How to Claim the Florida R&D Tax Credit

The Florida Research and Development Tax Credit, authorized under section 220.196 of the Florida Statutes, encourages specific industries to conduct research in the state. This state-level credit complements the federal R&D credit, meaning a company must first qualify for the federal benefit to be eligible for Florida’s program.

Determining Eligibility for the Credit

A business must meet two criteria to qualify for the Florida R&D Tax Credit. The first is an industry-based qualification, as the credit is targeted toward industries identified by the state as high-impact. These include sectors such as aviation and aerospace, life sciences, information technology, manufacturing, marine sciences, and nanotechnology. The state uses the North American Industry Classification System (NAICS) codes to confirm that a business operates within one of these designated fields.

The research activities themselves must also qualify. Florida’s definition of “qualified research” aligns with the federal standards in Section 41 of the Internal Revenue Code. This involves a four-part test that the research project must satisfy:

• The project must have a permitted purpose, meaning it intends to improve the function, performance, reliability, or quality of a product or process.
• The work must be technological in nature, relying on principles of the physical or biological sciences, engineering, or computer science.
• There must be an elimination of uncertainty regarding the capability or method for developing or improving the product or process.
• The project must involve a process of experimentation, where one or more alternatives are evaluated to achieve a result.

Calculating the Potential Credit Amount

The credit is valued at 10% of the qualified research expenses in Florida that exceed a “base amount.” This base amount is defined as the average of the company’s Florida-based qualified research expenses over the four tax years preceding the year for which the credit is being claimed. For companies with operations both inside and outside of Florida, it is necessary to precisely segregate the expenses attributable to research conducted within the state.

A limitation on the credit is that it cannot exceed 50% of the company’s remaining Florida corporate income tax liability after all other available credits have been applied. Any unused portion of the credit is not lost immediately; it can be carried forward for up to five years.

Required Information for the Application

A foundational document is a completed federal Form 6765, Credit for Increasing Research Activities, for the corresponding tax year. This federal form substantiates the qualified research expenses (QREs) that serve as the basis for the state credit calculation.

The official state application is Florida Form DR-420, Application for Allocation of Research and Development Tax Credit. To complete this form, a business must have several data points ready. This includes the company’s specific NAICS code, the total federal QREs from Form 6765, the precise amount of those expenses that were incurred in Florida, and its Florida corporate income tax information.

Another prerequisite is obtaining a certification letter from the Florida Department of Commerce confirming the business operates in a qualified target industry. This certification must be requested and received before submitting the credit application. Businesses must maintain detailed records to substantiate their claims in case of a future review or audit by the Department of Revenue.

The Application and Allocation Process

The application, Form DR-420, must be submitted to the Florida Department of Revenue through its online portal. For expenses incurred in the prior calendar year, the submission window is open from March 20 to March 26.

After the submission window closes, the Department of Revenue reviews all timely applications for completeness and eligibility. If the total amount of requested credits from all timely applications exceeds the statewide cap, the credits are distributed to all qualified applicants on a prorated basis. The department then notifies each applicant by letter, confirming the amount of the tax credit that has been allocated to them.

Once a business receives its allocation notice, the credit is claimed on the Florida corporate income tax return, Form F-1120.