Category: Qualified Research Expenses Tax Credit


Tax Incentives “Below the Line”

Tax incentives that impact a company’s income taxes are considered “below the line.”  They are not part of the EBITDA calculation (Earnings Before Interest, Taxes, Depreciation, and Amortization) and only benefit income tax payers.  But tax payers may be the company itself (such as a C-Corp) or individual shareholders (pass-through entities).
Many tax incentives for companies are based on activities that the company has already done or plans to do.  Depending on the type of company and location, a company may be able to benefit from the following Federal and State tax incentives and related activities:

Federal

  • Research and Development Tax Credits — new products or new processes
  • Work Opportunity Tax Credits (WOTC) — hire new employees that have specific backgrounds
  • Section 179-D Deductions — energy incentives for buildings
  • Cost Segregation Studies — reclassify building costs of new construction

State (Georgia Example)

  • Research and Development Tax Credits — new products or new processes
  • Retraining Tax Credits — train existing employees
  • Job Tax Credits — new job additions
  • Investment Tax Credits — new land, buildings, and equipment

If your clients are paying income taxes, remember to review their current and planned activities to find their “below the line” tax incentives — they will thank you for helping them save money!

JimSig

Oregon Credits and Incentives

As we’ve mentioned before, our Georgia clients frequently ask us to investigate potential credits and incentives in other states where they have operations, potential acquisitions or strong relationships with customers or vendors. In addition, private equity groups ask us about potential $$ for their portfolio companies.
We were recently asked about credits and incentives in Oregon, and their state economic development professionals gave us some details (business oregon site click here).
Oregon offers a substantial and varied collection of credits and incentives for new and existing businesses.  CNBC ranked Oregon #21 in their 2015 America’s Top States for Business survey (Georgia was #5 in the same survey).  Read below and see how many of these could be Above the Line:

Enterprise Zones – In exchange for investing and hiring in an enterprise zone, businesses receive exemption from local property taxes on new plant and equipment for at least three years (but up to five years) in the standard program. In addition, many zones can offer special incentives for investments in qualifying rural facilities or in electronic commerce operations.

Strategic Investment Program – The Strategic Investment Program exempts a portion of very large capital investments from property taxes for 15 years. The program is available statewide.

Construction-in-Process – Unfinished facility improvements may be exempt from local property taxes for up to two years while under construction.

Food Processing Machinery and Equipment (M&E) – For five years after it is newly placed in service, qualified M&E is exempt from property taxes if certified by the Oregon Department of Agriculture.

Electronic Commerce – Investment tax credit equals 25% of the cost incurred by an authorized business for capital assets used in electronic-commerce operations inside one of several enterprise zones.

Qualified Research Activities Credits – Corporate credit for qualified research and basic research conducted each year in Oregon, as a state-level extension to the federal program.

Oregon Investment Advantage – This program helps businesses start or locate new types of operations in a number of Oregon counties by providing an income tax subtraction, potentially eliminating state income tax liabilityon the operations for several years after they begin.

Oregon Business Expansion Program – This is a cash-based forgivable loanequivalent to the estimated increase in personal income tax revenue from new hiring.

Small Manufacturing Business Expansion Program – This is a cash-based forgivable loan for small manufacturing businesses’ expansion projects.

Film & Video Incentives – Rebate on 20% of the production’s Oregon-based goods and services.  Additional cash payment of up to 16.2% of wages paid to production personnel.  Unlike other states’ programs, these incentives are cash-based as opposed to tax credits. This simplifies and speeds up the process.

To summarize, Oregon is above average for business tax incentives in a great Pacific Northwest location.

DaleSig

Indiana Credits and Incentives

As we’ve mentioned before, our Georgia clients frequently ask us to investigate potential credits and incentives in other states where they have operations, potential acquisitions or strong relationships with customers or vendors. In addition, private equity groups ask us about potential $$ for their portfolio companies.
We were recently asked about credits and incentives in Indiana, and their state economic development professionals gave us some details (Indiana EDC site click here).
Indiana offers a decent collection of credits and incentives for new and existing businesses.  CNBC ranked Indiana #13 in their 2015 America’s Top States for Business survey (Georgia was #5 in the same survey).    
Incentives and Credits include:

Economic Development for a Growing Economy Tax Credit (EDGE):

Based on employment, the credit is calculated as a percentage of the expected increased tax withholdings generated from new jobs created by a company.  This credit can be claimed regardless of whether the company has a state income tax liability or not.

Skills Enhancement Fund (SEF):

Designed to help tailor a workforce that meets a company’s needs. The grant reimburses a portion (typically 50%) of eligible training costs over a period of two full calendar years from the commencement of the project. Eligible expenses include everything except: Orientation Related To New Hires and Federally Mandated Safety Training (OSHA).

Hoosier Business Investment Tax Credit (HBI):

Corporate income tax credit calculated as a percentage of the eligible capital investment needed to support the project. Eligible capital investment includes new machinery and building costs associated with the project. In order to claim this credit, a company must have a state corporate income tax liability.

Headquarters Relocation Tax Credit (HRTC):

HRTC provides a tax credit to corporations that relocate their headquarters to Indiana. The credit equals half the moving costs and is assessed against the corporation’s state tax liability.

Industrial Recovery Tax Credit:

Provides an incentive for companies to invest in facilities requiring significant rehabilitation or remodeling expense. The tax credit amount depends on the age of the facility being rehabilitated. Eligible sites must have been in service at least 15 years, with at least 5,000 interior square meters of space that has been at least 75% percent vacant for one year or more.

Research & Development Incentives:

Two tax incentives targeted at encouraging investments in research and development. Taxpayers may receive a credit against their Indiana state income tax liability calculated as a percentage of qualified research expenses. In addition, taxpayers may be refunded sales tax paid on purchases of qualified research and development equipment.
Compared to Georgia, Indiana has:
  • Slightly higher corporate but far lower personal income tax rates.
  • Higher combined state and local tax burden
  • A narrower range of incentives.
  • Pre-approval required for all incentives
To summarize, Indiana is about average for business tax incentives in a central Midwest location.

DaleSig

Deferred Tax Assets & Credits

With the economy recovering in some areas, companies are starting to re-invest in their operations. These investments (such as software upgrades and head count increases) may qualify for state tax credits. Unfortunately, some companies may not have the income tax liability capacities for these tax credits in the near term. But in many cases, state tax credits earned can be carried forward (up to 10 years) and may show up as Deferred Tax Assets on the balance sheet.

Depending on a company’s tax structure, there may be benefits to these carried forward tax credits:

  • C Corporation: the tax credits will increase the company’s assets on the balance sheet. This will be beneficial to investors and bankers that consider assets for valuation purposes. In addition, acquiring companies may be able to leverage these tax credits in the future.
  • Pass-through (such as S Corporation , LLC, LLP, and others): individual equity participants could benefit from personal “deferred tax assets” that could be utilized to off-set future income tax liabilities (i.e., spouse income increases, their business is sold, and other items). Include this in discussions with the client’s wealth management team.

So remember to reach out to your clients to discuss their company and personal asset planning. A deferred tax credit today may cover a tax liability tomorrow!

JimSig

Job Tax Credit Proposed Rules

Georgia DOR will be holding three tax credit-related hearings in August:

  • August 2, 10:00 AM — Proposed Amendment to Rule 560-7-8-.42 “Tax Credit for Qualified Research Expenses.”  Reflects significant changes enacted in the 2012 Session and provides detailed guidance for your clients seeking credits for qualified research expenses.
  • August 9, 10:00 AM — Proposed Amendment to Rule 560-7-8-.51 “Quality Jobs Tax Credit.”  Explains and clarifies changes enacted in 2012 Session. Definitely check this out for your clients with job increases of 50 or more.
  • August 13, 10:00 AM — Proposed Amendment to Rule 560-7-8-.36 “Job Tax Credit Description and Definitions.”  Clarifies 2012 change of Tier 1 threshold from 5 to 2 jobs, increases Withholding Credit DOR review period from 90 to 120 days.  Check this out especially for your clients with small increases (2 or more jobs!) in Tier 1 counties.

All hearings will be held at DOR Headquarters, 1800 Century Blvd. NE, Atlanta, GA  30345.  Click here for link to notices.

 

DaleSig