On Monday, January 13th, 2025, Governor Whitmer signed HB 5100 and HB 5101 into law, which create a Research and Development (R&D) tax credit in Michigan. SBAM supported these bipartisan bills and contributed to their formation through the legislative process.
Fast Facts: What do the bills do?
These bills allow small businesses to claim a credit for qualified R&D expenses. This credit is nontransferable but refundable and will be available for the tax year that started January 1st, 2025.
- For employers with fewer than 250 employees, the credit will equal 3% of the employer’s qualifying R&D expenses for the calendar year up to the employer’s “base amount” of R&D expenses, and 15% of qualifying expenses which exceed the “base amount”. The maximum credit is $250,000.
- The “base amount” is defined as the average annual qualifying R&D expenses for the three years preceding the tax year the credit is claimed.
- Employers with more than 250 employees similarly can claim 3% of qualifying R&D expenses up to the base amount, but only 10% of qualifying expenses which exceed the base amount. The maximum credit for these employers is $2 million.
Background
When bills were first introduced in the House to create a research and development tax credit, the legislation did not fully meet SBAM’s standards for an optimal credit. The program seemed to be administered like a grant rather than a tax credit automatically accessible through the income tax. A program administered like a grant would favor established outfits with connections and sophisticated means of navigating state government processes. Additionally, a program administered through a discretionary process could never be considered fully industry-agnostic.
SBAM advocated for changes to the R&D tax credit to make it small business friendly. Groundbreaking innovation does not occur solely in certain fields or in big businesses. If Michigan is to be a state in the business of incentivizing innovation, it was best to be industry-agnostic, and for the credit to be widely accessible and easy to use.
Through the committee process, there were positive amendments made to the bills. The credit shifted from one administered like a grant to one automatically administered by the Department of Treasury directly through the income tax. This then would ensure maximal simplicity and ease of use – expanding the reach of the credit to smaller employers and also achieving industry agnostic status.
After these changes, SBAM was proud to support HB 5100 and HB 5101 as they moved through the legislative process. The bills passed both legislative chambers with bipartisan support and was one of the few items that cleared the finish line during December’s hectic “lame duck” session.