PA Tax Update: 2021 R&D credit award letters delayed until May 1, 2022

PA Tax Update: 2021 R&D credit award letters delayed until May 1, 2022
2021 legislation changed the filing and processing dates for PA Research & Development tax credit applications

In summer 2021, Pennsylvania passed legislation, House Bill 952, that extended the time to file the Commonwealth’s Research and Development (R&D) tax credit application from Sept. 15 to Dec. 1.

Of note:

• The application due date was changed to December 1
• Annual award letters, which were normally issued by December 15, will now be provided to taxpayers by May 1 of the following calendar year. For the 2021 application, taxpayers may expect to receive their award letters by May 1, 2022.
  • This statutory delay of the award letters until May 1 has been confirmed with officials at the PA DOR
• The PA Department of Revenue (“DOR”) is now required to issue an annual report on the effectiveness of the credit to the legislature by October 1, instead of March 15.

In addition to these important modifications to filing and notification dates, the new law addresses changes to the administration of tax credit programs, including: an expansion of the oversight of administering agencies, an increase in taxpayer responsibilities, and the establishment of an appeals process.

New applicable dates may be a blessing or a curse
The deferral of the R&D Credit application date may have been beneficial to large corporate taxpayers that may have needed the additional time to gather the necessary information to properly complete the application.

However, the delayed issuance of the award letters until May 1 will likely be a problem, especially for many small business taxpayers applying for the credit. Because the total amount of available PA R&D Credits is capped and allocated among most of the applicants, minus receipt of the 2021 award letter before May 1, taxpayers who applied for the R&D credit will not be sure of the amount of credit to claim on their 2021 PA income tax returns.

Affected PA taxpayers may need to extend the due date of PA income tax returns until after May 1
Many small businesses that claim the PA R&D credit typically strive to file their annual income tax returns on or before the original due date, normally April 15 each year.

However, this new legislation means that unless the PA DOR accelerates the issuance of the R&D credit award letters to before the April 18 due date for PA personal income tax returns, then affected businesses and business owners will need to file an extension of time to file their 2021 PA income tax returns. In addition, it seems that unless the law is changed, or the DOR reacts differently, this will likely be the same situation in future years.

We will continue to monitor the status of PA R&D credit matters and will provide updates as soon as they are available.

For additional information please contact the author at info@herbein.com.