the total
amount of the tax credit has been taken, whichever is sooner.

F. 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.

G. 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.

H. The Department shall develop and publish guidelines under this section
including guidelines for applying for the tax credit. Such guidelines shall be
exempt from the Administrative Process Act (&#xA7; 2.2-4000 et seq.).
Applications for the tax credit 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.
			The Department shall also 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.

I. 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: 2016, cc. 300, 661; 2020, cc. 469, 470; 2021, Sp. Sess. I, cc. 47, 48;
2024, c. 661.