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California Issues Guidance on R&D Credit Base Amount – Companies with $ 0 Gross Receipts Can Claim the Credit

California Issues Guidance on R&D Credit Base Amount – Companies with $ 0 Gross Receipts Can Claim the Credit

The California Franchise Tax Board (FTB) issued new guidance relating to the way in which a company calculates its base amount for the state Research and Development Credit. California uses a definition of “gross receipts” that includes only sales of tangible goods shipped to a purchaser in state. Under this definition, software and service companies often have $ 0 in gross receipts. As a result, some eligible companies were told that they could not calculate the “base amount,” which is based on the company’s gross receipts.

The new guidance clarifies several points: First, California does not conform its definition of gross receipts to the federal IRC § 41(c)(7) definition. Second, and more importantly, companies that have $ 0 in gross receipts can still calculate the credit using the minimum base amount of 50% of qualified research expenses. As a result of this announcement, companies that have no gross receipts under the California definition can still calculate and claim the state R&D credit.

View the PDF here.

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GET STARTED

Contact our team today with any tax controversy concern you’re facing. We fight every day to protect the interests of the taxpayer, and we look forward to putting you in the best tax situation possible.

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