Incentives Update April 2019

Research and Development Credit:

Louisiana:  Extends R&D Credit

The R&D tax credit program has been extended in Louisiana. Louisiana’s Department of Economic Development (LED) has extended its R&D tax credit to December 31, 2021. Regrettably, LED reduced the credit rates for all three employment categories, each dropping 10%. Businesses with less than 50 employees will now receive credit for 30% of its increase of Louisiana R&D Expenditures for the tax year, 10% for businesses with more than 50 employees, and 5% for businesses with more than 100 employees.

This credit reduction is further magnified by LED increasing the base amount for all business with more than 50 employees. These businesses R&D expenses must now overcome 80% of their base amount, which is still the average of their previous 3 year’s Louisiana qualified research expenses. If larger businesses were filing for the LA R&D credit, there going to see a reduction in their credit in 2018 and beyond. Smaller business, under 50 employees, won’t feel this pinch since LED reduced their base amount from 70% to 50%. Small business could even see an increase in R&D credit even though its R&D credit percentage dropped.

It might come as a surprise to some, not that Louisiana extended its R&D Credit, but it even had a R&D Credit. There is good reason for this. Louisiana requires businesses to apply for R&D credits, something like Pennsylvania’s R&D Credit. Yet Louisiana requires much more information upfront, something in line with a full R&D study or an IRS exam. The R&D application also requires businesses to pay a fee to apply for the R&D credit, which is .5% of the R&D credit generated. There is always a $500 minimum, but the maximum can only go to $15,000. Businesses considering applying for the Louisiana R&D credit will want to account for the additional administrative tasks necessary to file. 

Wisconsin:  Disallows R&D credit because failed to timely claim

The Wisconsin Tax Appeals Commission (WTAC) dismissed a portion of the taxpayer’s appeal, finding that for a research credit to be carried forward, the underlying claim must be filed within four years of the un-extended due date of the tax return for the tax year in which the qualified research expense is incurred.

The Wisconsin Department of Revenue (WDOR) denied the taxpayer’s claims for carryforward research credits from 2002-2006 on the taxpayer’s 2011 and 2012 returns claiming the research credit was not computed on the originally filed returns for 2002-2006 and WDOR had not received amended returns for those years.

The WTAC framed the issue as which time frame took preference, the four-year limit for claiming credits or the 15-year period allowed for carry-forward credits.

WDOR contended that a research credit cannot be carried forward at all unless it is first computed and claimed (even if not used) on a tax return filed within four years of the un-extended due date for the year that the expense is incurred. WDOR further argued that because the taxpayer did not claim its research credits within four years of incurring the expenses, no credits were available to be carried forward, so any claim of carry-forward of those credits is untimely and therefore the taxpayer failed to state a claim.

The WTAC determined that a research credit must be claimed within four years; if it is and is not fully used, only then can the carried forward credit come into existence for use against income for up to 15 years. If the research credit is not claimed within four years, no research credit is allowed and there is no credit to carry forward. As Wis. Stat. § 71.28(4)(h) requires that the research credit claims be filed within four years of the un-extended due date of the tax return for the year in which the expenses were incurred, and the taxpayer failed to claim the credit within the statutory period for tax years 2002 and 2003, those claims are dismissed. (The C.A. Lawton Co. v. Wis. Dept. Rev.)

This is a different procedure than unused carryforward credits under the Federal R&D credit.  Please be careful if you are calculating carryforward credits in Wisconsin, because the credits do need to be filed before they can be considered carryforward. 

Multi-State Incentives Highlight:

Georgia:  High technology data center exemption.

It seems like everyone is investing in technology, which requires the use of data center resources.  If you have an internal data center or use outside data center resources, in the state of Georgia, make sure to understand the application process for the equipment certificate of exemption. 

Recently, the Georgia Department of Revenue (GDOR) has issued guidance on how data centers and their customers may apply for the high-technology data center equipment certificate of exemption under Ga. Code Ann. § 48-8-3(68.1). Application for the certificate is available on the Georgia Tax Center (GTC). All data centers, but not customers, must obtain a $2 million bond before GDOR will approve a high-technology data center equipment certificate.

Data centers must submit documents showing their ability during the investment period to create and maintain an average of 20 New Quality Jobs and to make the amount of qualifying aggregate expenditures.

Examples of supporting documents include:

  • a list of each New Quality Job created and maintained;
  • a list of expenditures that would meet the minimum Investment threshold;
  • a business plan with planned expenditures to meet the investment threshold;
  • and a business plan with a list of New Quality Jobs to be created and maintained during the investment period.

For data center customers to qualify for the exemption, they must submit a copy of a contract for data center services with an approved high-technology data center which must be for an initial term of at least 36 months. Customers will need the data center’s sales tax number to complete the application. Data centers and customers may upload documents through the GTC while submitting their applications for the exemption certificate. Alternatively, they may email or send documents to the Department. Data centers are also required to submit annual reports for every calendar year they have claimed the benefit of the exemption. Reports are generally due on April 30 of the following year.

If you have questions on this exemption or other state data center incentive, let us know.

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