The federal research and development (R&D) tax credit, first enacted in 1981, offers potential significant tax benefits to Permian Basin oil and gas companies. The credit expired as of December 31, 2013, but it will likely be renewed for the 2014 tax year due to broad political support from both parties. Companies can currently take advantage of the credit on their 2013 tax return. Additionally, Texas now offers a state level R&D credit option.
In the Midland Reporter-Telegram article Basin operators can save with the R&D tax credits, Robert Henry, Weaver partner in tax and strategic business services, explains:
- Defining R&D activity for tax credit purposes
- Calculating the R&D tax credit
- Capturing R&D tax benefits
- Supporting pursuit of business opportunities through R&D credits
Various oil and gas activities, including upstream, midstream and downstream activities, can qualify for the R&D tax credit. And while claiming actual R&D tax credits requires effort, the immediate and long-term tax savings make that effort worthwhile.