Michigan R&D Tax Credit Services

Michigan's program stands out for three reasons: it is fully refundable (excess credits are paid out in cash rather than carried forward), it offers a unique 5% university collaboration bonus for R&D performed with Michigan research universities, and it was newly reinstated in 2025 after more than a decade of inactivity - making now an ideal time for Michigan companies to establish their R&D expense tracking systems and begin building a base amount history.

If your Michigan R&D credit exceeds your Michigan tax liability for the year - after applying all other non-refundable credits first - the excess is refunded directly to you. This applies as long as the statewide aggregate cap ($100 million) has not been exceeded. If the cap is exceeded and credits are prorated, the refundable feature still applies to the adjusted credit amount.

Yes, but only if the research occurred in Michigan. Federal credits apply to research conducted anywhere in the U.S., while Michigan credits require in-state activities. For Michigan-based research, you can claim both credits on the same expenses. Note that Michigan's base amount calculation differs from the federal ASC method - Michigan uses the full three-year average without a 50% reduction.

You are still eligible - and may benefit significantly. If you have no prior Michigan QRE history, your base amount is set to zero in your first year, meaning the full incremental rate (10% for large businesses, 15% for small businesses) applies to all Michigan QREs with no threshold to clear. This is one of the most favorable aspects of the new program for new entrants and companies shifting R&D activity to Michigan.

Activities must satisfy the four-part federal test: developing new or improved business components, technical in nature, eliminates technological uncertainty, and uses systematic experimentation. Common qualifying activities include automotive and mobility technology development, software development, medical device engineering, manufacturing process improvements, product design and testing, and automation system creation. Cloud computing costs related to software development are explicitly qualifying expenses under Michigan law.

Maintain comprehensive records including: project-level technical narratives explaining uncertainties and methodologies, employee time records showing research hours and work locations in Michigan, calendar-year financial records for all qualifying expense categories, evidence of Michigan-based activities for multi-state companies, and for the university collaboration bonus, a written formal agreement with the Michigan research university. Records must be kept for the applicable statute of limitations period.

A small business is any eligible business with fewer than 250 employees. Employee count is determined based on the number of employees at the time of the credit calculation, under the definition of employee used for federal income tax withholding purposes. Unitary business groups calculate employee count at the group level.

The tentative claim is a separate filing - distinct from the annual tax return - that notifies the Michigan Department of Treasury of a claimant's expected credit amount. It must be filed in Michigan Treasury Online (MTO) before the applicable deadline (April 1, 2026 for 2025; March 15 annually thereafter). The claim must use actual, not estimated, expenses and will be used to determine whether proration is required if the statewide $100 million cap is exceeded. No late filings are accepted.

Yes, but only for R&D activities conducted within Michigan. Companies with operations in multiple states must carefully track where their research activities occur. Michigan-based wages, supplies, cloud computing, and contract research expenses qualify; expenses attributable to activities in other states do not. Robust geographic tracking documentation is essential.

If the total tentative claims from all businesses exceed $100 million, the Michigan Department of Treasury will apply proration to reduce credit amounts. The proration system operates separately for small businesses (sharing the $25 million small business pool) and large businesses (sharing the $75 million large business pool), with specific provisions if small business claims exceed 25% of total claims. Treasury will publish a notice on its website announcing whether proration is required before annual returns are due.