What Are Supply QREs for the U.S. R&D Tax Credit?
When a company claims the R&D tax credit under IRC Section 41, one important category of expenses they can include is called supply Qualified Research Expenses (QREs). Generally, these are the physical materials and items that a company uses and consumes in the conduct of qualifying research activities.
What Counts as Supply QREs?
Supplies are tangible things you actually use and consume while doing your research. Think of things like raw materials, chemicals, or parts that get used up in experiments or product testing.
However, supplies don’t include things like land, buildings, or equipment that you buy and then use over several years (those are considered depreciable assets and don’t qualify here).
Importantly, they also don't include things like rent, licenses, or administrative costs or any other type of software licenses even if the underlying software is used in R&D (such as a license for github used for writing custom software code; or the license for Slack that developers might use to communicate with their teams about R&D progress, etc.).
Examples of Eligible Supplies
Chemicals or lab materials used in experiments
Small parts or components that get used up in building or testing prototypes
Any physical items that are consumed during the research process
Examples of What Doesn’t Qualify
Land or buildings (like a new lab)
Equipment or machinery that you capitalize and depreciate over time (like computers or lab instruments)
Costs like rent, licenses, or office supplies that aren’t directly used in research
General overhead or administrative expenses
Why Does This Matter?
Companies claiming the credit will want to make sure they are not inadvertently excluding eligible costs, but also just as important companies should also know the general rules so that they don’t inadvertently include costs that would be disallowed summarily upon examination.
