At both the federal and state-level, R&D tax credits present an incredible opportunity for U.S. businesses to extend their runway and develop market-leading products. But with a shifting legislative landscape at all levels on the homefront—to say nothing of geopolitics—it can be tricky for U.S. companies to both understand and capitalize on the best incentives for their purposes.  

Recent research from The Pew Charitable Trusts reinforces what we've observed firsthand: Navigating the landscape of state R&D tax credits requires sophisticated expertise and strategic planning to maximize returns while maintaining compliance across multiple jurisdictions. 

In their comprehensive analysis of state-level R&D incentive programs, Pew researchers Elizabeth Gray and Alison Wakefield examined evaluation data from across the United States, revealing both the opportunities and complexities that innovative companies face when pursuing these valuable funding sources. 

The State-Level R&D Credit Landscape 

R&D activity accounted for nearly $890 billion in estimated economic activity in 2022, driving innovation across the American economy. Yet while the federal R&D tax credit has demonstrated its ability to increase nationwide R&D activity, state-level programs show more varied results, and dramatically different designs. 

The Pew analysis reveals just how diverse state approaches have become: 

  • Georgia rewards year-over-year growth with a 10% credit on qualifying expense increases 
  • Rhode Island employs a two-tiered structure (25% for the first $25,000, then 16.9% above that threshold) 
  • Maryland separates credits into base credits for sustaining ongoing R&D and growth credits for encouraging new activity 
  • Nebraska ties its state credit directly to the federal program, offering 15% of the federal credit amount (or 35% for research conducted at in-state universities) 

This variability creates both opportunity and complexity for innovative businesses operating across multiple states. 

The Simplification Opportunity: Federal-State Alignment 

One of the most compelling recommendations in the Pew research centers on states tying their programs to federal R&D credit structures. This approach lowers compliance costs and administration for both states and businesses, as demonstrated by Nebraska's model where companies qualifying for the federal credit can receive state benefits simply by submitting a claim with their tax return. 

This federal-state alignment creates natural opportunities for "stacking" strategies, where businesses can layer state incentives on top of federal R&D tax credits to maximize their total non-dilutive funding. However, the research also notes that such alignment can limit state flexibility in program design, creating a tension between simplification and customization. 

Beyond Design: The Evaluation Challenge 

The Pew research emphasizes a critical insight that resonates with our experience: Standard cost-benefit analyses may not capture the true value of R&D credits because these programs aim for long-term growth rather than immediate returns. Arkansas and Florida evaluations both highlighted that R&D investments require longer time horizons to demonstrate their full economic impact. 

This finding underscores why expert guidance matters. Businesses need partners who understand not just the technical qualification requirements, but also the strategic value these credits provide for runway extension, reinvestment capacity, and long-term competitive positioning. 

State-Specific Priorities and Strategic Opportunities 

The research identifies several ways states tailor their programs to support specific policy objectives: 

  • Small business focus: Virginia offers dedicated R&D expense credits for firms with annual expenditures under $5 million 
  • University partnerships: Nebraska provides enhanced credit rates for campus-based research collaborations 
  • Industry targeting: Oklahoma redesigned its program to focus on applicants addressing needs in four priority industries 

These targeted approaches create specialized opportunities for companies that align with state priorities, but only if they're aware of them and can navigate the qualification requirements. 

The Cost Control Challenge 

Nebraska's program exceeded cost estimates by $5 million in 2020 after being created without spending limits in 2005. This finding illustrates the fiscal pressures state programs face, which often result in caps, competitive application processes, or proration when statutory limits are approached. 

For businesses, this means timing matters. Understanding when programs approach their caps, how competitive processes work, and how proration affects credit values requires continuous monitoring and strategic planning, which is expertise that generalist accounting firms typically lack. 

Refundability and Transferability Considerations 

The research highlights important design variations around how businesses can use their credits. Some states restrict refundability to small businesses (Maryland limits it to companies with 50 or fewer employees), while others allow credit transfers. Pennsylvania's evaluation found that sellers typically receive only 93 to 94 cents per dollar of credit value when selling transferable credits. 

These program mechanics significantly affect the real-world value companies realize from their R&D credits. This is yet another area where specialized expertise drives measurably better outcomes. 

Why R&D Tax Credit Expertise Matters More Than Ever 

The Pew research reinforces several principles that guide our approach at Boast: 

  1. Multi-jurisdictional complexity demands specialized knowledge.With each state designing unique program structures, qualification criteria, and administrative processes, companies need partners whomaintain current expertise across all relevant jurisdictions; not generalists treating R&D credits as just another line item. 
  2. Strategic planning maximizes total returns.The opportunity to stack federal and state credits, time applications strategically around program caps, and align claims with specific state priorities requires proactive planning rather than reactive compliance.
  3. Long-term value exceeds immediate returns.As the research notes, R&D credits generate value over extended time horizons. This makes comprehensive audit defense capabilitiesessential, protecting not just current year returns but the foundation for future claims. 
  4. Program design variations affect real economics.Understanding how refundability, transferability, proration, and other mechanics work across different state programs directlyimpacts the cash value businesses receive. 

The Case for Continuous Evaluation and Expert Navigation 

The Pew research concludes that R&D credits warrant routine efforts to analyze their effectiveness, with evaluations highlighting opportunities to improve program impact. We agree, and would add that businesses deserve the same commitment to continuous optimization in their own R&D credit strategies. 

The diversity of state programs, combined with evolving federal requirements (including the new IRS Form 6765 mandates and recent restoration of immediate R&D expensing), creates a landscape where expertise and technology must work together to maximize returns while minimizing risk. 

At Boast, we've built our platform and assembled our team specifically to navigate this complexity. Our AI-powered system integrates financial, payroll, and project data to identify qualifying activities across federal and state programs, while our in-house R&D tax specialists optimize every claim with the nuanced understanding these programs require. 

With more than $625 million secured for clients across North America, we've demonstrated that the combination of specialized expertise and purpose-built technology delivers measurably superior outcomes compared to both generalist accounting approaches and tech-only alternatives. 

Resources and Next Steps 

The Pew research provides valuable context for policymakers working to refine state R&D incentive programs. For businesses seeking to maximize their own R&D funding opportunities across jurisdictions, the key takeaway is clear: Strategic, expert guidance makes the difference between capturing available incentives and leaving significant funding on the table. 

Whether you're currently claiming R&D credits through generalist advisors, considering tech-only solutions, or building your strategy from scratch, understanding the full landscape of federal and state opportunities is the first step toward optimization. 

Want to explore how your business can maximize R&D tax credits across relevant jurisdictions? Schedule a free consultation with our R&D tax specialists to discover opportunities in your specific situation.