Pennsylvania Agriculture R&D Tax Credit
R&D Tax Credit
Pennsylvania farms and agribusinesses regularly test crops, improve livestock production, develop processing methods, modify equipment and invest in new agricultural technology. Some of these activities may qualify for the federal R&D Tax Credit and Pennsylvania Research and Development Tax Credit when the applicable requirements are met.
Pennsylvania's R&D credit is designed for qualified research conducted within the Commonwealth. The state also offers agriculture-specific programs such as the Resource Enhancement and Protection, or REAP, Tax Credit, making Pennsylvania especially relevant for farming businesses evaluating research, conservation and property investments.
RCG Tax Partners helps farms, growers and agribusinesses evaluate potential
R&D Tax Credit and
Cost Segregation opportunities based on their activities, expenses and property..
Potentially. Pennsylvania agricultural businesses may qualify when they conduct technical research intended to resolve uncertainty through experimentation and incur qualifying Pennsylvania research expenses.
Examples that may warrant review include::
| Farming Activity | Potential R&D Area |
|---|---|
| Crop and seed trials | Testing varieties, yield or growing methods |
| Dairy and livestock | Feed, nutrition or production experimentation |
| Irrigation | Testing delivery systems or controls |
| Pest and disease management | Evaluating alternative treatments or processes |
| Agricultural equipment | Designing or modifying machinery |
| Greenhouses | Testing growing environments and controls |
| Food processing | Improving formulations or production methods |
| Precision agriculture | Developing software, sensors or monitoring systems |
Routine farming does not automatically qualify. The underlying activity and expenses must satisfy applicable federal and Pennsylvania requirements.
How Does the Pennsylvania R&D Tax Credit Work?
Pennsylvania's Research and Development Tax Credit applies to qualified research and development expenses incurred for research conducted within Pennsylvania.
The applicant must generally be subject to Pennsylvania Corporate Net Income Tax or Personal Income Tax, have qualifying Pennsylvania R&D expenditures and meet the state's eligibility and tax-compliance requirements. Pennsylvania also requires at least two years of R&D expenditures for purposes of the program.
Pennsylvania qualified research expense is tied to the definition of qualified research expense under IRC §41(b).
How Is the Pennsylvania R&D Credit Calculated?
Pennsylvania calculates the credit based on the amount by which Pennsylvania qualified R&D expenses exceed the taxpayer's Pennsylvania base amount.
| Business Type | Credit Rate on Expenses Above Base |
|---|---|
| Qualifying small business | 20% |
| Other qualifying taxpayer | 10% |
Pennsylvania law defines a small business for this program using specific asset criteria. Businesses should confirm their classification before applying.
The program also has an overall annual allocation, which can affect the amount ultimately awarded. Pennsylvania's 2026–27 state estimate documentation lists a $60 million annual program cap, with a portion reserved for small businesses.
When Do Pennsylvania Farms Apply for the R&D Credit?
Pennsylvania applications are submitted through myPATH, the Pennsylvania Department of Revenue's online system.
The application period opens August 1, and applications must generally be submitted by December 1 for qualified Pennsylvania research expenditures incurred in the taxable year that ended during the prior calendar year.
The Department may request supporting information such as:.
Federal Form 6765, if filed
R&D expenditures by location
Employee withholding information
Contractor information
Documentation supporting the research activities
Pennsylvania Farming and Agricultural R&D Opportunities
Pennsylvania has one of the largest and most diverse agricultural economies in the region.
The USDA's 2022 Census of Agriculture reported 49,053 Pennsylvania farms, more than 7 million acres of farmland, and approximately $10.28 billion in agricultural products sold.
Pennsylvania agriculture includes major activity in:
Dairy
Poultry and eggs
Grain and oilseed production
Mushrooms
Greenhouse and nursery production
Cattle and livestock
Fruit production
Food and beverage processing
Lancaster County is a major agricultural center, while dairy activity is important across the Northern Tier, Northwest and South Central regions. Pennsylvania also has significant poultry, livestock, mushroom and food-processing activity across the South Central, Southeast and Lehigh Valley regions.
These industries can create research questions involving crop performance, animal nutrition, disease control, production systems, processing and agricultural technology..
REAP Tax Credits for Pennsylvania Farms
Pennsylvania agriculture has another important state-specific program: the Resource Enhancement and Protection Tax Credit, commonly called REAP.
REAP allows eligible farmers, businesses and landowners to earn Pennsylvania income tax credits for implementing qualifying conservation and best-management practices that improve farm operations and protect natural resources.
REAP is separate from the R&D Tax Credit. A farm should evaluate each program based on the activity and expenditure involved rather than assuming the same project qualifies for both.
Cost Segregation for Pennsylvania Farms
R&D credits focus on research activities. Cost Segregation focuses on depreciation of buildings and property.
Pennsylvania agricultural businesses may consider a Cost Segregation review after purchasing, constructing or improving:
| Agricultural Property | Potential Review Area |
|---|---|
| Dairy or livestock facilities | Specialized structures and systems |
| Grain storage | Grain bins and handling systems |
| Greenhouses | Specialized structures and equipment |
| Processing facilities | Production-related components |
| Farm sites | Drainage and site improvements |
Federal recovery periods vary by asset. IRS Publication 225 lists grain bins and agricultural fences as 7-year GDS property, qualifying single-purpose agricultural and horticultural structures as 10-year property, drainage facilities as 15-year property, and general farm buildings as 20-year property.
Can a Pennsylvania Farm Use Both R&D and Cost Segregation?
Potentially.
A Pennsylvania farm could conduct crop trials, experiment with livestock nutrition or modify equipment while also investing in a new dairy facility, greenhouse or processing building.
The research activities may warrant an R&D Tax Credit review, while the property investment may separately warrant a Cost Segregation study.
Frequently Asked Questions
Does Pennsylvania have an R&D Tax Credit?
Yes. Pennsylvania provides an R&D Tax Credit for eligible taxpayers conducting qualified research within Pennsylvania. The program uses Pennsylvania qualified research expenses and a state-specific base calculation.
Can Pennsylvania farmers qualify for the R&D Tax Credit?
Potentially. Farming businesses may qualify when their activities and expenses meet the applicable research requirements. Crop trials, equipment development, livestock research, irrigation testing and agricultural technology projects may warrant review.
Does the research have to take place in Pennsylvania?
Yes. Pennsylvania's credit applies to qualified research expenses associated with research conducted within the Commonwealth.
What is the Pennsylvania REAP Tax Credit?
REAP is an agriculture-focused Pennsylvania tax-credit program that helps eligible farmers, businesses and landowners offset qualifying investments in conservation and best-management practices.
Can Pennsylvania farms use Cost Segregation?
Potentially. Farms owning qualifying depreciable buildings and property improvements may benefit from reviewing asset classifications and recovery periods.
Explore More Agriculture Resources
Pennsylvania agricultural businesses can also review RCG's main Agriculture R&D Tax Credit and Cost Segregation resource for federal qualification rules and farm-property considerations.
Businesses can also learn more through RCG's dedicated
R&D Tax Credit and
Cost Segregation service pages.
Discuss Indiana Agricultural R&D With RCG
RCG Tax Partners helps businesses evaluate potential R&D Tax Credit and Cost Segregation opportunities based on their activities, expenses and property.
Contact RCG Tax Partners to discuss potential R&D Tax Credit or Cost Segregation opportunities for your Indiana farming or agricultural business.
