In March 2024, the Michigan Senate passed significant legislation aimed at expanding the state's Research and Development (R&D) Tax Credit. This new legislation marks a major shift from the previous program, which offered only a 1.9% credit on qualifying expenses, to a much more generous system. Now, Michigan businesses can receive up to a 15% credit on qualifying expenses, making the state a more attractive location for innovation and development.
The updated R&D Tax Credit legislation, which includes House Bill 5100, is designed to incentivize businesses to not only expand their operations within Michigan but also to attract new companies from outside the state. Starting with tax years beginning on or after January 1, 2024, Michigan taxpayers conducting qualified research within the state will be eligible for a non-refundable tax credit. The credit varies based on the size of the taxpayer's workforce and any collaboration with a state research university.
For larger businesses with 250 or more employees, the credit is calculated as 3% of qualifying research and development expenses up to a base amount, and 10% for expenses exceeding the base amount, capped at $2 million per year. Smaller companies, with fewer than 250 employees, can claim 3% up to the base amount and 15% above it, with a maximum credit of $250,000 annually. An additional 5% credit is available for companies partnering with a Michigan research university, up to a $200,000 limit.
These changes are part of a broader economic development strategy that also includes the reorganization of the Strategic Outreach and Attraction Reserve (SOAR) Fund into the Make it in Michigan Fund. This restructured fund will allocate half of its $500 million annual budget to a new initiative called Michigan 360, which will support regional transit, affordable housing, infrastructure, childcare, job training, and more.
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