State R&D Credits · Brief · Intro level
States without R&D credits: where the federal claim is the whole story
A dozen-plus states offer no research credit — some because they have no income tax to credit against, others simply never enacted one or repealed it. What companies in those states still get, and what substitutes exist.
Not every state pays for research. As of mid-2026, a dozen or more states offer no general research and development credit — and a company with its lab in Nashville or Las Vegas gets exactly one R&D credit: the federal one. The no-credit states split into two families. Some have no corporate income tax at all, so there is nothing for a conventional credit to offset — Washington, Nevada, Wyoming, South Dakota. Others tax corporate income but simply never enacted a research credit, or repealed the one they had — North Carolina most prominently, along with West Virginia, Tennessee, Oklahoma, and several others. State legislatures add and drop credits regularly (states have both revived and killed research credits within the past few years), so treat any list as a snapshot and confirm current law with the relevant state revenue agency.
Two kinds of "no"
The no-income-tax states. A research credit is, mechanically, a discount on income tax. Washington, Nevada, Wyoming, and South Dakota impose no corporate income tax, so the standard design has nothing to attach to. These states' pitch to research companies is the missing tax itself: a profitable company keeps what an income-tax state would have taken, credit or no credit. Texas is the instructive caveat: it also has no corporate income tax, but it does impose a franchise (margin) tax — and it offers a research credit against that tax (with a sales-tax-exemption alternative for research equipment in some periods), administered through the Texas Comptroller. No income tax does not always mean no credit; it depends on what other business tax exists to host one.
The never-enacted and the repealed. The second family taxes income but offers no research credit. Some never had one. Others walked away: North Carolina repealed its credit for tax years beginning in 2016 as part of a rate-cutting reform, and West Virginia's earlier credit likewise lapsed. The policy logic in the repeal states is usually explicit — lower rates for everyone instead of credits for some — and North Carolina has paired the repeal with a corporate rate legislated to phase toward zero.
The table sorts the landscape as of mid-2026 (snapshot — verify before relying).
| Category | States (illustrative) | What research companies get instead |
|---|---|---|
| No corporate income tax, no credit | Washington, Nevada, Wyoming, South Dakota | No income tax at all; industry-specific preferences in some states |
| No income tax, but a credit anyway | Texas (franchise-tax credit) | R&D credit against the margin tax |
| Income tax, no general credit | North Carolina, West Virginia, Tennessee, Oklahoma, others | Lower rates in some; local and negotiated incentives |
What substitutes exist
The absence of a research credit rarely means the absence of incentives. Washington is the fullest example: its business and occupation (B&O) tax — a gross-receipts tax — carries preferential rates and credits for particular industries (aerospace has been the marquee case), and the state's earlier R&D-related B&O credit, which expired at the end of 2014, resurfaces periodically in legislative proposals; the Washington Department of Revenue tracks current preferences. Elsewhere, the substitutes are local and negotiated: property tax abatements on lab and equipment investments, payroll-based job credits, training grants, and discretionary deal-closing funds that a relocating research employer can negotiate even where no statutory research credit exists. These are worth real money but behave nothing like a self-assessed credit — they are applications, agreements, and clawbacks.
The federal claim is untouched
The most important point for companies in these states is what does not change. The federal Section 41 research credit is computed on qualified research expenses wherever in the United States the research occurs — a Seattle software company and a Bay Area one compute identical federal credits on identical facts, including the payroll tax offset of up to $500,000 for qualified small businesses, claimed via Form 6765. For a pre-profit startup, the payroll offset frequently matters more than any state credit would have anyway.
The honest siting note: state research credits are usually worth a low-single-digit percentage of in-state research spending, while state tax regimes differ by whole percentage points of income. A no-credit, no-income-tax state can easily beat a generous-credit state for a profitable company; a refundable-credit state (see refundable and transferable state credits) can beat both for a loss-stage one. The credit is one input, not the answer — the framework for weighing it is in how state credits differ.
Frequently asked questions
- Which states have no R&D tax credit?
- Two groups, as of mid-2026. States with no corporate income tax to credit against — Washington, Nevada, Wyoming, South Dakota — and income-tax states that never enacted a general research credit or repealed it, such as North Carolina (repealed for 2016 and later years), West Virginia, Tennessee, Oklahoma, and a handful of others. Texas is a caveat: no income tax, but a research credit against its franchise tax. Verify current law — legislatures add and drop credits regularly.
- Can companies in states without R&D credits still claim the federal credit?
- Yes, fully. The federal Section 41 research credit does not depend on state law in any way — a company doing qualified research in Nevada or Tennessee computes federal QREs, the credit, and the payroll tax offset exactly as a California company would. The absence of a state credit means only that no second, state-level layer exists.
- Does Washington State have an R&D tax credit?
- Not currently. Washington has no corporate income tax; its business and occupation (B&O) tax is a gross-receipts tax, and the R&D-related B&O credit the state once offered expired at the end of 2014. Targeted B&O preferences remain for particular industries, and proposals to revive a research incentive surface periodically — check with the Washington Department of Revenue.