Pennsylvania: 20 percent for small SaaS, and the credit is sellable.

Rate	20% (small business), 10% otherwise
Note	Transferable credits; competitive annual cap

Two rates, set by net book value of assets.

• 20 percent for small businesses. A "small business" is a for-profit corporation, LLC, partnership, or sole proprietorship with a net book value of assets totaling less than $5 million. Most early-stage and growth-stage SaaS companies fall into this category.
• 10 percent for everyone else. Businesses with $5 million or more in net book value receive the standard rate.

The credit applies to Pennsylvania qualified research expenses in excess of the base amount, where the base amount is the greater of (a) 50 percent of the current year's Pennsylvania QREs or (b) the average of the four prior years' Pennsylvania QREs. The "greater of" structure means a sharp QRE ramp generates less Pennsylvania credit than a flat QRE history would, because the 50 percent floor sets a high baseline against high-growth years.

Pennsylvania requires at least two years of R&D expenditure history before a credit can be claimed. A company in its first year of R&D activity is not yet eligible.

The Pennsylvania QRE definition tracks federal IRC §41 with the Pennsylvania in-state performance modifier.

Pennsylvania's R&D credit is unlike most state R&D credits in one critical way: it is competitive. The state allocates a fixed annual pool ($60 million as of recent fiscal years, with $12 million reserved for small business applicants). If timely applications exceed the pool, awards are pro-rated.

For 2024, the pro-rata rate for non-small businesses was 41.1 percent. A company that computed a $100,000 Pennsylvania credit received $41,100 of credit awarded. The small business set-aside historically pro-rates at a less severe rate, which is one reason the small business definition (under $5M net book value) is worth confirming carefully.

The implication: in a Pennsylvania workpaper, the gross computed credit is the ceiling, not the expected award. Plan to a discounted realized amount unless the application year happens to be under-subscribed.

Pennsylvania allows R&D credits to be sold to other Pennsylvania taxpayers. This is rare among state R&D credits and meaningful for early-stage SaaS companies that have no Pennsylvania tax liability to absorb the credit.

Practical pattern: an early-stage Pennsylvania SaaS company with $300,000 of computed Pennsylvania credit but no Pennsylvania income tax liability can sell that credit (typically at a discount, often 85 to 95 percent of face value depending on the broker market) to a Pennsylvania-based profitable taxpayer who can use it. The cash proceeds flow to the seller; the buyer reduces its Pennsylvania tax.

The Pennsylvania Department of Revenue treats the sale as a taxable transaction for income tax purposes; the seller has cost basis considerations to coordinate with their CPA. The mechanics are well-established and a small brokerage ecosystem exists in Pennsylvania to match sellers and buyers.

Unused (un-sold) credit carries forward for 15 years.

R&D Binder produces federal Section 41 documentation from your GitHub commit history. The binder supports your federal Form 6765 and, starting tax year 2026, the mandatory Form 6765 Section G appendix. The same documentation foundation supports Pennsylvania because the Pennsylvania QRE definition references federal §41.

The Pennsylvania state credit workpaper is a $995 add-on to the standard binder engagement. It produces:

• A Pennsylvania-attributable QRE breakdown (employee, contractor, and supplies expenses tied to research conducted in Pennsylvania, using the same business-component partition as the federal binder).
• Small business eligibility documentation (net book value of assets reconciliation) so your CPA can confidently apply at the 20 percent rate where appropriate.
• Form REV-545 input values: base amount calculation (the greater of 50 percent of current QRE or the four-year average), and the computed credit amount.
• Pro-rata sensitivity table: the gross computed credit alongside historical pro-rata outcomes so your CPA can advise on realistic realization.
• Filing notes for your CPA: December 1 application deadline, myPATH submission, transferability considerations.

We do not file Form REV-545, submit the application, or sign the Pennsylvania return. That stays with your CPA. R&D Binder produces the workpaper; your CPA files and applies.

A worked example. A Philadelphia SaaS company with 14 engineers, $3.2M in qualifying wages (federal QRE pool), 9 engineers physically located in Pennsylvania, and $3.8 million in net book value of assets (qualifies as a "small business" for the 20 percent rate).

• Federal Section 41 credit. Computed on the full $3.2M federal QRE pool through Form 6765, claimed by the CPA. R&D Binder produces the binder, QRE workpaper, and Form 6765 Section G appendix.
• Pennsylvania credit (gross). Computed on the Pennsylvania-attributable portion of QREs. Roughly $2.06M ($3.2M times 9/14 engineer location ratio). The CPA computes 20 percent of QRE above the base amount on Form REV-545. The base is the greater of $1.03M (50 percent of current PA QRE) or the four-year average. Assuming a steady history, the base is approximately $1.4M and the gross credit lands near $130,000.
• Pennsylvania credit (net of pro-rata). If the small business pool pro-rates that year, the awarded amount may be reduced. The workpaper presents both gross and a pro-rata-adjusted realistic award.
• Transferability path. If the company has no Pennsylvania tax liability to absorb the awarded credit, the workpaper notes the transferability option so the CPA can coordinate a sale to a Pennsylvania profitable taxpayer.
• Total engagement cost. SaaS Standard tier ($4,995, 6 to 25 FTE) plus Pennsylvania state workpaper add-on ($995). Total $5,990.

The Pennsylvania Department of Revenue examines R&D credit claims under substantially the same substantiation expectations as the IRS under federal Section 41: business-component identification, four-part-test rationale, contemporaneous evidence, QRE allocation by employee, contractor, and supplies. The DOR additionally scrutinizes the Pennsylvania in-state performance documentation, the base amount calculation, and the small business net book value reconciliation if the 20 percent rate was claimed.

The binder R&D Binder produces is built to that standard from the federal side, and the Pennsylvania workpaper carries employee location attribution and small business eligibility documentation into the same business-component structure.

Our standard scope ends at delivering the binder and the state workpaper. Audit-defense engagement for a Pennsylvania DOR examination is a separate scope at $250 per hour, scoped per-incident. We do not represent before the Pennsylvania DOR; that stays with your CPA or your Pennsylvania tax controversy attorney.

• Pennsylvania Act 7 of 1997 (created the R&D Tax Credit Program), incorporated as Article XVII-B of the Tax Reform Code of 1971.
• Pennsylvania Department of Revenue R&D Tax Credit Program overview.
• Form REV-545 (R&D Tax Credit application).
• myPATH (Pennsylvania Department of Revenue online filing system used for REV-545 submissions).
• Act 25 of 2021 and Act 53 of 2022 (moved the application deadline to December 1).
• Pennsylvania Department of Revenue 2024 R&D Tax Credit Report (reports the pro-rata allocation outcomes for the prior cycle).
• IRS Form 6765 (federal Credit for Increasing Research Activities) - Pennsylvania QRE definition tracks federal §41.

This page is general informational content, not tax advice for any specific taxpayer. The Pennsylvania R&D credit is administered by the Pennsylvania Department of Revenue. Annual cap amounts, pro-rata outcomes, and small business set-aside amounts reflect DOR published guidance and report data through fiscal year 2024-25. Confirm current cap, deadlines, and transferability rules with your CPA or the DOR before applying.

• The Section 41 four-part test
• What is a qualified research expense (QRE)?
• Form 6765 and Section G
• Arizona R&D credit
• California R&D credit
• Connecticut R&D credit
• Delaware R&D credit