Michigan Establishes Innovation Fund and R&D Tax Credit
January 17, 2025
At a glance
- The main takeaway: Michigan establishes state-level tax credits and more accessible resources for entrepreneurs and small businesses to foster innovation and cultivate new economic growth opportunities.
- The impact on your business: Taxpayers who already perform research and development (R&D) or may want to pursue new entrepreneurial endeavors may benefit from Michigan’s new incentives.
- Next steps: Reach out to Aprio’s R&D tax credit advisors to learn whether you qualify for these tax incentives and how to maximize R&D tax credits at the state and federal level.
The full story:
For the first time in over a decade, the state of Michigan has created the opportunity for innovative companies and entrepreneurs to claim tax credits based on qualified research and development (R&D) efforts. The state previously offered an R&D tax credit under the Michigan Business Tax (MBT) from 2008 to 2011, in which businesses could claim a credit for 1.9% of qualified expenses. When MBT was repealed in 2012, the R&D tax credit was discontinued.
On January 13, 2025, Michigan governor Gretchen Whitmer signed five bipartisan bills into law that establish the Michigan Innovation Fund and a new R&D Tax Credit. The new bills are expected to lower costs for businesses, support entrepreneurs and innovators, incentivize in-state development and encourage the creation of well-paying jobs by providing businesses of all sizes with the necessary tools and resources. Additionally, these bills aim to attract investments into Michigan by incentivizing research and innovation, stimulating the state economy, and creating thousands of jobs.
The R&D Tax Credit
House Bills 5100 and 5101 support economic development and innovation by establishing an R&D tax credit for taxpayers and employers. The tax credit amount available to taxpayers depends on the number of employees:
- Taxpayers with 250 or more employees can claim a 10% credit on qualified research expenditures (QREs) up to $2 million per taxpayer or business per year.
- Taxpayers with fewer than 250 employees can claim a 15% credit on QREs up to $250,000 per taxpayer or business per year.
The credit also provides a 5% bonus credit up to $200,000 for taxpayers who collaborate with a research university. Even without exceeding prior QREs, as required to claim the tax credits, Michigan offers a 3% credit on eligible QREs.
These bills are anticipated to attract small businesses and shepherd a robust innovation ecosystem across many sectors, including life sciences and advanced manufacturing. In sum, Michigan has set aside $100 million annually for R&D tax credits, $25 million of which is reserved for small businesses.
The Michigan Innovation Fund
House Bills 5651, 5652, and 5653 establish the Michigan Innovation Fund to support businesses and help attract potential investments to Michigan by allocating $60 million to innovation efforts in the state. The Innovation Fund will provide financial support for entrepreneurs and startup companies that previously might have encountered difficulties due to a lack of early-stage capital. The Innovation Fund is intended to grow the state’s talent pool and foster economic development by uplifting struggling businesses, providing resources to valuable job creators, and attracting new talent and ideas to the state. Legislators also hope the Innovation Fund will catalyze more collaboration between researchers and businesses.
How to take advantage of these opportunities
Businesses across the state, particularly startups and small enterprises, can use these funds to scale operations, innovate, and remain competitive in an evolving landscape. To qualify for the Michigan R&D Tax Credit, businesses must demonstrate that their activities occur within Michigan and meet the criteria for advancing technological innovation.
To ensure your credits are claimed correctly and in compliance with state and federal requirements, enlist the guidance of knowledgeable tax professionals. Aprio’s R&D tax credit team offers full-service studies and audit defense for federal and state credit opportunities and has helped clients claim over $1.9 billion in R&D tax credits.
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About the Author
Meredith Kowal
Meredith is a partner in Aprio’s Tax practice, specializing in R&D Tax Credits. She has over 12 years of experience serving clients in a variety of industries, including technology, manufacturing, retail, hospitality and aerospace.
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