Massachusetts has one of the country’s densest concentrations of research driven companies, anchored by its life sciences cluster and a deep bench of technology and advanced manufacturing firms. The state’s research credit is built to match that intensity, closely mirroring the federal credit while offering its own calculation options and long term carryforward.
How the Credit Works
The Massachusetts Research Credit is available to business corporations subject to the state’s corporate excise tax that incur qualified research expenses within Massachusetts. Qualified expenses generally include wages paid to employees, a portion of wages paid to contractors, and amounts paid for supplies, provided the work was performed for research purposes and the supplies were used to conduct research in the state. The credit closely parallels the federal research credit and is governed by Massachusetts General Laws Chapter 63, Section 38M.
Credit Amount
Massachusetts corporations can calculate the credit as 10 percent of qualified research expenses that exceed a base amount, plus 15 percent of basic research payments. Since 2021, taxpayers may instead elect an alternative simplified method, calculating the credit as 10 percent of qualified research expenses that exceed 50 percent of the average qualified research expenses from the preceding three tax years.
Limitations and Carryforward
The credit can offset 100 percent of the first 25,000 dollars of corporate excise due, plus 75 percent of any excise above that amount. It cannot reduce a taxpayer’s liability below the state’s 456 dollar minimum excise. Credits that exceed these limits due to the general cap can be carried forward for 15 years, while credits disallowed specifically because of the 75 percent rule can be carried forward indefinitely.
Who’s Claiming It
Massachusetts supports research activity across several concentrated, high value sectors. Common claimants include:
- Life sciences and biotechnology, particularly in the Cambridge and Boston biotech corridor
- Advanced manufacturing and robotics, including automation systems and precision engineering
- Aerospace and defense, covering systems engineering, advanced materials, and propulsion technology
- Clean energy, including energy storage and grid management technology
- Fintech and software, especially machine learning and data driven platforms
What This Means for Your Business
Massachusetts businesses have a real choice to make between the standard method and the alternative simplified method, and the right answer depends on a company’s research expense history. Given the credit’s interaction with the corporate excise minimum and the 75 percent limitation, a careful analysis can help ensure a business captures the full value it’s entitled to, both now and through carryforward.
CSSI is committed to helping businesses identify and defend tax savings through detailed, engineering based studies. If you’d like to know whether your Massachusetts operations qualify, request a free analysis to get started.
FAQ: Massachusetts R&D Tax Credit
Who can claim the Massachusetts Research Credit?
Business corporations subject to the Massachusetts corporate excise tax that incur qualified research expenses within the state.
How closely does it follow the federal credit?
Very closely. It generally covers the same categories of expenses, including employee wages, a portion of contractor wages, and supplies used in research conducted in Massachusetts.
How much is the credit worth?
10 percent of qualified research expenses that exceed a base amount, plus 15 percent of basic research payments. Taxpayers may instead elect an alternative simplified method equal to 10 percent of qualified expenses exceeding 50 percent of the prior three year average.
Is there a limit on how much I can claim in a given year?
Yes. The credit can offset 100 percent of the first 25,000 dollars of excise due, plus 75 percent of any excise above that, and it cannot reduce liability below the 456 dollar minimum excise.
Can unused credit be carried forward?
Yes. Credits exceeding the general limitation carry forward for 15 years, while credits disallowed under the 75 percent rule carry forward indefinitely.
Which industries typically claim this credit in Massachusetts?
Life sciences and biotechnology, advanced manufacturing and robotics, aerospace and defense, clean energy, and fintech and software are especially active claimants.
How do I know if my business qualifies?
The best way to find out is through a professional analysis of your research activities and expenses. CSSI offers a free analysis to help determine eligibility and estimate potential savings.
