Several states have recently proposed or implemented R&D state tax credits

As this week’s recent research article mentions, R&D tax credits work, so it isn’t surprising several states have either proposed, amended, or enacted research and development (R&D) tax credits for both the current fiscal (2025) and new (2026) fiscal year in efforts to encourage innovation and economic growth. Some specifically target life sciences or biotechnology sectors while others focus on attracting new or existing companies and startups or to further develop life sciences and/or biotech sectors and hubs.

The following is a brief wrap-up of some states that have recently introduced or implemented notable R&D credits in their innovation space.

Connecticut Gov. Ned Lamont announced in his FY 2026-2027 biennial budget address on Feb. 5 that he was proposing to increase the state’s biotechnology R&D tax credit from 65% to 90%. Doing so would allow companies that make less than $70 million a year in sales to cash in their unused tax credits at a higher exchange rate than the current 65% exchange rate. The boost would cost the state about $1.8 million but result in multiple millions in increased economic activity at startups, industry boosters said.

In November (2024), Massachusetts Gov. Maura Healey signed a bill allocating $500 million over 10 years to spur life-science job creation in her state, which includes a R&D tax credit plan. The authorized investments in H.5100: An Act relative to strengthening Massachusetts’ economic increased the annual tax credit authorization for the life sciences industry from $30 million to $40 million.

Michigan Gov. Gretchen Whitmer signed into law a series of bipartisan bills (House Bills 5100 (Public Act 186 of 2024) and 5101 (Public Act 187 of 2024) on Jan. 13, 2025, introducing the Michigan Innovation Fund and a Research and Development (R&D) Tax Credit. The legislation is designed to bolster Michigan-based startups and attract potential investments to the state. It provides an additional incentive—a $200,000 tax credit—for companies that collaborate with a research university, further encouraging partnerships that leverage the state’s academic research and expertise.

Rhode Island Gov. Daniel McKee has recommended in his FY 2026 Budget proposal extending the number of years that eligible businesses can use the state’s Research and Development Expense Tax Credit from seven to 15 to align with Massachusetts and Connecticut policies. Currently, as implemented, Rhode Island’s R&D Expense Tax Credit’s carryforward means that startups with small tax liabilities do not experience the economic advantages offered by this incentive. Per the administration’s proposed reform, doubling the years available for use would give startups access to the tax incentive. Coupled with this proposal, the Governor also recommends repealing two minimally used research and development deductions: the Research and Development Property Tax Credit and the Research and Development Facilities Deduction.

Virginia recently passed House Bill 1518 (HB 1518), which Gov. Glenn Youngkin signed in April 2024. The bill modified the commonwealth’s Research and Development Expenses Tax Credit (the minor refundable R&D Tax Credit) and the major Research and Development Expenses Tax Credit (the major nonrefundable R&D Tax Credit). Which credit applies to an entity depends on how many qualified research expenses (QREs) the taxpayer incurs during the tax year. If a company incurs $5 million or less of QREs in a tax year, it could apply for the refundable R&D Tax Credit. This credit is equivalent to 15% of the first $300,000 of QREs incurred in the tax year that exceed the Virginia base amount and has an annual limit of $45,000. Any unused credits are refundable. If QREs were in conjunction with a Virginia public or private college or university, the credit is equivalent to 20% of the first $300,000 of qualified expenses that exceed the Virginia base amount. If a company incurs more than $5 million in QREs in a tax year, it could apply for the nonrefundable major R&D Tax Credit. This credit is equivalent to 10% of the difference between the current year’s QREs and 50% of the average amount of the QREs for the previous three years and has no annual limit. The major R&D Tax Credit may only offset a maximum of 75% of the company’s taxable income, but any unused credits may be carried forward for up to 10 years.

This article was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. (The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.