The federal R&D credit is valuable, but state R&D credits can add another 3% to 15% on top — sometimes in cash.
Here is where state R&D credits are most valuable right now.
Texas: New Leader in 2026
Texas overhauled its R&D credit effective January 1, 2026.
New rates:
-
Standard credit: 8.722% (up from 5%)
-
University collaboration: 10.903% (up from 6.25%)
Refundable for small businesses: Yes, for companies with annualized revenue of 2.65 million or less, franchise tax under 1 thousand, or qualifying veteran-owned businesses.
Key detail: Eliminates the old sales tax exemption on R&D equipment but creates a single, permanent franchise tax credit.
Why it matters: Texas now has one of the highest base rates in the country, plus refundability for early-stage companies.
Michigan: Credit Reinstated After 13 Years
Michigan brought back its R&D credit in 2025 after a 13-year absence.
Rates:
-
Large businesses (250+ employees): 3% on base expenses + 10% on excess QREs (capped at $2M/year)
-
Small businesses: 3% on base + 15% on excess (capped at $250,000/year)
-
University collaboration bonus: Additional 5% (up to $200,000/year)
Refundable: Yes — if credit exceeds tax liability, the state refunds the difference.
Statewide cap: $100 million annually.
Deadline: Tentative claim due April 1, 2026 for tax year 2025.
Why it matters: Michigan is aggressively courting R&D-heavy industries after being one of only 14 states without a credit.
Minnesota: New Refundability for 2025-2027
Minnesota made its R&D credit partially refundable starting in tax year 2025 .
Rate: 10% on first $2 million of qualifying expenses, 4% above that.
Refundability:
-
19.2% for tax year 2025
-
25% for tax years 2026 and 2027
-
Formula-based after 2027 (capped at $25 million statewide)
Requirement: Research must be conducted in Minnesota .
Why it matters: Before 2025, the credit was entirely nonrefundable. Now startups can actually monetize it.
Wisconsin: 5.75% Rate + Partial Refundability
Wisconsin offers a credit equal to 5.75% of qualified research expenses conducted in-state.
Refundability: Increased from 10% to 15% to 25% over several years. For tax years starting after 2023, up to 25% is refundable .
Nonrefundable portion: Can be carried forward 15 years.
Why it matters: The partial refundability helps startups, while established companies benefit from the carryforward.
Virginia: Two Credits, Doubled Pool for Small Biz
Virginia offers two separate R&D credits :
| Credit | QREs | Rate | Refundable? | Cap |
|---|---|---|---|---|
| RDC (small biz) | $5M or less | 15% of first $300k | Yes | $45,000/year |
| MRD (large) | Over $5M | 10% on first 1M,54M | No | None (but pool is $16M) |
Recent changes: RDC aggregate cap doubled from $7.77M to $15.77M. MRD cap reduced from $24M to $16M.
Why it matters: Smaller companies benefit most. The RDC pool has doubled, making it easier to get refundable credits.
Summary: Best States by Category
| Category | State | Why |
|---|---|---|
| Highest rate | Texas | 8.722% base, 10.903% with university |
| Best for small/startups | Texas, Minnesota | Refundability with low revenue thresholds |
| Best for large companies | Michigan | 10% on excess QREs, 2 million cap |
| Best for university R&D | Texas, Michigan | 10.903% and 5% bonuses |
Bottom Line
State R&D credits vary widely in rates, refundability, and eligibility. 2025-2026 is an active period for changes — Texas and Michigan launched major new programs, and Minnesota added refundability.
If you do R&D in multiple states, you could be leaving significant cash on the table.
Call (844) 463-2400 or email hello@indagotax.com to discuss which states offer the most value for your business.