Utah R&D Tax Credit

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Documentation is often enough to suffice as proof of qualified expenses. Financial records, payroll records, and invoices are some of the documentation you need to support your qualified expenses.

The Utah Research and Development Tax Credit, also known as the UT R&D credit, provides businesses with a potentially significant tax benefit when research and development business activities are conducted within the state of Utah. Documentation is often enough to suffice as proof of qualified expenses. Financial records, payroll records, and invoices are some of the documentation you need to support your qualified expenses.

The research credit in Utah is similar to the IRC § 41 in many ways, but there are a few key differences. The Utah research credit contains the following:


  • Includes two non-refundable credits (Flat and Incremental) with similar definitions as the federal Qualified Research Expenses and Qualified Research Activities but only for Utah-based expenses
  • It is permanent and has no expiration date
  • 5% of excess Qualified Research Expenses that are above the base amount for Incremental Credit
  • 5% of payments made towards qualified organizations increasing basic research conducted in Utah that exceed a base amount
  • 7.5% of Qualified Research Expenses for the current taxable year for the Flat Credit
  • Carryforwards are permitted for 14 years when they exceed the taxpayer’s liability, excluding when the 7.5% is used for the calculation (carrybacks are not permitted)
  • Gross receipts can only be applied when services were used within the state of Utah


You can read more about the Utah research credit here.

What is the Utah R&D Tax Credit?

R&D tax credits, also known as the Research and Development credit, enable businesses to potentially reduce their federal income tax or franchise tax. Taxpayers might qualify for the credit if they paid for (or incurred) qualified research expenses.

What are Qualified Research Activities in Utah?

Qualified Research Activities can include the below. As mentioned, all qualified activities must take place in the state of Utah.

Creating improved products, processes, formulas, software, and techniques
Automating or improving internal manufacturing processes
Designing tools, jigs, fixtures, and molds
Integrating new equipment
Development of data centers, big data, and data mining tools
Integration of APIs and other technologies
Development of financial or pricing models
Manufacturing new or improved products
Developing prototypes, first articles, models
Evaluation of alternative materials
Development of firmware
Network hardware and software development and optimization
Developing simulators
Development of risk management systems
Hiring outside consultants to perform any of the listed activities

Eligibility:
Utah R&D Tax Credit

Your business might qualify if it paid for:
Employees or sub-consultants performing research within Utah
Development, improvement, or enhancement of new products or processes within Utah
The R&D tax credit can be applied to a wide variety of industries that extend beyond research labs and includes startups.

The R&D tax credit can be applied to a wide variety of industries that extend beyond research labs and includes startups.

Find out if you qualify for the Utah research credit.

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How the R&D Tax Credit Works in Utah

What Information is Needed?

Properly claiming the R&D tax credit can be difficult without the right expertise - That’s where GOAT.tax comes in. Our R&D tax credit software identifies any qualified research expenses your company paid and qualified research activities to ensure you receive the largest refund possible.

These qualified expenses typically include employee compensation, contracted services, and materials. Typical data needed include payroll records, detailed financial records, vendor expenses, and gross receipts from the past 4 years.

Meeting the Four-Part Test

All companies in Utah (regardless of industry, size, or revenue) that perform these qualified research activities must satisfy the following criteria of the IRS Four-Part Test as outlined in IRC §41(d):

1. Business Component Test
The activity must be related to the performance, quality, reliability, or new or improved function of a business component of the taxpaying company. A business component is defined to be “any product, process, software, technique, formula or invention used by the taxpaying company in trade or business.”
2. Technological Uncertainty Test
The activity must involve the elimination of uncertainty. An activity entails uncertainty if the taxpayer did not know one or more of the following:
  • Whether the desired results could be achieved.
  • The specific means of achieving the desired result.
  • The appropriate design of the business component is being developed.
    3. Process-of-Experimentation Test
    “Substantially all” of the activity must involve a “process of experimentation” involving more than one possible approach toward achieving the result, where the capability or method of achieving the result is uncertain at the outset of the activity.
    4. Technological‐in‐Nature Test
    Activities that are undertaken to discover information must be technological in nature. For example, experiments used to eliminate uncertainty must rely on principles of physical or biological sciences, engineering, or computer science.

    Credit Carryforward

    In Utah, the carryover must be applied to the earliest tax year possible and the unused credit may be carried over until it is exhausted.

    R&D Tax Credit Calculation Method

    There are two primary methods for computing the Utah research tax credit, which includes the Regular Credit (RC) Method and the Alternative Simplified Credit (ASC) Method.

    Taxpayers can choose which method they would like to have utilized for calculating their potential tax benefit, however, each method offers specific advantages and disadvantages. At Source Advisors, we can determine the best calculation method based on your situation.

    How To Claim Your Utah R&D Tax Credit

    To claim your research credit in the state of Utah, complete form TC-40A Part 4 using code 12. The form must be submitted with your Utah state tax return.

    Utah R&D Tax Credit From The Experts: GOAT.tax

    GOAT.tax was created for the purpose of educating businesses on the R&D tax credit and assisting companies that qualify for the credit to claim it. Through the 305+ years of collective automating R&D tax credit experience across our nationwide team of over 50 R&D tax professionals, we have been able to take all the guesswork out of this complex tax credit incentive. The experts at GOAT.tax can help your business with automating R&D credit through our innovative platform.
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    Hire US-based engineers, developers, or scientists.
    Designs and develops product prototypes and/or software.
    Performs experimentation and validation on products, manufacturing processes, and/or software.
    None of the above.

    This calculator has been developed utilizing data from a variety of studies conducted in the industries listed. This is only an approximation based on a variety of assumptions and should be treated as such.

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    Based on your responses, we believe that you are not currently eligible for the R&D tax credit.

    Please check back with us if you perform any product or software development-related work in the future.

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