Incentives Update August 2018

Research and Development Credit:

Minnesota R&D Credit:  Computation clarified

Recently the Minnesota Tax Court clarified the base period calculation for a taxpayer that can provide significant changes to the R&D credit calculation in the state. These changes also could be applied to a taxpayer’s current calculation when under exam by the state of Minnesota.

The Minnesota Tax Court has held that in computing the Minnesota research and development credit, for the tax year at issue, Minnesota “base amount” had to be computed using federal gross receipts in the denominator of the fixed-base percentage. However, it also held that Minnesota law incorporated the federal minimum base amount provision as part of the state-law definition of “base amount,” and did not incorporate the federal election of alternative simplified credit. (General Mills, Inc. v. Commissioner of Revenue, Minn. Tax Ct., Docket No. 9016-R, 08/17/2018)

The interesting point in this case is that the Tax Court determined that the R&D legislation, specified to use Minnesota qualified research expenses, but did not specify to use Minnesota gross receipts. So, based on this court case a taxpayer would use Minnesota qualified research expenses and Federal gross receipts to calculate its base amount. Also, since the court clarified that the simplified credits was unavailable, taxpayers will still need to utilize the regular credit method, which can be difficult to determine expenses and gross receipts from that time period.

Multi-State Incentives Highlight:

Sign up below for the webinar (September 27th, 2018) on the state incentive process utilized by CFO Services’ clients. In this webinar CFO Services will cover the typical issues and solutions to gain, track, and manage state incentives. Lastly, CFO Services will cover a couple features of its Business Incentives Portal.

Sign up for our webinar on the Multi-State incentive process.

Technology Update:

R&D Credit planning for next year

Are you starting to plan for your budget next year, and are interested in a competitive bid for R&D credits?

Complete our quick three questions survey and let us know if you want to have CFO Services contact you for planning the R&D credit for next year.

Click Here to complete a 3-question survey on R&D credit planning for next year

 

2018 Conference sponsorship and presentations:

CFO Services, is constantly out across the country reaching out to clients at conferences and events. In addition, we are speaking and helping to build knowledge through the tax community on credits, incentives, and technology. Check out some of the events in 2018, and don’t forget to stop by if you are at one of these events.

  • February 2018: NJ TEI Chapter Day
  • “Purchased State Credits: Too Good to be True & How not to lose them”
  • February 2018: Houston TEI Tax School
  • May 2018: Association of Computers and Taxation annual conference
    • “Cloud Computing and Maximizing Credits and Incentives”
  • June 2018: Southeast regional TEI conference (Hilton Head)
  • June 2018: West regional TEI conference (Phoenix)
  • September 27th, 2018: Webinar on CFO Services state incentives process
  • October 2018: R&D Credit & ASC 730, how do they relate? (CFO Webinar)
  • More to follow in 2018

Incentives Update July 2018

Research and Development Credit:

Pennsylvania—online application requirement

The Pennsylvania Department of Revenue is launching a new online application system for the Research and Development Tax Credit that can be accessed through the Department of Revenue website. The new application system will allow users instant access to an automated application that will be more efficient and cost effective than filing a paper application, and will also allow users to check the status of their applications and respond quickly to notifications. The state will not accept any paper applications anymore for the Pennsylvania R&D credit.

All R&D credit applications are required to be submitted through the online system, and taxpayers must file their automated R&D applications by September 15, 2018 to be eligible for the R&D credit program. There are no limits to the number of applications that may be filed using the automated system, so a user may file an R&D credit application for one business or for multiple businesses. Once an application is filed, a system-generated confirmation number will be provided indicating that the application has been completed successfully. Errors in the online form will prevent the application from being successfully filed.

 

Washington—guidance on R&D credit for staffing companies

The Washington Department of Revenue released an advisory explaining the circumstances under which staffing companies may qualify for the business and occupation (B&O) tax credit for research and development (R&D). In addition, this excise tax advisory provides examples on the circumstance in which the staffing company can qualify.

A staffing company may qualify for the credit when:

  1. the company performs qualified R&D activities through its employees;
  2. the company’s employees perform qualified R&D activities in an R&D project, without considering any activity performed by the person contracting with the staffing company for such performance or by any other person;
  3. the company completes an annual tax performance report by March 31st following any year in which the credit is taken;
  4. the company must document any claim of the credit.

Here are two different examples in the advisory that are interesting in how the staffing can qualify for the R&D credit.

Example 1: Company P, a staffing company, furnishes three employees to Company Q for performing an R&D project in biotechnology. P’s employees perform all the work of this R&D project. None of Q’s employees are involved in the R&D project. P qualifies for the B&O tax credit if all other requirements of the credit are met.

Example 2: Company M, a staffing company, furnishes three employees to Company N for assisting an R&D project in electronic device technology. N has a manager and five employees working on the same project. The work of M’s employees and N’s employees combined as a whole constitutes R&D. M’s employees do not perform sufficient activities themselves to be considered performing R&D. M does not qualify for the B&O tax credit.

In these two examples, the only difference is that the company that hired the staffing company had employees performing research in addition to the staffing employees. Yet, there is no discussion about the typical contract issues found within the federal R&D credit. Lastly, there is an example on assigning the R&D credit in Washington, which a company hiring the staffing company will probably want assignment of the credit.

 

Multi-State Incentives Highlight:

Pennsylvania—“relocation” for Keystone Opportunity Zone recapture

The court of Pennsylvania recently held that application of the Keystone Opportunity Zone (“KOZ”) recapture provisions is not limited to situations where the qualified business physically relocates outside the Keystone Opportunity Zone.

At issue was the definition and interpretation of the term “relocation”. The taxpayer constructed a restaurant in the zone, but sold all assets and interest to another company that continued operating the restaurant. It still maintained an office in the zone, but no actively operated business in the zone. The Department of Community and Economic Development (DCED) advised the taxpayer of recapture for moving out a business within five years of locating in the zone. The taxpayer responded that the restaurant was still in operation and that the taxpayer had an office.

In court, the taxpayer argued that the KOZ recapture provision does not define the term “relocate”, it should be construed within a common interpretation and require that the taxpayer has physically moved to a new location. The court based their decision on the statute and that the intent of the statute was to have incentives apply to the business location and actively conducting business in the zone. The taxpayer was therefore subject to recapture. (Vetri Navy Yard, LLC v. Department of Community and Economic Development, Pa. Commw. Ct. Dkt. No. 499 M.D. 2017, 07/16/2018)

 

Technology Update:

Schedule a demo for a look at BIP

Have you seen our Business Incentives Portal (BIP)? Do you want to?

We have a quick survey link for you to fill out info and dates in August that will allow you to schedule a demo of the tool. BIP allows companies to capture all their incentives across the country in one place, manage the tasks and milestones, as well as research additional incentives.

 Click here to schedule a BIP demo in August 2018

 

2018 Conference sponsorship and presentations:

CFO Services, is constantly out across the country reaching out to clients at conferences and events. In addition, we are speaking and helping to build knowledge through the tax community on credits, incentives, and technology. Check out some of the events in 2018, and don’t forget to stop by if you are at one of these events.

  • February 2018: NJ TEI Chapter Day
  • “Purchased State Credits: Too Good to be True & How not to lose them”
  • February 2018: Houston TEI Tax School
  • May 2018: Association of Computers and Taxation annual conference
    • “Cloud Computing and Maximizing Credits and Incentives”
  • June 2018: Southeast regional TEI conference (Hilton Head)
  • June 2018: West regional TEI conference (Phoenix)
  • September 2018: Webinar on CFO Services state incentives process
  • October 2018: R&D Credit & ASC 730, how do they relate? (CFO Webinar)

More to follow in 2018