Idaho State Tax Commission, Docket No. 2-117-100-544

Petitioner, an Idaho S corporation providing truss design and structural engineering services, claimed an Idaho research credit for the 2022 tax year for engineering work performed in developing custom truss and structural solutions for construction projects.

A Genuine Process of Experimentation, With One Exception

Unlike several other Idaho research credit protests, the Tax Commission here found that Petitioner did face genuine uncertainty regarding the capability and method for its structural designs, and that — apart from routine stress and quality-control testing, which the Commission excluded as non-experimental quality control — its engineering process did constitute elements of a process of experimentation involving the evaluation of design alternatives against structural and code requirements.

QRE Estimates Lacked a Documented Basis

Despite finding qualifying research activity, the Commission denied the credit because Petitioner's calculation of qualified research expenses rested on wage percentage estimates of 65% and 60% for different employee groups, and a flat 20% estimate for supply costs, all derived from unstructured 'conversational inquiries' with employees rather than contemporaneous time records, project logs, or other documented support. Citing Little Sandy Coal Co. v. Commissioner, 995 F.3d 623 (7th Cir. 2021) and its subsequent affirmance, the Commission held that such undocumented, after-the-fact estimates cannot substantiate a credit claim, regardless of how credible the underlying qualifying activity may be.

The Notice of Deficiency Determination was affirmed, with the Commission finding $167,543 in additional tax due for the 2022 tax year.

Significance: This decision is significant precisely because the Tax Commission credited the taxpayer's underlying technical narrative — finding a genuine process of experimentation — yet still denied the credit entirely on substantiation grounds, reinforcing that documentation of the expense calculation is treated as an independent requirement separate from proving that qualifying activity occurred. The decision was later cited as controlling authority in a related, non-independent protest.