The federal credit is only part of the picture. A majority of states give a credit or deduction for research performed within their borders, usually built on the federal definitions but with their own rates, bases, limits and procedures. A company with research in several states can have several state claims alongside Form 6765, each with its own form and in some cases its own application. This page explains how the state credits fit with the federal one and introduces the six states covered in detail.
How these credits interact with the federal scheme
| Element | Federal | Typical state approach |
|---|---|---|
| Definition of qualified research | Section 41(d), the four-part test | Adopted by reference, sometimes as of a fixed date |
| Qualified research expenses | Section 41(b) | Federal QREs, limited to research conducted in the state |
| Rate and base | 20% regular or 14% ASC above a base | Own rate and base, often a state version of the regular or ASC computation |
| Refundability | Not refundable; payroll offset for qualified small businesses | Varies: some refundable in part, some transferable, most carried forward |
| Procedure | Form 6765 with the return, no pre-approval | A state form with the return; some states require pre-certification or an application with an agency |
| Effect on federal tax | Not applicable | See each state page |
Two consequences follow. The federal workpapers do most of the state work: a business component analysis and QRE schedule prepared in Section G form can be filtered by location to produce each state's base. Where a state adopts the federal code as of a fixed date, later federal changes, including the section 174 amendments, may not apply for state purposes, so the state and federal computations can diverge. State credits are examined by state revenue departments under their own procedures and limitation periods, separately from any IRS examination.
Where they are offered
Six states are covered in their own pages: California, with the largest research base and a high regular rate; Texas, with a franchise tax credit rewritten for 2026; New York, which rewards research through the Excelsior Jobs Program and the Life Sciences credit rather than a general credit; Massachusetts, with a credit that limits the tax it can offset; Georgia, with a credit whose excess can be applied against payroll withholding; and Arizona, with a partial refund for smaller companies. Many other states offer credits, and a company with research elsewhere should check its state's revenue department.
| State | Credit in outline | Administering agency | Page |
|---|---|---|---|
| California | Credit against franchise or income tax, regular method at a state rate, carried forward | Franchise Tax Board | California |
| Texas | Credit against franchise tax under Tax Code chapter 171, subchapter T for reports due on or after 1 January 2026 (subchapter M before), with a refund for entities that owe no franchise tax | Comptroller of Public Accounts | Texas |
| New York | No general research credit: the Excelsior Jobs Program credit of 50% of the federal research credit attributable to research in New York, within caps, and the Life Sciences credit for new businesses, both refundable | Empire State Development | New York |
| Massachusetts | Credit against corporate excise, regular or alternative simplified method, with a limit on the excise it can offset and an extended carryforward | Department of Revenue | Massachusetts |
| Georgia | 10% of Georgia QREs above a base tied to Georgia gross receipts, limited to 50% of the income tax after other credits, with the excess usable against payroll withholding by election | Department of Revenue | Georgia |
| Arizona | 24% of the first US$2,500,000 of excess QREs and 15% above, with a partial refund through the Arizona Commerce Authority for companies with fewer than 150 full-time employees | Department of Revenue; Arizona Commerce Authority for refunds | Arizona |
Illustrative example
Illustrative example. Lindqvist Robotics, a hypothetical company, has US$3,000,000 of federal QREs, of which US$2,000,000 are for research performed in California and US$1,000,000 in Texas. Its federal claim uses all US$3,000,000. Its California claim uses the US$2,000,000 performed in California, computed under the California rules; its Texas claim uses the US$1,000,000 performed in Texas, computed under the Texas rules. The same business component workpapers, with a location field, support all three.
Common questions
Do we need separate records for each state? No. One set of business component workpapers with a location field for every employee, contractor and purchase serves the federal claim and every state claim. What differs by state is the base computation, which needs that state's prior-year QREs and, for some states, gross receipts.
Which state can claim research done by remote employees? The state where the employee performs the work. An employee on a California payroll who works from Texas performs Texas research for credit purposes, so location records matter as much as project records.
Are state credits taxable income? The federal treatment of a state credit depends on the state and on whether the credit is refundable, and should be confirmed for each state with an advisor.
Can a state credit be claimed where no federal credit is claimed? Usually yes, since most states compute their own credit from the federal definitions rather than from the federal credit itself. New York and Georgia are exceptions: the Excelsior credit is a fraction of the federal credit, and the Georgia credit is available only if the business claims and is allowed the federal research credit for the same year.
What if a state has decoupled from section 174? The state deduction for research expenses then follows the state's own rule, and the state computation of taxable income differs from the federal one; the credit computation is unaffected because it uses QREs, not the deduction. Each state page notes the conformity point to check.
Related pages
- United States guide overview
- Keeping location in the records
- The federal computation the state methods borrow from
- Guide: claiming across multiple countries
- Program: Advisor and Practitioner Program
Official sources
Educational content only, not tax advice. See the disclaimer.