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State program

Vermont Research and Development Credit

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  • Offset only

Last reviewed November 2026

At a glance

  • Jurisdiction: Vermont (VT)
  • Credit name: Vermont Research and Development Tax Credit (32 V.S.A. §5930ii)
  • Administering agency: Vermont Department of Taxes
  • Rate(s) and base: 27% of the federal research credit under IRC §41(a) for eligible research and development expenditures made in Vermont. This rises to 75% for taxable years beginning on or after January 1, 2027 (Act 164 of the 2026 adjourned session, Sec. 58). The credit follows whatever federal method you use (regular or ASC) and is recomputed using only Vermont expenditures.
  • Refundable? No.
  • Transferable? No. Credits from pass-through entities are allocated to owners in the same proportion as income and are not otherwise transferable.
  • Carryforward: Up to 10 years.
  • Annual cap / proration: No dollar cap or statewide proration.
  • Pre-approval / application and deadline: None. Claim the credit on the annual return.
  • Forms: Schedule BA-404 (Vermont Tax Credits for Business), with a copy of federal Form 6765 attached. Pass-throughs allocate credits on Schedule BA-406 (filed with Form BI-471). Individuals apply credits on Schedule IN-112 or IN-119.
  • Sunset / recent changes: No sunset. Act 164 of the 2026 adjourned session (H.933, approved by the Governor on June 18, 2026) raises the rate to 75% starting in tax year 2027 and sets Vermont's conformity to federal §174A research expensing.

What it is

Vermont's credit is a percentage of the federal research credit, limited to research spending in Vermont. It offsets Vermont income tax and is not refundable. Unused credit carries forward for 10 years.

Who can claim it

  • Vermont taxpayers (corporations, and individuals including owners of S corporations, partnerships and LLCs) who claim a federal §41 research credit. Your expenditures must be eligible for, and receive, the federal credit.
  • The expenditures must be made in Vermont.
  • In a unitary combined return, the credit is not combined. It is limited to the member to which it is attributed.

How it is calculated

  1. Compute the federal §41(a) credit using Vermont expenditures only. If your federal credit covers spending inside and outside Vermont, show the breakdown and recompute the credit on Vermont expenditures alone.
  2. Reduce the expenditure base for grants or other assistance.
  3. Multiply by 27% for tax years beginning before January 1, 2027, or by 75% for tax years beginning on or after January 1, 2027.
  4. Apply the result against Vermont income tax. The Department's instructions say the credit is generally limited to the tax attributable to the entity's income. Any unused credit carries forward up to 10 years.

How to claim it

  • Complete Schedule BA-404 and attach federal Form 6765, plus the Vermont-only recomputation if needed.
  • Pass-throughs: prepare a Schedule BA-406 for each owner (or one for a composite return) and file it with Form BI-471. Owners claim the credit on Schedule IN-112 or IN-119 of Form IN-111. If income is taxed at the composite level, enter the credit on Schedule BI-473.
  • No pre-approval or separate deadline. File with a timely return.
  • The Department of Taxes must publish, by January 15 each year, a list of taxpayers who claimed the credit in the prior calendar year (32 V.S.A. §5930ii(c)).

Recent changes

  • Act 164 (H.933, approved June 18, 2026), Sec. 58: raises the credit from 27% to 75% of the federal credit for Vermont expenditures, for taxable years beginning on or after January 1, 2027. The higher rate applies to all eligible taxpayers regardless of size; the $31 million gross receipts line below applies only to §174A conformity. Act 164 does not add a statewide cap to the research credit (the cap increase in Sec. 59, from $3 million to $3.5 million, applies to the downtown and village center credits under 32 V.S.A. §5930ee).
  • Act 164, Sec. 55, §174A conformity:
    • Small businesses (average annual gross receipts at or below the IRC §448(c) threshold, $31 million for 2025): fully conform to §174A immediate expensing of domestic research costs for tax years beginning on or after January 1, 2025, with a subtraction available for amended prior-year federal returns.
    • Larger businesses: must add back the §174A deduction for domestic research costs and continue five-year amortization as in effect on December 31, 2024.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Vermont and other locations, how Vermont amounts reconcile to federal Form 6765, the Vermont credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Vermont tax.

  • Can you provide the federal Form 6765 and show which expenditures were made in Vermont?
  • How was the federal credit recomputed on Vermont-only expenditures, and was the same method (regular or ASC) used?
  • Were grants or other funding excluded from the expenditure base?
  • Which rate applies (27% or 75%), based on when the tax year begins?
  • Does the carryforward schedule show the origin year and expiration of each credit amount?
  • For pass-through credits: do the BA-406 allocations match each owner's share of income?

Common weak spots

  • Using the full federal credit instead of a Vermont-only recomputation.
  • Applying the 75% rate to tax years that begin before January 1, 2027.
  • Not reducing the expenditure base for grants.
  • Combining credits across members of a unitary group.
  • Large businesses missing the §174A add-back.

Next steps

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.

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