Browsing Posts in R&D Tax Credit
Michael Warady, Director R&D Business Development
Stephanie Woods, Director of Business Development for R&D
Bryan Auernig, Director R&D Business Development
Deb Crumley, Director of R&D Tax Credit Consulting
Deb Crumley, Director of R&D Tax Credit Consulting
SourceCorp recently worked with a $6 million New York manufacturer to identify, document, calculate and claim the New York State Research & Development Tax Credit formally called the QETC. The company was able to go back and claim the credit for four years and claimed total credits of $328,474.
Subsequently, the owner was notified that state examiners intended to review the claim. SourceCorp met with the examiners and explained the client’s activities and expenses and their validity with regard to claiming the R&D credit. SourceCorp succeeded in sustaining 100% of the credit for the company.
The QETC is a refundable credit, so this New York manufacturer was able infuse $328,474 into their business by evaluating what was already spent as part of the company’s initiative to stay competitive through research and development spending.
Laura Kushner, Director of Marketing
The small business jobs bill includes a number of important tax provisions, including liberalized and expanded expensing for 2010 and 2011, revived bonus depreciation for 2010, five-year carryback of unused general business credits for eligible small businesses, removal of cell phones from the listed property category, and liberalized Code Sec. 6707A penalty rules.
As reported in the Wall Street Journal.
Regarding this article from Bloomberg: Obama May Seek Permanent R&D Tax Credit
Deb Crumley, Director of R&D Tax Credit Consulting
Given its bipartisan support and the history of R&D tax credit’s extension, arguing that the budget deficit will be increased by making it permanent is misleading. This article’s author uses the term “longest-running budget gimmicks in town” which couldn’t be more appropriate. It will have the same budgetary impact if made permanent as it would if Congress keeps approving the temporary extensions.
More importantly would be the effect on businesses if they were certain of the credit’s future. By understanding and being able to rely on this incentive, behavior related to R&D spending will be positively impacted. For many companies, compiling the information to compute the R&D tax credit each year is cumbersome and an area that needs process improvement. However, this is never a priority since the future of the credit is always in question. With permanency, companies will be incentivized to increase R&D spending and make the internal process changes necessary to create more accuracy within their computations.
While there will be a budget impact to increasing the credit percentage for the Alternative Simplified Credit, it is necessary to keep the U.S. from lagging even further behind in international comparisons of R&D incentives. Hopefully President Obama is successful, and the credit is made permanent and more internationally competitive.
This recent court case favored the company claiming the R&D tax credit.
Laura Kushner, Director of Marketing
The United States was one of the first countries to enact a federal tax credit for R&D in 1981, and throughout that decade we had the most generous R&D incentive in the world. However, other countries soon realized the benefit of the R&D credit and adopted not only similar but often more lucrative credits.
By 1996, the U.S. ranked only 7th in R&D tax generosity out of the countries that had an R&D credit, and by 2004 we had slipped to 17th place. The key reason — every other country with an R&D tax credit has increased the generosity of those credits. Not only has the U.S. not increased the credit, but to date Congress has not yet extended the credit for 2010. The result – by 2009 the U.S. ranked dead last — leaving the number one position to France.
However, if Congress were to enhance the R&D tax credit and make it permanent as other countries have done instead of simply extending it each year, the result would be an immediate and positive impact on U.S. innovation and job creation.
For example, a study by the Information Technology and Innovation Foundation think tank suggests that raising the Alternative Simplified (ASC) R&D tax credit rate from 14 to 20 percent would create 162,000 jobs in the short-term and an unspecified number of additional jobs in the longer-term. ITIF also estimates that raising the ASC would increase the annual GDP by $90 billion, the number of patents issued by 3,850 and federal tax revenues by $17 billion.
Raising the ASC to 20 percent would bump the U.S. R&D tax generosity rank to number 10. However, we would need to increase the ASC to 31 percent to move to 5th place and to a whopping 47 percent in order to reclaim the number one spot with the most generous R&D credit of the 21 countries that currently offer one.
Fortunately for American businesses, all but about 12 states offer a state R&D credit. Some of these state credits are more lucrative than the federal credit, and some are even fully refundable.
For example, New York has a refundable credit, specifically for companies with revenues under $10 million, that averages between 9-18%. Starting in tax year 2010, the Minnesota state credit will be expanded and made refundable. Louisiana has one of the most lucrative credits of all the states. Depending on the size of the company, the credit can be from 8 to 40 percent, and it is also refundable.
Companies located in states that offer a state R&D credit can realize significant dollars in tax credits, especially when combined with the federal credit. These dollars can be reinvested to fund additional R&D which, in turn, will boost both innovation and job creation in the U.S.
