While most companies focus exclusively on the federal R&D tax credit, state-level programs often represent substantial untapped opportunities, with many offering refundable credits, higher rates, or more favorable calculation methods than their federal counterpart. Recently, several states are making significant changes that could dramatically impact your 2025 and 2026 returns.

Specifically, six states—California, Iowa, Michigan, Minnesota, Oklahoma, and Texas—have introduced major updates to their R&D credit programs in the past year. Some changes expand opportunities for businesses that previously couldn’t claim meaningful credits, while others introduce new application requirements and annual caps that demand strategic planning.

If your company conducts research activities in any of these states, understanding these changes is essential to maximizing your non-dilutive funding opportunities.

California: A New Calculation Method for High-Growth Companies

What Changed: California has introduced conformity to the federal Alternative Simplified Credit methodology, though at a reduced 3% rate (1.3% for companies without prior qualifying expenses).

Why It Matters: California’s traditional credit calculation uses a base amount derived from historical gross receipts, which can significantly limit credits for companies experiencing rapid revenue growth. The new ASC option provides an alternative for businesses whose regular credit has been minimized by increasing sales.

This change also eliminates California’s Alternative Incremental Credit after 2024, simplifying the decision tree for taxpayers. While the 3% ASC rate is lower than California’s standard 15% rate, companies with substantial gross receipts growth may find it generates larger credits than the regular calculation.

Key Detail: California credits remain non-refundable but carry forward indefinitely, making them valuable for profitable companies with multi-year tax liability.

Iowa: From Tax Credit to Application-Based Program

What Changed: Iowa is replacing its traditional R&D credit with a completely new, application-based program administered by the Iowa Economic Development Authority, effective for tax years beginning on or after January 1, 2026.

Why It Matters: This represents one of the most fundamental restructurings of any state R&D credit program. Rather than simply claiming the credit on your return, Iowa businesses will now need to:

  • Be certified by the IEDA
  • Operate in designated sectors (advanced manufacturing, bioscience, insurance, finance, or technology innovation)
  • Submit annual applications with CPA-verified research expenditures
  • Report on R&D investment, research locations, and job creation

The credit rate is up to 3.5% of eligible Iowa research expenditures, and it remains refundable, which is a significant advantage for startups and growth-stage companies. However, there’s now a $40 million statewide annual cap with pro-rata allocation if claims exceed the limit.

Strategic Consideration: The application requirement means businesses need to plan ahead and ensure they meet sector eligibility before assuming they’ll qualify. Companies that previously operated on autopilot with Iowa credits will need to actively engage with this new process.

Michigan: A Brand New Refundable Credit with Substantial Caps

What Changed: Michigan has introduced an entirely new refundable R&D credit for tax years beginning on or after January 1, 2025, with applications opening January 1, 2026.

Why It Matters: Michigan previously had no state R&D tax credit, making this a completely new opportunity for businesses conducting research in the state. The credit structure is differentiated by company size:

For companies with 250+ employees:

  • 3% of qualifying expenses up to base amount
  • 10% of expenses exceeding base amount
  • Cap of $2 million per year per taxpayer

For companies with fewer than 250 employees:

  • 3% of qualifying expenses up to base amount
  • 15% of expenses exceeding base amount
  • Cap of $250,000 per year per taxpayer

An additional 5% credit is available for R&D conducted with Michigan research universities (capped at $200,000), encouraging academic partnerships.

Critical Deadline: Tentative claims for 2025 are due by April 1, 2026, using actual (not estimated) qualified research expenses. This early deadline means businesses need to move quickly to calculate and submit claims. The statewide cap is $100 million with pro-rata allocation if exceeded.

Minnesota: Introducing Partial Refundability

What Changed: Minnesota’s R&D credit is becoming partially refundable for tax years beginning after 2024, with the refundability rate starting at 19.2% in 2025 and increasing to 25% in 2026 and 2027.

Why It Matters: Refundability transforms a tax credit from a liability reduction tool into actual cash flow. For startups, pre-revenue companies, or businesses in loss positions, this change makes Minnesota’s credit significantly more valuable.

Minnesota’s credit is calculated as 10% of the first $2 million in qualifying expenses exceeding the base amount, then 4% thereafter. Credits that aren’t refunded can be carried forward for up to 15 years.

Documentation Requirement: Taxpayers must maintain detailed records per IRS guidelines, and Minnesota’s Department of Revenue may request contemporaneous documentation during audits—meaning your documentation practices need to be audit-ready from day one.

Oklahoma: A New Rebate Program

What Changed: Oklahoma has introduced a Research and Development Rebate program for tax years beginning on or after January 1, 2025, calculated as 5% of Oklahoma qualified research expenses.

Why It Matters: Unlike traditional tax credits claimed on returns, Oklahoma will issue direct rebates to successful applicants. The program has a $20 million annual cap with applications processed in order received, creating a “first come, first served” dynamic.

Important Caveat: The Oklahoma legislature has yet to appropriate funds for the rebate program, and funding may not be available until the 2026 program year. Businesses should monitor developments closely but shouldn’t assume immediate availability.

Application requirements are extensive, including the as-filed Federal Form 6765, detailed Oklahoma expense breakdowns, sales and employment data, and signed attestations. This level of detail demands careful preparation and coordination with your federal R&D credit documentation.

Texas: Permanent Extension with Increased Rates

What Changed: Texas has made its R&D credit permanent and significantly increased credit rates for franchise tax reports originally due on or after January 1, 2026.

Why It Matters: Texas now offers some of the most competitive R&D credit rates in the country:

Standard rates:

  • 8.722% of qualifying expenses exceeding base period
  • 4.361% for taxpayers without qualifying expenses in prior three years

Higher education partnership rates:

  • 10.903% for research conducted with Texas higher education institutions
  • 5.451% for new claimants partnering with universities

The credit is now refundable for entities owing no franchise tax (subject to limitations), and unused credits carry forward for up to 20 years. Texas has also aligned its qualified research expense definition with federal Form 6765, line 48, simplifying calculation and documentation.

Compliance Note: Taxpayers must amend Texas R&D credit claims if they amend their federal claim or receive an IRS adjustment—creating an ongoing compliance obligation that spans both federal and state filings.

The Strategic Opportunity (and Challenge)

These six states alone demonstrate how rapidly the R&D tax credit landscape is evolving. While the federal credit provides a foundation, state programs increasingly represent substantial additional value, sometimes matching or exceeding federal benefits.

But this opportunity comes with complexity:

  • Application requirements in Iowa, Michigan, and Oklahoma demand proactive engagement, not passive claiming
  • Annual caps and pro-rata allocation create “use it or lose it” dynamics that reward early action
  • Varying refundability provisions make these credits especially valuable for different business stages and financial positions
  • Documentation standards continue to increase, with states explicitly requiring contemporaneous records

Why This Matters More Than You Think

Many businesses leave substantial state R&D credits unclaimed simply because they focus exclusively on the federal program. Others claim state credits but miss optimization opportunities created by new calculation methods, partnership incentives, or refundability provisions.

The numbers are significant. Texas’s new rates alone could generate hundreds of thousands in additional credits for companies conducting substantial research in the state. Michigan’s new program creates opportunities where none previously existed. Minnesota’s refundability converts credits into immediate cash flow for companies that need it most.

What You Should Do Next

If your company conducts research activities in California, Iowa, Michigan, Minnesota, Oklahoma, or Texas, you need to:

  1. Review your current state credit strategy to determine if recent changes create new opportunities or require process adjustments
  2. Evaluate application requirements for new programs in Iowa, Michigan, and Oklahoma to ensure you meet eligibility criteria and deadline requirements
  3. Assess refundability options in Michigan, Minnesota, and Texas to optimize cash flow benefits
  4. Update documentation practices to meet enhanced state requirements for contemporaneous records
  5. Coordinate federal and state calculations to ensure consistency and maximize total benefits

The challenge is that these changes don’t exist in isolation. Your federal R&D credit calculation affects most state credits. Your choice of federal calculation method (regular vs. ASC) now has California implications. Your partnerships with universities unlock additional credits in Michigan and Texas. And if you operate in multiple states, you’re navigating six different rule sets simultaneously.

Get Expert Guidance That Maximizes Every Dollar

Boast’s R&D tax credit specialists have deep expertise in both federal programs and state-specific requirements across all 50 states. We combine technology that streamlines documentation and calculation with human expertise that identifies optimization opportunities software alone would miss.

Our platform creates comprehensive audit-ready documentation that satisfies both IRS and state revenue department requirements. Our experts understand how to navigate application-based programs, coordinate multi-state strategies, and maximize refundable credit benefits for companies at every stage.

Whether you’re claiming R&D credits for the first time or looking to optimize existing processes, we can help you capture every dollar of federal and state benefits you’ve earned through innovation.

Schedule a consultation with Boast’s R&D tax credit experts to review how these state changes affect your business and ensure you’re maximizing both federal and state opportunities.