Short answer. You can claim both, and Vermont is computed directly from the federal credit: the Vermont credit is 27 percent of the federal Section 41 credit allowed for research performed in Vermont. You must earn the federal credit to claim the Vermont one, so the two are taken together rather than separately, and Vermont is nonrefundable with a 10-year carryforward.
Key facts
| Claim both? | Yes; Vermont is a percentage of the federal credit |
|---|---|
| Federal rate | 20% regular / 14% ASC |
| Vermont rate | 27% of the federal credit for Vermont research |
| Vermont refundable? | No |
| Forms | Form 6765 (federal) + Schedule BA-404 (Vermont) |
Vermont is a share of your federal credit
Most states run their own calculation. Vermont takes a percentage of the federal number you already have.
The Vermont credit is 27 percent of the federal Section 41 credit allowed for eligible research expenditures made in Vermont. There is no separate Vermont base to calculate, so you compute the federal credit on Form 6765 first, then apply 27 percent to the Vermont-attributable portion on Schedule BA-404.
Because Vermont rides on the federal figure, the two credits are claimed together by design. If your research spans more than one state, you recompute the federal credit on the Vermont-only expenditures.
Federal Section 41 vs. Vermont, factor by factor
Vermont is a flat 27 percent of the federal credit, not a separate calculation.
| Factor | Federal Section 41 | Vermont |
|---|---|---|
| What it is | Credit for increasing research activities | 27% of your federal credit, for Vermont research |
| How it is computed | Your QRE over a base | 27% of the federal Section 41 credit attributable to Vermont |
| Credit rate | 20% regular / 14% ASC | 27% of the federal credit (not a separate rate on QRE) |
| Refundable | No - a QSB may offset up to $500,000 of payroll tax under Section 41(h) | No |
| Carryforward | 20 years, with a 1-year carryback | 10 years, no carryback |
| Where research must occur | United States | Vermont only |
| How you claim it | Form 6765 with the federal return | Schedule BA-404, with federal Form 6765 attached |
| Claim alongside the other? | Yes; you must claim the federal credit first | Yes; the Vermont credit is a slice of the federal number |
| Documentation | Four-part test and QRE substantiation (Treas. Reg. 1.41-4) | Same federal QRE, recomputed for Vermont research |
Where Vermont differs from federal
Two features set Vermont apart from the federal credit.
A share of the federal credit. Vermont does not run a separate base calculation. It takes 27 percent of the federal Section 41 credit you already computed, limited to research performed in Vermont, so you must earn the federal credit to claim the Vermont one.
Nonrefundable, with public disclosure. The Vermont credit offsets Vermont tax only and carries forward 10 years; it is not refundable. Vermont also publishes the names of taxpayers who claim the credit each year, which most states do not.
One evidence base for both
Because Vermont is built from the federal credit, the federal records are the whole story.
Vermont starts from the federal Section 41 credit, so the four-part test analysis and the wage, contractor, and supply records that substantiate the federal claim under Treas. Reg. 1.41-4 are exactly what support the Vermont 27 percent, recomputed for in-state research. There is no second evidence base to build.
R&D Binder documents the federal Section 41 four-part test that both credits depend on, with Vermont handled as a state add-on from the same records. Eligibility and the choice of credits remain a determination for your CPA.
More on Vermont's R&D credit
The full state overview, the federal Section 41 work it builds on, and related state guides:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- 32 V.S.A. 5930ii (research and development tax credit) - Vermont General Assembly
- 26 U.S.C. § 41 (credit for increasing research activities) - Cornell Law School, Legal Information Institute
- IRS, About Form 6765 - Internal Revenue Service
- Treas. Reg. § 1.41-4 (recordkeeping and substantiation of qualified research) - Cornell Law School, Legal Information Institute
Get documentation built to survive an exam
R&D Binder produces the federal Section 41 binder and the Vermont state workpaper from one engagement, both built to survive an exam.