Pennsylvania R&D Tax Credit Services

Pennsylvania combines a tiered rate structure (20% for small businesses, 10% for large companies) with a unique transferability provision-unused credits can be sold on the open market for approximately 92–93 cents on the dollar.

Unlike many states, Pennsylvania does not allow taxpayers to claim the R&D credit directly on their tax returns. Instead, companies must submit a separate annual application via the myPATH portal between August 1 and December 1 each year for expenses incurred in the prior tax year. The Department of Revenue reviews all applications and issues awards by May 1. Credits are then prorated based on the total statewide cap of $60 million and the volume of qualified requests.

Yes, but only if the research occurred in Pennsylvania. Federal credits apply to research conducted anywhere in the U.S., while Pennsylvania credits require in-state activities. For Pennsylvania-based research, you can claim both credits on the same expenses, subject to standard federal limitations under IRC § 280C (must reduce deduction or elect reduced credit).

A business qualifies for the enhanced 20% small business rate if its net book value of assets is $5 million or less at the beginning or end of the tax year. Applicants must submit a balance sheet to document eligibility. Small businesses also benefit from a dedicated $12 million annual set-aside from the total $60 million statewide cap.

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 software development, medical device engineering, pharmaceutical research, manufacturing process improvements, product design and testing, formulation development, and automation system creation.

Maintain comprehensive records including: project-level technical narratives explaining uncertainties and methodologies; employee time records showing research hours and work locations in Pennsylvania; financial documentation supporting all expense categories; technical work products like design documents and test results; and for multi-state operations, clear evidence proving Pennsylvania-based activities. Federal Form 6765 or equivalent is required as part of the Pennsylvania application. Records must be retained for at least 5 years post-application.

If you receive a Pennsylvania R&D credit award but cannot fully use it against your own tax liability, you can apply to the Department of Revenue for approval to sell the unused portion to another taxpayer. The sale must be completed by June 1 following the award year. Brokers facilitating sales must be registered with the Department. Historically, sellers have retained approximately 92–93 cents on the dollar. Buyers may use purchased credits to offset up to 75% of their Pennsylvania tax liability in the purchase year, but cannot carry forward, carry back, or resell purchased credits.

Yes. You must carefully track where research occurs. Only Pennsylvania activities qualify for the state credit, while nationwide U.S. research qualifies federally. Companies need robust location tracking for employees and projects, including time allocations, travel records, and project site documentation. Pennsylvania apportionment rules determine which gross receipts count for base calculations.

Unused credits carry forward for up to 15 successive taxable years (no carryback). Pennsylvania credits are non-refundable, but the transferability provision allows you to convert unused credits to cash by selling them on the open market-a unique alternative to carrying credits forward indefinitely.

Absolutely. While manufacturing and pharmaceutical companies traditionally claim significant credits, service companies-particularly software development, engineering services, IT consulting, and technology firms-regularly qualify. Software development activities involving new algorithms, architectures, or features that eliminate technical uncertainty qualify. The determining factor is whether activities satisfy the four-part test, not the industry classification.