State R&D Tax Credit Updates to Watch in 2023

While the federal R&D Tax Credit remained unchanged, several states rolled out important updates in 2023 that companies should be aware of:

Iowa Implements Phase-Out of Supplies in R&D Calculation
Starting in tax year 2023, Iowa began reducing the inclusion of supplies as Qualified Research Expenditures (QREs) by 20% annually, phasing them out entirely by 2027. The state also disallowed cloud computing expenses and eliminated the “substantially all” eligibility rule. Additionally, amended claims must now be filed within six months of the original return’s due date.
New Jersey Expands Its Film & Digital Media Tax Credit
In January 2023, New Jersey increased its digital media content production tax credit to 35% in its southern counties. It also offers a 2–4% diversity bonus for productions hiring women or minority crew members—adding a progressive element to its incentive structure.
Colorado Targets Advanced Industries for R&D Incentives
Under HB23‑1260, Colorado created enhanced tax incentives for advanced manufacturing and semiconductor ventures, including refund certificates for R&D-related credits and designated zones for high-tech investment.

Location-based opportunities: State incentives vary significantly by jurisdiction. These recent changes—especially in Iowa, New Jersey, and Colorado—reflect how dynamic the R&D landscape is at the state level.
Stacking credits smartly: Companies conducting multi-state R&D should compare federal and state rules to maximize total credit potential. What’s allowed at the federal level may be restricted—or more generous—at the state level.
Audit-readiness and documentation: With tighter rules in places like Iowa and specialized programs in others, documentation and tax positioning are more important than ever.

If your company engages in R&D activities in these—or any other—states, now is the time to build your documentation and consult a tax advisor: