R&D - Regular Credit

The regular credit is equal to 20% of the excess of the taxpayer’s qualified research expenses (QREs) for the tax year, over the base amount. The base amount is the product of the taxpayer’s fixed-base percentage and its average annual gross receipts for the four years before the credit year. Calculation of the fixed-base percentage depends on whether a taxpayer is an existing company or a start-up company. The fixed-base percentage for a start-up company's first 5 tax years beginning after 1993 for which the taxpayer has QREs is 3%. The fixed-base percentage for tax years thereafter is computed as follows: a) for the 6th tax year, the aggregate QREs for the 4th and 5th tax years is divided by the aggregate gross receipts for those tax years, then the result is divided by 6; b) for the 7th tax year, the aggregate QREs for the 5th and 6th years is divided by the aggregate gross receipts for those tax years, then the result is divided by 3; c) for the 8th tax year, the aggregate QREs for the 5th, 6th, and 7th tax years is divided by the aggregate gross receipts for those tax years, then the result is divided by 2; d) for the 9th tax year, the aggregate QREs for the 5th, 6th, 7th, and 8th tax years is divided by the aggregate gross receipts for those tax years, then the result is divided by 1.5; e) for the 10th tax year, the aggregate QREs for the 5th through 9th tax years is divided by the aggregate gross receipts for those tax years, then the result is divided by 1.2; and f) for the 11th and later tax years, the aggregate QREs for any 5 of the 5th through 10th tax years is divided by the aggregate gross receipts for those tax years.

The fixed-base percentage for an existing company is computed by dividing the aggregate QREs for the tax years beginning after 1983 and before 1989 by the aggregate gross receipts for those tax years. The fixed-base percentage for all companies (existing and start-up) cannot exceed 16%.