[§235-110.91] Tax credit for increasing research activities. (a) Section 41 (with respect to the credit for increasing research activities) and section 280C(c) (with respect to certain expenses for which the credit for increasing research activities are allowable) of the Internal Revenue Code shall be operative for the purposes of this chapter as provided in this section.

(b) All references to Internal Revenue Code sections within sections 41 and 280C(c) of the Internal Revenue Code shall be operative for purposes of this section.

(c) There shall be allowed to each taxpayer, subject to the tax imposed by this chapter, an income tax credit for increased research activities that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

(d) The tax credit for increased research activities shall be equal to the sum of:

(1) 2.5 per cent of the excess (if any) of:

(A) The qualified research expenses for the taxable year; over

(B) The base amount; and

(2) 2.5 per cent of the basic research payments determined under section 41(e)(1)(A) of the Internal Revenue Code.

(e) For purposes of this section:

(1) The alternative incremental credit in section 41(c)(4) of the Internal Revenue Code shall be equal to the sum of 12.5 per cent of:

(A) 1.65 per cent of so much of the qualified research expenses for the taxable year as exceeds one per cent of the average described in section 41(c)(1)(B) but does not exceed 1.5 per cent of such average;

(B) 2.2 per cent of so much of those expenses as exceeds 1.5 per cent of the average but does not exceed two per cent of the average; and

(2) The term "qualified research" under section 41(d)(1) of the Internal Revenue Code shall not include research conducted outside of the State; and

(3) The term "basic research" under section 41(e) of the Internal Revenue Code shall not include research conducted outside of the State.

(f) The amount of reduced credit in section 280C(c)(3)(B) of the Internal Revenue Code shall be equal to the excess of:

(1) The amount of credit determined under section 41(a) (as provided for in this section) (without regard to this paragraph); over

(2) The product of:

(A) The amount described in subsection (f)(1); and

(B) 12.5 per cent of the maximum rate of tax under section 11(b)(1) of the Internal Revenue Code.

(g) If the tax credit for increased research activities claimed by a taxpayer exceeds the amount of income tax payment due from the taxpayer, the excess of the tax credit over payments due may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

(h) All claims for a tax credit under this section must be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to properly claim the credit shall constitute a waiver of the right to claim the credit.

(i) The director of taxation may adopt any rules under chapter 91 and forms necessary to carry out this section.

(j) This section shall not apply to taxable years beginning after December 31, 2005. [L 1999, c 178, §25]