Incentives Update 08-19-20

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 2nd Session convened (January 8, 2020), adjourned due to COVID-19 (March 25, 2020), reconvened (July 20, 2020), and adjourned, for the year, on Thursday, August 13, 2020.   
  • The Nebraska Legislature passed the ImagiNE Nebraska/business incentive legislation.  The bill, which began as LB720, became part of a compromise bill (LB 1107), that included property tax relief, business incentives and a transformational jobs project at UNMC (NEXT – Nebraska Transformational Projects Act). The bill passed on a 41-4 vote. 
  • Governor Pete Ricketts signed into law Legislative Bill 1107 on August 17, 2020.
  • For purposes of business incentives, the Nebraska Advantage Act will sunset at 12/31/20 and ImagiNE Nebraska applications may be filed on/after 1/1/21.  Any applications filed and approved, via a ‘complete application’ date, under Nebraska Advantage, on/prior to 12/31/20, will be ‘grandfathered’ in under the NAA program.

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/.


ImagiNE Nebraska (LB 1107) – Cursory High Points

  • Fiscal cap is in place at $25M (2021 & 2022), 100M (2023 & 2024), $150 million (2025) and after Year 5, cap is equal to 3% of actual General Fund net receipts. 
  • A requirement that the Taxpayer not violate any state or federal law against discrimination.
  • Applications will be filed to the Nebraska Department of Economic Development, and compliance/audits will be completed by the Nebraska Department of Revenue.
  • Application fees, due to the State of Nebraska, have increased to $5,000, for all tier levels, and a .05 fee is assessed on benefits realized.  A credit is allowed against the .05 fee, specific to the first $5,000 (i.e. application fee). 
  • Qualified activity designations have changed, involving designated activities and/or NAICS codes. Furthermore, locations will be designated as either qualified or non-qualified locations, as a result of meeting a majority activity designation.
  • A tier designation, at application, exists, but the Applicant may move to another tier, via a State-provided form, ‘until the first December 31 following the end of the ramp-up period’.
  • Attainment period (aka ramp-up period) is 5 years, Entitlement period is 7 years, and Carryforward period is 3 years.
  • Base year (employment) for 2021 applications, will be the higher FTE computation of 2019 or 2020, whereas applications filed in 2022 or later, will utilize ‘the year immediately preceding the year of application’.
  • Qualified employees must be Nebraska residents (out-of-state employees working at the NE site no longer qualify), full-time employees (part time employees no longer qualify), offered a sufficient package of health/benefit coverage, and meet minimum wage requirements (required of the applicable tier).  Each tier has a documented minimum wage requirement at either 70% of the statewide average (rural manufacturing), 75% of the statewide average, 90% of statewide average, 100% of the statewide average, or 150% of statewide average.  Using current wages (this will change for 2021 applications), 100% of the statewide average is currently estimated/calculated at $44,824 annually/$21.55 per hour.
  • Qualified investment continues to have a project location bias and allow for assets placed in service at the project site, assets transferred into NE (and utilized at the project site) and assets leased (at the project site). 
  • Benefits may be claimed/filed ‘when’ the business reaches the required levels (at the end of the calendar year), rather than ‘post’ audit.  As a result of this change, yearly filing requirements and correlating documentation/support, required by NDR, will be expanded and scrutinized yearly, in order to ensure compliance.  The Department of Revenue has the authority to conduct audits, of any filer.   
  • Updated language on job training and talent recruitment, including additional use of credits.

Economic Development around the Country……….

Amazon.com is expanding its physical offices in six US cities, estimating that it will add 3,500 corporate jobs and 900,000 sq. ft. of office space across its hubs in New York, Phoenix, San Diego, Denver, Detroit and Dallas. 

BAE Systems, one of the world’s leading aerospace and defense technology companies, is expanding its operations in Austin, Texas, via the construction of a new 390,000 sq. ft. facility, at its campus development in Parmer Austin Business Park.  The site, which is anticipated to be completed in 2022, and valued at approximately $150M, will increase capacity by more than 1,400 employees and include business activities including, but not limited to, engineering, manufacturing, laboratory, and administrative.

Online pet retailer Chewy, Inc., is opening an eCommerce fulfillment center in Belton, Missouri, at the NorthPoint Development’s Southview Commerce Center.  The Company estimates that the new 800,000 sq. ft. facility will require approximately 1,200 employees, whom will help ship pet food and pet-related products representing over 2,000 brands.

Commercial Metals Company, a Texas-based steel and metal manufacturer, plans to construct a $300 million rebar micro mill adjacent to its current operation center and campus in Mesa, Arizona. The expansion in Mesa represents CMC’s third micro mill, since 2009, and is expected to produce an estimated nominal annual capacity of 500,000 tons, including 150,000 tons of merchant product, The Company plans to hire 185 additional employees. 

The developer of Fortnite, Unreal, and Gears of War (Epic Games) is planning to start construction, during 2020, to expand its current headquarters in Cary, NC.  The plans, which are expected to accommodate up to 2,000 employees, and include an additional 450,000- to 500,000-sq. ft. will occur at an adjacent property, next to the current property that Epic has owned since 2015.  Epic’s new facility will include a range of amenities, outdoor features, and additional parking.

Kubota continues to invest in Kansas, with its most recent decision to invest $43M and create net-new 130 full-time positions, at a Great Plains Manufacturing site in Salina, Kansas.  Through Kobata and its Subsidiaries, the Company currently employs over 1,600 people in Kansas.  

Austin also announced, during July-2020, that it will become home to a new Tesla assembly plant, which will produce the Tesla Cybertruck and Model Y (SUV).  The plant will cost in excess of $1.1B and employ 5,000 people, and vehicle production is anticipated to begin late 2021. 

Over 100 million pizzas a year.  That’s how many pizzas the Schwan’s Company will produce in Salina Kansas, after the upcoming expansion.  During August 2020, the Company made public its plans to build/expand, by 400,000 sq. ft., its current pizza manufacturing plant in Salina, KS.  The Company already employs 1,125, at the plant, and anticipates hiring an additional 225 net new full-time jobs (by 2023).

Walmart is building a new direct-import distribution center, at an estimated cost of $220M, at/near Ridgeville, South Carolina, and the Port of Charleston.  The new distribution center will support approximately 850 Walmart Stores and Sam’s Clubs in the Southeast Region. 

This newsletter is provided for information purposes only and should not be used by itself as legal, tax or business advice.

Supporting the R&D Credit with JIRA, November 2020

Subject:                 Supporting the R&D Credit with JIRA

Newsletter Date:   November, 2020


IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.

USING JIRA TO SUPPORT R&D CREDIT

JIRA is a fantastic platform for project tracking, but it can also help in supporting your R&D credit claim. Using some or all of these best practices will help you in your goal of having as minimal a role as possible for yourself or your personnel during a review of your R&D credit, as the documentation will do the supporting for you. First, let’s learn a little about what JIRA is…

JIRA is a tool developed by Australian Company Atlassian. It is used for bug tracking, issue tracking, and project management, most commonly during the software development. 

Atlassian provides JIRA for free to open source projects meeting certain criteria, and to organizations that are non-academic, non-commercial, non-governmental, non-political, non-profit. For academic and commercial customers, the full source code is available under a developer source license.

The tool can be used as a hosted solution or as an internally managed, on-premise solution. When launched in 2002, JIRA was purely issue tracking software, targeted at software developers. The app was later adopted by non-IT organizations as a project management tool. The process sped up after the launch of Atlassian Marketplace in 2012, which allowed third-party developers to offer project management plugins for JIRA. “BigPicture”, “Portfolio for JIRA”, “Structure”, and “Tempo Planner” are major project management plugins for JIRA.

Software teams began adopting JIRA as they adopted the Agile development method (a development method that breaks product development work into small increments that minimize the amount of up-front planning and design. Iterations, or sprints, are short time frames (timeboxes) that typically last from one to four weeks). As a project management tool, JIRA is a robust way of tracking and assigning tasks, tracking progress and issues, as well as tracking time spent on specific tasks and sub-tasks. Whether being used for project management in the realm of software development or for non-software development related projects, JIRA can be leveraged to support your R&D credit.

Some of the fields/inputs in JIRA that can be used to help support the R&D credit activities in your company include:Who was involved (creator, reporter, and assignee fields)

  1. What work was performed to attempt to resolve said issue (summary and or description)
  2. When the work was performed (creation, update, and resolution timestamps)
  3. How the work was carried out (description and or comments)
  4. Why the work contributes to the development/implementation of new features or functionality, or how it pertains to the overall improvement of the product or service (epics or other parent entities that group together logically related issues).

Now that you know a little more about what JIRA is and where it has come from, let’s investigate how you can best use JIRA to help with reporting information related to the Research and Development Tax Credit, or, how tax departments can use these practices as a conversation guide with development groups.

Best Practice 1: Use Those Descriptor Fields!

The easiest way to communicate what the technical nature of the work was and how it was carried out is to focus on filling out the (default) project, summary, and description fields in a consistent manner as the work progresses. If you choose to organize JIRA into multiple projects, it helps tremendously during an R&D credit review, as an auditor can then filter for eligible work at the project level. Summaries and task descriptions should be filled out with enough detail such that someone outside your company can easily tell what tasks are related to qualified activities and directly in support of your R&D work according to Section 41 guidelines.

The information contained within these fields should enable an auditor to clearly distinguish between eligible and ineligible work at the task level. Beyond that, you may choose to create custom JIRA labels (e.g. ‘R&D’ or ‘experimental’) and apply them to epics/issues for ease of filtering at the end of the tax year, as well as any other fields that may help a reviewer see what small or routine tasks were necessary parts of an R&D project.

Naming/labeling conventions, terms, acronyms, and insider jargon should all be standardized across JIRA issues to enable an outsider to filter for, reference, and group logically related tasks. For example, if tasks or sub-tasks are labeled as “Bugs”, but those activities actually include qualified work such as performance testing of a newly deployed feature prior to roll-out, it may be worth the discussion to either break out those activities as sub-tasks, or give them a label all their own (i.e, “performance testing” or “testing” instead of “Bugs”.

Likewise, consistency is key. If projects go by a different name every time they get referenced, tracking the work associated with a given claim becomes a nightmare.

Best Practice 2: Use Sub-Tasks to Bolster Assignee Fields for Wage QRE

Wages make up the bulk of expenses of a typical R&D claim, meaning that evidence supporting your wage allocation is commonly the most important kind of evidence. Therefore, it’s important that your supporting documents clearly demonstrate who was working on a given task, and when that work occurred.

Trying to use JIRA to calculate the overall qualified percentage of individuals can result in lower than accurate results, due to a built-in feature of JIRA regarding past reassignment of tasks that decreases the amount of eligible work you can associate to specific individuals. The root cause stems from JIRA having only one Assignee field, and this field only retains the most recent assignee ID. As already stated, Atlassian has done this purposefully, as it means one person is responsible for each piece of work at any given time, but this it makes it much more difficult to figure out how to apportion total time logged in a particular issue amongst all past and present assignees.

So how do you make sure that your JIRA documentation matches the actual R&D work of your team? The most straightforward way is to create a large amount of individual sub-tasks (e.g. having design, production, and validation all be independent tasks), each with a single individual being responsible for them, and duplicating tasks should multiple people need to collaborate. Admittedly, this method results in a lot of clutter in terms of fields but will ensure that the “assignee” field accurately identifies who did what.

Alternatively, you might consider adding a custom user-picked field for tracking personnel who have previously worked on a task, but who became unassigned for whatever reason, for multiple assignee tracking with minimal overhead.

Best Practice 3: Time Spent is Time Tracked

Since two JIRA issues can take wildly different amounts of time (compare an issue to fix a typo with one to develop a new feature) it helps if you can account for that. Since qualified R&D issues tend to take longer than routine ones, a tracking method which treats every issue as equal weight is probably leaving money on the table.

This is where the recommendation to leverage the “time spent” fields to keep as accurate an accounting of time spent on tasks as possible. This can be done either at the epic or task level. Make sure that you don’t miss out on time spent planning work and all the other support activities as these are eligible tasks as well; many companies only track hands-on development work in JIRA, while neglecting to log the initial R&D, design, and planning work that made implementation possible.

In lieu of explicit timekeeping, it is acceptable to use story points for time tracking/project weighting purposes. While the IRS prefers some form of time tracking, in practice they commonly recognize that story points are a good proxy for time/effort spent on tasks, so long as points are consistently applied to tasks throughout the project lifecycle. Therefore, if you have a reasonable estimate for the amount of time an individual performed qualified activities throughout the year, as well as projects/tasks to which they were assigned in JIRA, then it is a reasonable approach to utilize the number of story points as an indicator of how to properly allocate time to those projects.

Payroll Offset for the R&D Credit, October 2020

Subject:                 Payroll Offset for the R&D Credit

Newsletter Date:   October, 2020


IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.

VALUE FOR STARTUPS AND NEW BUSINESS: R&D PAYROLL TAX
CREDIT

New businesses have enough uncertainty, yet this has been compounded because of the current coronavirus (COVID-19) pandemic. To reduce any expense or tax liability could be a significant benefit for keeping new businesses on track during this time.

One of the more overlooked areas is the R&D Credit. Most new businesses, although they qualify for the R&D credit, don’t have taxable income, so there are no immediate benefits and they don’t file for the credit. But new businesses have possibly missed that they can use the R&D Credit to offset payroll tax up to $250,000, that can be used quickly to alleviate their tax burden.

Some new businesses might not even realize this opportunity exists because they do not see their activities as research and development. But if a new business invests in improving or creating a product or process, they have a high chance of qualifying for the R&D Credit.

The R&D payroll credit offers immediate value for the current year. For example, if a qualified business makes the R&D payroll election in the second quarter on their Federal Return. They can start using the payroll credit in third quarter of the current year.

To offset payroll tax using the R&D Credit, new businesses must meet these qualifications:

  • Qualifying activities and expenditures for R&D tax credit
  • An average of $5 million or less in gross receipts within the last five years.
  • Only have gross receipts up to five years.

New businesses should not overlook this opportunity to reduce their tax liability that can have an immediate impact. To learn if you’re eligible for the R&D payroll tax credit or have more questions related to R&D tax credit, please contact CFO Services.

MaterialContent-Federal and State Credits, September 2020

Federal and State Credits:

Benefit Summary: This chart on the RCM dashboard shows the federal credit amount, and each state’s credit if the project is filing in states. You can hover over each color on the graph to see the amount of credit.

Clicking on the graph’s title “Benefit Summary” will take the user to the Benefit Summary List. This will show more specific detail (seen left).  This list shows the federal QREs and Credit that the RCM Tool calculates, as well as any states that might be captured from the data. The “Form Detail” Column has a link that sends the user to a screen that shows how the credit is calculated based on the Tax Forms for that specific state.

You can see the New Jersey form detail example below.

At the top of the page you can click on the Print Icon to pull up a printable page that has been created to look like the State Tax Credit Form. You can see the New Jersey Print Form example below.

R&D Credit: Upcoming changes to capitalization and amortization rules, August 2020

Subject:                 R&D Credit: Upcoming changes to capitalization and amortization rules.

Newsletter Date:   August, 2020


IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.

OPTIONS FOR CHANGES TO THE CAPITALIZATION AND AMORTIZATION RULES

The Tax Cut and Jobs Act (TCJA) was passed in 2017, but parts of the act do not take effect until years later.  One of these is that R&D costs will have to be capitalized and amortized over a five-year period for domestic expenses and a fifteen-year period for foreign expenses.  This results in proper planning needing to take place years in advance of this regulation becoming active.

Currently there are two options taxpayers may take:

  • Direct expensing of R&D costs in the year those expenses are incurred, expensing them immediately and seeing a reduction in taxable income; or
  • Costs can be capitalized and amortized over sixty months from when the benefit of the research is realized.

Under TCJA, taxpayers will not have these options and little ability to treat expenditures in a way that has immediate tax savings.

Starting in 2022, companies will have to capitalize and amortize all R&D costs incurred in connection with their trade or business over a five-year period for domestic research and a fifteen-year period for foreign research.  The midpoint of the tax year is utilized as the convention for the first year of amortization.  These expenses must continue to be amortized over the full five-year period even if the research is abandoned or scrapped.  Unlike assets the remaining basis cannot be written off upon the abandonment.

On the planning side it is important to take these changes into account.  Understanding there will be a dip in research expense relief on taxable income and planning for that is important.  Businesses will also need to file Form 3115 – Change in Accounting Method to begin the capitalization and amortization of R&D expenses incurred after December 31, 2021.

These changes will result in added administrative burden as well. The research expenses will need to be tracked and amortization schedules created in order to comply. It is likely that more detailed information will need to be prepared on the part of the taxpayer to substantiate expense claims.

This is a substantial change and will be the first time since 1954 that companies will not be able to deduct the full amount of R&D expenses immediately.  The good news is that it does not prevent the taxpayer from taking a deduction for R&D, but rather changes the timing of when the benefit can be seen.  Additionally, this is still a couple years off and there is hope that another round of tax reform will take place and the capitalization and amortization rules for R&D expenses will not come to fruition.

Two-Minute Drill with the R&D Credit, July 2020

Tax departments don’t have a lot time. There is quarter end, yearend, and not to mention constantly working on financial reporting. It’s difficult to review and reflect on a business tax profile, let alone on possible new incentives, or even if currently claimed incentives could be increased.

Taking a cue from football, let’s go through a 2-minute drill with the Research and Development Tax Credit (R&D). 2 minutes is all a football team needs to score before the half or end of the game. So, teams have a 2-minute strategy or drill to use these moments to extend their lead or win. It’s usually the most exciting part to watch. A team doesn’t have time for long, intricate plays. Fast and focus is their only plan if they want to score.

R&D has a lot of details with plenty of legislative and court history. But someone doesn’t need to know all the details to grasp whether a business can apply for R&D, or possibly increase the amount of benefit. Let’s take 2-minutes and point to key areas.

Be Engaged: Your business can probably benefit from the R&D Credit

R&D is not just for large technology corporations, but also for small to medium businesses. From one hundred thousand dollars to multiple millions, all sizes of companies have received benefits from R&D. The same is true for the types of industries that can qualify. Businesses within various industries have all successfully claimed credits: Utility, Construction, Manufacturing, Retail, Transportation, Finance, Real Estate, Mining, and Agriculture companies.

Don’t think that to qualify for R&D a business must fit into a certain size or particular industry. What is important is whether a business has work that qualifies.

Be Focused: The essential elements of the R&D Credit

Too many times businesses will avoid applying for R&D because of the complexity. But the key aspects are straight forward. R&D reduces a business’ tax liability for expenses connected to R&D work or qualified activities. These expenses are employees’ wages, supplies used in research, and any contractors used to help with research activities.

The most important part is knowing whether a business has work that is qualified. With qualified activities, here is the most important questions a business can ask: Do they have an engineering or technical staff? And is that technical staff improving products or services for customers? If there is an engineering staff who helps make products for customers and they consistently improve these products every year, then the business should explore filing.

Focusing a little more of the technical staff. With any new or improved product, the technical staff will have a process, containing elements of design, development, testing, and redesign. This process usually has been standardized but adjusts based on the unique challenges for each project. This technical process is the core of what qualifies for R&D.

A business that needs a technical staff to make new or improved products or services for their customers has usually met the essential elements of R&D qualification.

Be Aware: Important areas where your business can increase its R&D Credit

Another roadblock might be whether the tax reduction will be worth the effort. Why go through the effort if a business only has four engineers? That can’t generate that much tax credit. It is important to remember R&D qualifies more than just the engineers connected with qualified work.

Without the supervisors and support staff most projects can’t move forward. These supervisors and support staff should be included in R&D. Businesses need to consider all activities outside of engineering that contribute to the lifecycle of the project. Most projects have Sales, Project Management, Operation, and Quality Assurance departments involved, and without them the project could not be completed. The Engineering staff is just the beginning of expenses that business can included; it’s not the end.

R&D is successfully claimed by businesses big and small, in a variety of industries outside of technology and manufacturing. Businesses qualify because they the make and improve products or services for their customers. They have an engineering or technical staff focused on making new and improved products, with the support of other departments necessary to complete it.

If a business has this fact pattern, they should explore filing for R&D.

Is there more to R&D? Yes. But these are the most important areas to determine whether a business can make a successful claim that will offer a benefit. 2 minutes might not be enough time say everything, but it is enough to convey the most important parts of R&D and win a football game.

R&D Tax Credit – Robotics, Manufacturing, Potential to Add 7.9% back to ROI, June 2020

In today’s manufacturing environment robotics, automation, and autonomy are technologies that are being heavily integrated into operations. The efficiencies gained, flexibility in performance, and consistency in operation while providing a cost savings, robotics has become more ubiquitous throughout the plant.

Typically, a robot can range from $25,000 to $400,000 depending on the type of movement, application, architecture, and quality of the brand. From there, the amount of additional spend that goes into the project from foundation, electrical, and expanding layout can become significant. On top of that, manufacturing will hire robotics, software, or electrical engineers to install, configure, and design the procedures for the robotics to function properly.

For example, typically when a new part or process is implemented into an existing robotic manufacturing process there is time from engineering, operations, quality/testing that need to run test parts and evaluate that those meet specification. Also, typically when a new robotics application is installed, new tooling or fixturing is tested and built to allow for the increase in capacity or performance.

With these large projects, companies can recoup some of this value in immediate payback through the Research and Development Tax Credit (R&D) . R&D is a federal incentive for companies to capture a tax credit for design, development, process improvement, application engineering, and even robotics projects. Here is a short list of the types of costs within robotics that could qualify.

• Robotics costs that could potentially qualifying

o Alpha robot used for initial evaluation
o Software developers time to build middle ware connecting to existing applications
o Prototype parts run through the robot to test quality or performance enhancements
o Engineering used to optimize movement procedures
o Tooling/Fixturing built to increase capacity and extend reliability
o Outside contractors utilized to design improvement configurations
o Hourly operation labor to test or evaluate new parts or manufacturing consistency

The list and example above can be expanded and depending on the application, the costs can get quite significant. On average, if a company has qualifying costs from their robotics projects, they can capture approximately 7.9% of the expenses back from the R&D.

With the high value of R&D and the expensive development costs of implementing robotics, manufacturers should look to build a better ROI on these projects by targeting the R&D credit as way to fund that payback sooner.

R&D Credit – Cloud Computing Expenses – Are You Missing Out, May 2020

The Research and Development Tax Credit (R&D) has adapted over the years as technology has changed, in order to address new costs and expenses related to the qualified expenses. One of these areas in which there has been significant change over the past decade is in the realm of software development, due to the fast-paced nature of the industry and the speed at which new techniques and processes are implemented. Case in point, one of the commonly accepted expenses claimed by software developers in the past were the cost of licenses for software development tools utilized by developers specifically for qualified development activities. These costs were commonly classified as “supply” costs, as it could be argued that the nature of the expense was something necessary to and “consumed” within the development. Additionally, the definition of “Supplies” included the stipulation that the item be “any tangible property,” which could be construed to mean the physical copies of software (CDs, etc.) that were commonly provided by the creator of the software development tool.

However, as technology has changed, and most software is now either delivered digitally via download or through a subscription-based model (i.e., Adobe Creative Cloud), there is literally no longer a “tangible property” component, and therefore a much higher risk factor in claiming these licensing expenses as supply Qualified Research Expenses (QRE).

While this concept may seem to reduce the potential QRE a software development company may be able to claim, in looking at the changing landscape, technology and methods in the software development arena, an increasingly common cost is the use of cloud-based resources such as Amazon Web Services (AWS) or Microsoft Azure. At their beginning, many of these cloud-based services were utilized mainly as an off-site storage solution. However, as these companies have continually developed their platforms and integrated tools designed specifically for developers, many software companies are using these services for actual development activities. In doing, so the costs associated with these services can and have been successfully claimed under the banner of computer rental QRE.

Computer Rental

Computer Rental is defined in §41(b)(2)(A)(iii) as “any amount paid or incurred to another person for the right to use computers in the conduct of qualified research.”

A developer can take advantage of cloud-based command-line tools and software development kits (SDKs) to deploy and manage applications and services. For example, the AWS Command Line Interface is Amazon’s proprietary code interface. A developer can also use AWS Tools for Powershell to manage cloud services from Windows environments and AWS Serverless Application Model to simulate an AWS environment to test Lambda functions. AWS SDKs are available for a variety of platforms and programming languages, including Java, PHP, Python, Node.js, Ruby, C++, Android and iOS.

A development team can also create continuous integration and continuous delivery pipelines with services like AWS CodePipeline, AWS CodeBuild, AWS CodeDeploy and AWS CodeStar. A developer can also store code in Git repositories with AWS CodeCommit and evaluate the performance of microservices-based applications with AWS X-Ray.

Technology is continually changing and will continue to do so. As software development companies adapt to and integrate these new technologies and processes, it doesn’t have to be at the detriment of losing qualified QRE expenses. Many of these costs have just changed, from “Supply QRE” to Computer Rental QRE.” As there is no reduction in direct expenses claimed for computer rental as there are for “Contract Research QRE” (65% reduction), many of these software development companies have been able to realize the same or similar levels of qualified expenses when capturing R&D.

Incentives Update 04-17-2020

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 2nd Session convened (January 8, 2020), indefinitely adjourned (March 25, 2020), reconvened during the week of March 23rd (specific to the authorization of $83M of emergency COVID-19 funding) and is on hold again.
  • There are currently 17 days left of the 60-day session. The Speaker/Legislature intends to reconvene sometime during the 2020 calendar year.
  • Nebraska’s primary election is slated for May 12, 2020.
  • The Nebraska Legislature has NOT passed the ImagiNE Nebraska/business incentive legislation (LB720).  It is expected that, when the session does reconvene, that business incentives will be identified as one of the primary items that needs to be addressed by the body.  A possible alternative to passage, is choosing to extend the current program (Nebraska Advantage Act) past its current sunset date of 12/31/20.

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/.


COVID-19 Stimulus Summary/Update………..

Round 1 – $8.3 billion package designed to boost vaccine research, preparedness and prevention, and give seniors greater access to telehealth options through Medicaid. Enacted into law in early March 2020.

Round 2 – On March 18, 2020, the Families First Coronavirus Response was signed into law, marking the second major legislative initiative to address COVID-19.  The Act focused on temporarily requiring paid sick and family medical leave, increasing unemployment benefits, providing coronavirus testing at no cost to consumers, and increasing funds for a variety of other financial support to programs expected to see increased demand due to coronavirus.

Round 3 – The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) – $2 trillion  economic stimulus package, signed into law on March 27, 2020, covering multiple categories including, but not limited to, business, labor, tax, health care, individual and other: 

Business Provisions

  • $500 billion in loans to eligible businesses
  • $350 billion in small business loans (see editorial below)
  • $24 billion to stabilize the farm economy

Labor Provisions

  • Paid leave payment cap and advance tax credit
  • $600/week add-on to state unemployment programs
  • Create state short-term compensation programs

Tax Provisions

  • 2018 – 2020 losses can offset previous income
  • Allowable interest deductions up to 50%
  • 2-year payroll tax deferral
  • Access to tax refunds when paying taxes on overseas earnings
  • Create employee retention tax credit (see editorial below)
  • Accelerate corporate Alternative Minimum Tax (AMT) credits
  • Fix to Qualified Improvement Property

Health Care Provisions

  • $150 billion for health care facilities
  • Liability protections for personal protection equipment makers
  • Clarifies insurance coverage for tests and treatment
  • $200 million for telehealth

Individual Provisions

  • Individual rebate checks
  • Waives 10% penalty for retirement plan distributions

Other Provisions

  • $25 billion food assistance
  • $30 billion emergency education funding

Paycheck Protection Program (PPP)

1. Funding/Deadline? Various headlines indicate that $350B PPP program has reached its full funding allocation.  Current discussions are occurring, at the federal level, to earmark additional funds to the PPP program.

2. Separate Account Management. Guidelines, by both the SBA and banks, are to deposit PPP funds into a separate bank account, from normal operating accounts, in order to separate and correctly document permitted uses of the PPP program.  Recall that if permitted uses aren’t abided by, or documented, loan forgiveness will not occur. NOTE: Permitted uses, of loan proceeds under PPP, have changed from original guidance. 

3. Documentation. PLAN NOW.  When applying (in the future) for forgiveness, companies must support their permitted uses (including detailed documentation verifying payments and from what sources), COVID-19 impacts to your business, wage and health care cost calculations, and FTE calculations.  Plan now in order to ensure future reporting necessary to obtain loan forgiveness.

4. Workforce. Loan forgiveness is subject to FTEs (full-time employee equivalents) and compensation requirements.

Related to FTEs, to determine loan forgiveness, borrowers will use a ratio to divide the average number of full-time equivalent employees per month during the eight-week period following PPP loan disbursement by, at the discretion of the borrower, either:

  • The average number of full-time equivalent employees per month during the period beginning February 15, 2019 and ending on June 30, 2019; or
  • The average number of full-time equivalent employees per month during the period beginning January 1, 2020 and ending on February 29, 2020.

Seasonal employers cannot use the 2020 period for comparison, but instead must use only the period beginning on February 15, 2019 and ending on June 30, 2019.

After determining this ratio, the borrower’s loan forgiveness will be reduced if the above calculation results in some number less than one, i.e., if it has less full-time equivalent employees during the eight-week period after loan disbursement than it did during the earlier period of comparison as described above. If that number is less than one, then the forgiveness will be reduced by a proportional amount.

Borrowers may be able to avoid forgiveness penalties by restoring employee or salary reductions that already occurred between February 15, 2020 and April 26, 2020.

Related to Compensation, loan forgiveness also will be reduced for each employee whose salary or wages is decreased by more than 25% during the eight-week period after loan origination as compared to that employee’s salary and wages for the full quarter before the eight-week period. However, this reduction only applies related to employees who did not receive, during any single pay period in 2019, wages or salary at an annualized rate of pay higher than $100,000 (i.e., $8,333.33 over 12 pay periods or $4,166.67 over 24 pay periods). Therefore, borrowers need to track any pay reductions to employees who made less than $100,000 in 2019, because a 25% or more decrease of salary and wages to those individuals during the eight-week period after loan origination as compared to the full quarter before it will cause a reduction in loan forgiveness.

One key point is that borrowers can correct any reduction in employees or compensation that occurred between February 15, 2020 and April 26, 2020 to avoid penalties under the above forgiveness calculations. For reductions in employees or compensation that occurred during that period, borrowers will not have their loan forgiveness reduced if they restore those numbers in accordance with the PPP forgiveness provisions by June 30, 2020. This language was included in the CARES Act with an understanding that several employers needed to take adverse action before it was enacted. The forgiveness provisions allow those employers to amend those prior actions by June 30, 2020 to avoid suffering any reduction in forgiveness on that basis.

5. Documentation.  FORGIVENESS.  A borrower will apply for forgiveness directly with its lender. Although guidance on the application for forgiveness has not yet been promulgated, it will include:

  • Documentation verifying the employee and wage thresholds are met, including payroll tax filings reported to the IRS and state income, payroll, and unemployment insurance filings;
  • Documentation verifying other permissible expenses, including cancelled checks, payment receipts and account statements;
  • Certification from an officer of the borrower that the documentation is true and correct, and that the proceeds were made for permitted uses; and
  • Other documentation or certification the SBA or lenders determine may be appropriate

6. PPP versus Employee Retention Credit. Employers may receive a PPP loan OR the Employee Retention Credit.

Employee Retention Credit

7. Refundable Tax Credit.  Refundable payroll tax credit equal to 50% of qualified wages paid by eligible employers.   The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. (Act Sec. 2301(c)(3)(C); Act Sec. 2301(b)(1) 

8. Eligible Employers.  Employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings, OR employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.  Governmental employers are not eligible.

9. Term. Eligible Employers may claim the Employee Retention Credit for qualified wages that they pay after March 12, 2020, and before January 1, 2021. Therefore, an Eligible Employer may be able to claim the credit for qualified wages paid as early as March 13, 2020.

10. Qualified Wages.  Qualified wages are wages (as defined in section 3121(a) of the Internal Revenue Code (the “Code”)) and compensation (as defined in section 3231(e) of the Code) paid by an Eligible Employer to employees after March 12, 2020, and before January 1, 2021. Qualified wages include the Eligible Employer’s qualified health plan expenses that are properly allocable to the wages.

11. Application of refund.  The credit is allowed against the employer portion of social security taxes under Code Sec. 3111(a) , and the portion of taxes imposed on railroad employers under section 3221(a) of the Railroad Retirement Tax Act (RRTA) that corresponds to the social security taxes under Code Sec. 3111(a).Eligible Employers will report their total qualified wages and the related credits for each calendar quarter on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return.  

This newsletter is provided for information purposes only and should not be used by itself as legal, tax or business advice.

Missed R&D Credit Opportunities, April 2020

There are many activities and expenses that are eligible for the Research and Development Tax Credit (R&D) that go unreported and therefore the company loses out on potential tax savings. A few of these activities and expenses will be discussed and explained briefly to make sure you are making the most of your R&D filing.

Eligible Employees

There are many employees that are not typically thought of as being research, development, or design specific employees. The regulations allow for support and supervisory employees as to be utilized in the credit calculation. A good example of this is the time the sales employees are working with customers to determine what new features or requirements are needed for products. These individuals are on the front end of the development process by helping determine the initial specs for a product and act as a liaison with customers if field testing is done.

Eligible Time

Time spent in design meetings is often overlooked. During these meetings supervisors are listening and giving feedback as to what the next steps need to be or giving advice on how to overcome a design obstacle based on their experience. Other stakeholders are providing feedback, taking notes, and giving suggestions. Each of these activities goes towards the result of whether a project will be successful or not.

Eligible Expenses

Tooling and testing equipment can also be expensed. Often tooling must be designed in order to be able to make the new product. Other times new testing equipment may need to be developed in order to properly test a new product to make sure it is performing as intended. These expenses can be added into the R&D calculation. The use of third-party contractors often comes into play with these types of expenses.

Many times, a proof of concept or a first of kind product is made to show that a design is viable, or in order to get a contract. Other times the product being developed is to too costly or too intricate to make a simple prototype, so the first piece made is treated as a prototype for testing purposes. A first-time production run can also be part of the testing process. Assurances need to be made that scaling a design up and the manufacturing process that has been designed is going to provide the same end resulting product that has been seen on the smaller scale. All these types of costs can be considered in the R&D calculation.

Process Improvements

New or improved manufacturing processes can also be claimed under R&D. In order to accomplish these tasks, you might have to reconfigure the shop floor, which takes design time to fit anything new into the finite space you must work with. New products often also require the use of new technologies that have not been used by a company before. Time must be used to determine what the best way to manufacture a new product is, or if a new technology can improve how a current product is being produced. This research time is part of the new or improved process development.

Introduction to RCM-Dashboard; March 2020


Research Credit Module (RCM) is a way for CFO Services to organize, calculate and display the Research and Development Tax Credit (R&D) for providing full service consulting and more importantly for clients in-house calculation. RCM organizes the data received from clients into multiple lists within SharePoint. A back-end database is used to help run the credit calculation. RCM can be used by the client during the whole process of the project, so they can easily see how the project is moving along. All data seen on RCM can be viewed and edited, as well as exported to Excel.

Below is a picture of the dashboard from the home page of the RCM tool.

The RCM Dashboard shows the most important information of the calculated R&D at a glance:

• Total QREs (Qualified Research Expenses): QRE split out of Wages, Supplies and Contract Research.
• Benefit Summary: Federal credit amount, and each states credits, and even LBI Directive, if applicable.
• Client Profile: This section gives important details about the company and the current project, like the target filing date and base period type.
• Company QRE: QRE Differences from the previous year by company. Very useful for multi-company clients.
• State Map: This map shows the QREs in each state. Hover over one of the states and you can see the QREs for that state. Also a colored legend at the bottom to show where that state is at on the QRE spectrum.
• Percentage of QREs Documented: Percentage of projects that are documented for qualitative purposes.

Incentives Update 02-04-2020

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 2nd Session convened on January 8, 2020 and is considered a short session (60-day). 
  • Bill introductions were allowed to be submitted through January 23rd (476 Legislative Bills & 25 Legislative Resolutions).  Priority bill deadline is February 21st.  Last day of hearings is February 27th.  Last day of Session is tentatively scheduled for April 23rd.
  • The Nebraska Legislature did NOT pass the ImagiNE Nebraska/business incentive legislation (LB720) last year (2019); the bill is considered carryover legislation into the 2020 Session, with a special hearing scheduled for this Thursday (February 6th) related to Amendment 2207 (AM2207).

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/.




ImagiNE Nebraska (LB 720) Last year, the bill received first-round approval (37-8), but failed to advance a second time, after an unsuccessful cloture vote 30-18 (33 votes needed to stop filibuster).  The bill (LB720) is on Select File and this Thursday, does have a special hearing related to AM2207.  The amendment has three primary components:

  1. Manufacturing Enhancements – Targeted changes, in employment levels and required wages, for manufacturers statewide, with special consideration to rural Nebraska. 
  2. Retention Tool – Key employer and retention incentives, which are triggered in special situations when a business, in Nebraska, is at high risk of leaving Nebraska.
  3. Technical Provisions – Technical changes that were identified in the interim.   

NOTE: LB 720 and the most recent amendment do represent significant changes to prior legislation (Nebraska Advantage Act). If you have questions or would like more details about circumstances specific to your business activity in Nebraska, please contact us.  GENERALLY SPEAKING, significant-positive changes related to administration, qualified activities, city/local transparency, and utilization of credits.  Related to jobs/wages, the focus of the new program is full time jobs (only) with benefits, at significantly higher wage thresholds (over current NAA levels).  


The Business Innovation Act, under LB879, would appropriate an additional $2M, to further fund programs under the Business Innovation Act. The additional funding would be the result of eliminating the Nebraska Advantage Microenterprise Tax Credit Act.

LB 1084 (Nebraska Transformational Project Act, aka NExT) would allow for the expansion of the UNMC and Nebraska Medicine, through a joint partnership with the Department of Defense and Homeland Security.  Preliminary estimates indicate it will entail $2.6B public-private investments, which would result in 8,700 net new permanent high-wage jobs and significant ROI opportunities. 



Economic Development around the Country……….

Memphis Tennessee is getting a new state-of-the-art fulfillment center via Amazon, in which Amazon will create 1,000 net new full-time jobs. The Company already has multiple fulfillment and sortation centers, in the state, and is currently building an “Operations Center of Excellence” in downtown Nashville, under the Amazon Retail Operations Division. The ‘two towers’, that will be located in Nashville’s Yards development, will have capacity for approximately 5,000 Amazon employees.

DXC Technology, a Fortune 500 Company that specializes in IT outsourcing, is bringing an additional 1,200 jobs to Jonesboro, Arkansas.  The expansion, which is expected to occur over the next 3 years, is the result of an existing business, with 450 employees, and their plans to establish a Center of Excellence.

In a sign of the future in automobiles, General Motors has committed to invest at least $3.5B, over the next 10 years, at its Detroit/MI Hamtramck facility.  The facility, which will participate in the Michigan Strategic Fund, will produce a battery electric truck and other electric vehicles.

In December 2019, Microsoft reached an agreement, with the State of North Carolina, to create 500 net new jobs and invest more than $47M, related to its expansion in Morrisville, NC.  In the month prior, Microsoft identified that it would expand at its Charlotte facility too, creating an additional 430 jobs in Charlotte.

Newell Brands, a manufacturer and distributor of consumer goods, plans to invest $11 million at its current Shelbyville, TN site.  The project will result in 115 net new jobs, over the next five years, and include the relocation of the Packaging Operations Center and expansion at its current distribution center.

UPS and Pennsylvania officials announced a $1.4B investment, involving 4 different locations within the commonwealth state, that is intended to add 1,721 full-time jobs, and retain another 6,458 full-time jobs.  The State has identified the Company’s intent to obtain business incentive assistance through the Pennsylvania Department of Community and Economic Development.

Waste handling equipment manufacturer (Wastequip) and the Kentucky Economic Development Finance Authority are proceeding forward with a performance-based business incentive package that will help enable a new distribution center at/near Mt. Sterling, Kentucky.  The Company intends to invest $7.2M and hire 100 full-time associates.

Incentives Update 06-04-2019

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 2nd Session convened on January 8, 2020 and is considered a short session (60-day). 
  • Bill introductions were allowed to be submitted through January 23rd (476 Legislative Bills & 25 Legislative Resolutions).  Priority bill deadline is February 21st.  Last day of hearings is February 27th.  Last day of Session is tentatively scheduled for April 23rd.
  • The Nebraska Legislature did NOT pass the ImagiNE Nebraska/business incentive legislation (LB720) last year (2019); the bill is considered carryover legislation into the 2020 Session, with a special hearing scheduled for this Thursday (February 6th) related to Amendment 2207 (AM2207).

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/.


ImagiNE Nebraska (LB 720) Last year, the bill received first-round approval (37-8), but failed to advance a second time, after an unsuccessful cloture vote 30-18 (33 votes needed to stop filibuster).  The bill (LB720) is on Select File and this Thursday, does have a special hearing related to AM2207.  The amendment has three primary components:

  1. 1)      Manufacturing Enhancements – Targeted changes, in employment levels and required wages, for manufacturers statewide, with special consideration to rural Nebraska. 
  2. 1)      Retention Tool – Key employer and retention incentives, which are triggered in special situations when a business, in Nebraska, is at high risk of leaving Nebraska.
  3. 1)      Technical Provisions – Technical changes that were identified in the interim.   

NOTE: LB 720 and the most recent amendment do represent significant changes to prior legislation (Nebraska Advantage Act). If you have questions or would like more details about circumstances specific to your business activity in Nebraska, please contact us.  GENERALLY SPEAKING, significant-positive changes related to administration, qualified activities, city/local transparency, and utilization of credits.  Related to jobs/wages, the focus of the new program is full time jobs (only) with benefits, at significantly higher wage thresholds (over current NAA levels).  

The Business Innovation Act, under LB879, would appropriate an additional $2M, to further fund programs under the Business Innovation Act. The additional funding would be the result of eliminating the Nebraska Advantage Microenterprise Tax Credit Act.

LB 1084 (Nebraska Transformational Project Act, aka NExT) would allow for the expansion of the UNMC and Nebraska Medicine, through a joint partnership with the Department of Defense and Homeland Security.  Preliminary estimates indicate it will entail $2.6B public-private investments, which would result in 8,700 net new permanent high-wage jobs and significant ROI opportunities. 


Economic Development around the Country……….

Memphis Tennessee is getting a new state-of-the-art fulfillment center via Amazon, in which Amazon will create 1,000 net new full-time jobs. The Company already has multiple fulfillment and sortation centers, in the state, and is currently building an “Operations Center of Excellence” in downtown Nashville, under the Amazon Retail Operations Division. The ‘two towers’, that will be located in Nashville’s Yards development, will have capacity for approximately 5,000 Amazon employees.

DXC Technology, a Fortune 500 Company that specializes in IT outsourcing, is bringing an additional 1,200 jobs to Jonesboro, Arkansas.  The expansion, which is expected to occur over the next 3 years, is the result of an existing business, with 450 employees, and their plans to establish a Center of Excellence.

In a sign of the future in automobiles, General Motors has committed to invest at least $3.5B, over the next 10 years, at its Detroit/MI Hamtramck facility.  The facility, which will participate in the Michigan Strategic Fund, will produce a battery electric truck and other electric vehicles.

In December 2019, Microsoft reached an agreement, with the State of North Carolina, to create 500 net new jobs and invest more than $47M, related to its expansion in Morrisville, NC.  In the month prior, Microsoft identified that it would expand at its Charlotte facility too, creating an additional 430 jobs in Charlotte. 

Newell Brands, a manufacturer and distributor of consumer goods, plans to invest $11 million at its current Shelbyville, TN site.  The project will result in 115 net new jobs, over the next five years, and include the relocation of the Packaging Operations Center and expansion at its current distribution center.

UPS and Pennsylvania officials announced a $1.4B investment, involving 4 different locations within the commonwealth state, that is intended to add 1,721 full-time jobs, and retain another 6,458 full-time jobs.  The State has identified the Company’s intent to obtain business incentive assistance through the Pennsylvania Department of Community and Economic Development.

Waste handling equipment manufacturer (Wastequip) and the Kentucky Economic Development Finance Authority are proceeding forward with a performance-based business incentive package that will help enable a new distribution center at/near Mt. Sterling, Kentucky.  The Company intends to invest $7.2M and hire 100 full-time associates.

Incentives Update 05-07-2019

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 90-day session has 20 working days left (ends June 6, 2019).
  • The Revenue Committee advanced a property tax relief bill (LB289), which is expected to begin first-round debate on Tuesday, May 7, 2019.
  • The Revenue Committee also advanced LB 720 (ImagiNE Nebraska), including a committee amendment, on Thursday, May 2, 2019, by a 6-0 vote.  LB 720 is expected to begin first-round debate next week (May 13, 2019). 

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/.


ImagiNE Nebraska (LB 720)  

High points of the committee amendment (May 2, 2019):

  • Added – renewable tax credit (LB 605 – Lindstrom),
  • Added – annual review committee process,
  • Added – requirement that applicants offer health insurance to full-time employees,
  • Removed – $1M/10 FTE level and replaced by a $1M/5 FTE level (attainment period is 5 years),
  • Added – multiplier incentive for projects deemed located in an ‘extremely blighted’ area.
  • Minimum wage requirements, by each new employee, are unchanged at 100% of 90-County Avg ($1M/5 level only and $18.55/hr est.), 100% of statewide average ($21.55/hr) or 150% of statewide average ($32.32/hr).

Economic Development around the Country……….

Months after Amazon decided to cancel its plans for a new headquarters in New York City, the Company will be adding 800 jobs at its tech hub in Austin. Since 2011, the Company has created more than 22,000 full-time jobs and has invested over $7 billion in Texas.

Austin continues to flex its muscle in the tech business space, having won a site selection opportunity, announced during December 2018, whereby Apple announced it will build a $1 billion campus. The 133-acre campus, which is located less than a mile from existing facilities, will bring in 5,000 additional employees and ‘post’ move, likely make Apple the largest private employer in Austin.

Over $2B and 1,000+ new employees…….at two locations within the United States. Disney began accepting online reservations last Thursday morning from fans who want to be the first park visitors to experience Star Wars: Galaxy’s Edge. The $1 billion expansion covering 14 acres, in Anaheim, is expected to open May 31, 2019, and will open August 29, 2019, in Orlando, Florida.

Fiat Chrysler says it will hire 6,500 workers and invest $4.5 billion, by adding a new assembly plant in Detroit and boosting production at five existing factories.  Expansion is due primarily to Jeep Wrangler demand/production, upcoming new jeep models (Wagoneer and Grand Wagoneer) and plug-in hybrid and fully electronic technology. 

Kohler Engines has committed to spend $15M and expand its workforce by 250 employees, over the next two years, as it consolidates manufacturing operations at a facility in Wisconsin, to Hattiesburg.  Kohler, at its manufacturing operation in Hattiesburg, produces gasoline engines.

Lockheed Martin recently opened a $50 million, 255,000 square foot Research & Development II facility in Orlando, Fla.  Since 2017, Lockheed Martin has created more than 1,000 jobs in Orlando, with hundreds more expected over the next three to five years.

In South Carolina, Perdue Farms completed a $25 million expansion at its harvest operation, which is anticipated to create 100 additional jobs.  As part of the expansion, the company added to its portioning and marinating operations, added a state-of-the-art shipping cooler, installed an automated pallet storage system and constructed office space to occupy more than 28,000 square feet at the existing facility.

A major expansion announced by Toyota Motor Manufacturing Alabama will create 450 new jobs and push its all-time investment in the Huntsville plant past $1 billion.  The motor plant, which produces approximately one-third of all Toyota engines built in the United States, produces an array of Toyota motors for vehicles that include the RAV4, Highlander, Corolla, Tacoma, Sequoia and Tundra.

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.

Incentives Update 02-15-19

Nebraska Legislative Reminder/Update………..

• The 106th Nebraska Legislature’s 90-day session is at the 30%-mark, with the projected final day of the session at/around June 6, 2019.

• Approximately 740 bills were introduced.

• Speaker priority bills will be requested by March 14th, and priority bills must be identified by March 19th. Hearing deadlines are March 28th. Full-day floor debate begins April 2nd.

• One of the key priorities this session, for the business community, is to rewrite Nebraska’s business incentives. The Nebraska Advantage Act, which began 2006, is due to sunset as of 12/31/2020 and as a result, there is a concerted effort to create a new-improved economic incentive program. Priorities of the bill are to continue the pay-for-performance incentive approach, simplify administration, create more focus on higher wage jobs, all-the-while pursuing a market competitive incentive tool for Nebraska.

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/ __________________________________________________________

ImagiNE Nebraska (LB 720)

Press Release: ​Kolterman Introduces Bill To Rewrite Nebraska’s Business Incentives (January 23rd, 2019) 

____________

Senator Kolterman (and 21 other senators) have introduced LB 720, identified as the ImagiNE, which would replace the Nebraska Advantage Act.  The link to LB 720 is located at https://nebraskalegislature.gov/FloorDocs/106/PDF/Intro/LB720.pdf

_____________

General comments/high points of the bill include:

• Nebraska Advantage Act applicants will not be impacted by ImagiNE (they are grandfathered in), but any new applications filed after enactment will fall under ImagiNE.  If passed via an emergency clause, which requires a vote of two-thirds (33 members), the bill becomes effective immediately.

• Application process will be assigned to the Nebraska Department of Economic Development, versus Nebraska Department of Revenue. Compliance review and audits still fall under the NDOR.

• Qualification of stipulated attainment levels, will not predicate a mandatory audit by NDOR.  Companies will file for benefits immediately after qualification.  NOTE:  Yearly filing requirements will require forms AND support to forms, which will allow NDOR to perform a certain level of review each year, which will displace the need for the majority of audits at qualification.  NDOR does retain the right to audit and procedures will predicate some form of ongoing sampling/audits.

• Qualified activities and definitions primarily follow a NAICs code requirement, which does represent a significant change from NE Advantage.  It’s important that all companies verify NAIC codes for inclusion within ImagiNE.

• Ramp up period is 5 years, Performance Period is 7 years, Carryover Period is 3 years.

• Current intent is to be able to move up or down between tiers/levels, during the ramp up period.

• Credit usage continues to include income tax, sales/use taxes paid and withholding. New additions include certain circumstances related to job training and site development.

• Direct pay permit-type scenario that would allow for an Applicant to, upon qualifying, have the option to enter into a direct pay relationship, with the State, intended to create a more streamlined sales/use tax process for filers and NDR.

• As introduced, a company creating:

  • 10 new FTE, at $19.53/hr. per each employee, combined with a $1 million investment, qualifies for 5% wage and 5% ITC credit;
  • 20 new FTE, at $21.55/hr. per each new employee, and zero investment, qualifies the taxpayer for wage credits on a 5-15% scale;
  • 30 new FTE, at $21.55/hr. per each new employee, and $5 million investment qualifies the taxpayer for 7% ITC, wage credits on a 5-15% scale, sales tax refund/exemption on qualified assets, and personal property tax exemption for data center equipment;
  • Mega-sites with 250 new FTE (each employee must be paid at or above $32.33/hr.) and $250 million qualifies the taxpayer for 10% ITC, wage credits on a 5-15% scale, sales tax refund/exemption on qualified investment, and a personal property tax exemption; and
  • $50 million investment with $32.33/hour average wage (at the site), qualifies the taxpayer for 4% ITC and personal property tax exemption for data center equipment. 

• Minimum wage requirements increase from current NE Advantage Act levels of $12.97, to $19.53 (1M/10), $21.55 (20 ees only or 5M/30), or $32.33 (Mega and Modernization).  This increase represents 100% of the 90-county average wage ($40,622 or $19.53), 100% of the statewide average wage ($44,824/$21.55), and 150% of the statewide average wage ($67,246/$32.33).

• Hearing for LB 720 is set for the first week in March, so don’t delay in your review of the LB 720 legislation.

__________________________________________________________

Economic Development around the Country……….

In New York, Amazon has redacted their intent to spend $2.5B and add 25,000 jobs.

Catalent, Inc., a global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer health products, will expand its biologics manufacturing operations in Bloomington, IN.  Plans are to invest over $100M and create up to 200 new jobs by the end of 2024. 

Fujifilm Corp, a subsidiary of Fujifilm Holdings of Tokyo, will expand its biomanufacturing facilities in Morrisville, NC and add about 100 new employees as part of a $90 million investment in its contract development and manufacturing. In 2016 Fujifilm Diosynth Biotechnologies opened a 62,000-square-foot facility in Morrisville for its bioprocess R&D groups.

At a ribbon cutting ceremony in Gulfport last month, Geri-Care Pharmaceuticals announced the completion of a 200,000 square-foot manufacturing facility. The new manufacturing space is set to be utilized by up to 200 new employees, who make a variety of pharmaceutical products including over the counter medications for Walmart, Walgreens and CVS.

Google has announced that it will spend $13B to build new data centers and offices as it expands its presence across several key locations in the US, including new data centers in Nevada, Ohio, Texas and Nebraska. 

Stone Fox Ventures, a manufacturer of industrial-grade grinding and finishing products, has recently purchased Even Cut Abrasive (Cleveland), with expectations to create 52 new jobs as part of a $3.76 million expansion project…in Wyoming, Michigan.

Incentives Update 01-22-19

Nebraska Legislative Reminder/Update………..

• The 106th Nebraska Legislature’s 90-day session commenced on Wednesday, January 9, 2019. The projected final day of the ‘long session’ is June 6, 2019.

• New legislation is introduced from January 9th – January 22nd, with Wednesday January 23rd marking the bill introduction deadline. 

• Bill hearings begin today and the deadline for Senators/Committees to designate priority bills is March 19th. A new state budget is required for this session, that will cover the two-year period from July 1, 2019 – June 30, 2021.

• One of the key priorities this session, for the business community, is to rewrite Nebraska’s business incentives. The Nebraska Advantage Act, which began 2006, is due to sunset as of 12/31/2020 and as a result, there is a concerted effort to create a new-improved economic incentive program. Priorities of the bill are to continue the pay-for-performance incentive approach, simplify administration, create more focus on higher wage jobs, all-the-while pursuing a market competitive incentive tool for Nebraska.

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/

__________________________________________________________

The Nebraska Department of Revenue responds to the inability to E-Verify, as a result of the federal shut-down…..

E-Verify and E-Verify services are currently unavailable due to the federal government shutdown.  While E-Verify is unavailable, employers will not be able to access their E-Verify accounts to enroll, create an E-Verify case, add or edit any user account, or run reports.  To minimize the burden on employers, the Department of Homeland Security has suspended the “three-day rule” for creating E-Verify cases affected by the unavailability of E-Verify, and the Nebraska Department of Revenue (NDR) will treat the federal shutdown as a temporary short-term lapse under Revenue Ruling 29-13-3.  NDR has issued guidance available at http://www.revenue.nebraska.gov/incentiv/e-verify_notice_shutdown.html.

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Economic Development around the Country……….

In December, Governor Susana Martinez, of New Mexico, announced that international industrial & manufacturing company, Admiral Cable, will expand to Santa Teresa, NM and create up to 342 new manufacturing jobs. Admiral Cable, a subsidiary of Taiwanese Isheng Electric Wire & Cable, which manufactures and assembles electrical cords and power supplies, will invest over $50M+ and bring 342 jobs to Santa Teresa, New Mexico. 

In New York, both Amazon and Google have made major announcements.  Amazon announced, during late 2018, that it is building a second headquarters in Long Island City, with plans to spend $5B and add 25,000 jobs.  Google’s new $1 billion 1.7-million-sq-ft campus in Hudson Square, and a new office complex, at Chelsea Market, will result in the web portal company, in NY, increasing its expected workforce by 7,000 employees by year 2022.

Publicly traded Catalent Inc, announced plans to spend more than $100 million to expand its biologics manufacturing operations in Bloomington, Indiana, where it will add up to 200 employees by the end of 2024.

In December, online career giant Indeed.com, said it plans to spend $66 million to expand its presence in Stamford, CT, including an additional 500 new jobs.  The expansion, which already includes a 2018 increase (year-over-year increase over 2017 levels) of approximately 500 employees, will bring the company’s total headcount, in Stamford, to approximately 1,700.

LinkedIn, a Microsoft-owned employment-focused website, announced today that it will expand its workforce in Omaha, via a new office campus, at the Sterling Ridge development (132nd and Pacific Streets). The Company also said that it could potentially increase its workforce from about 450 today, to 1,000 by 2021.

It’s a continuing growth story for both LinkedIn and Omaha: Back in 2007, when the company was a nascent website for people to post their résumés, it opened its first outpost outside of its Silicon Valley home smack in the middle of the Silicon Prairie — Omaha. It hired 11 people.

Microsoft is making a significant expansion at its data center operation, in Southside Virginia (Mecklenburg County), resulting in an additional 100 jobs.

Sports Brand PUMA North America, Inc. is establishing a new North American headquarters in Somerville, Massachusetts.  The new construction will total 300,000 square feet and include approximately 550 positions at the location, representing a more than 20 percent increase in its current workforce.

Smarp, a hub for content discovery and distribution via an SaaS model, will create 60 jobs and invest $3 million in Atlanta, Georgia.

Volkswagen, a German manufacturer of automobiles, announced on the sidelines of the 2019 Detroit Auto Show, that it will expand their Chattanooga, Tennessee factory by $800 million, creating 1,000 net-new jobs.  The factory builds the Passat (sedan) and Atlas (SUV) and will begin steps to produce battery-powered vehicles in the coming years.

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

Incentives Update June 2018

Research and Development Credit:

Capturing the value in the era of tax reform

With tax reform now implemented and a good number of federal incentives either eliminated or reduced, most companies are not aware or have forgotten about capturing the value from the R&D credit. Here are a couple of items to remember on the R&D Credit for 2018.

  • Corporate rate down, R&D credit rate up: Since the corporate was reduced to 21%, most companies claiming the R&D credit under the “reduced” amount will get a bump in their R&D credit for 2018. For some companies, this could be a jump of the R&D credit of almost 40%.
  • AMT out, more R&D credit utilized: With corporate AMT being eliminated, more companies will have the opportunity to utilize the R&D credit, because it is not limited by AMT anymore.
  • Don’t forget software development and process improvements: Most of the time, CFO Services is helping clients identify the areas that qualify for the R&D credit. Two of the areas that we identify in addition to traditional R&D are software development and process improvements. In today’s economy, we are all building “technology” into our products and processes, which in turn drives innovation and builds efficiencies. These resources can qualify for the R&D credit, which in some cases is significant.

 

Iowa enacts legislation on the R&D credit, limiting the type of industries

In May, the state of Iowa enacted legislation (SF 2417), which among other things, adjusts the state’s R&D credit to only apply to businesses engaged in “manufacturing, life sciences, software engineering, or aviation and aerospace”. It also specifically excludes certain industries such as agricultural production and types of “contractors”. With Iowa having a large agricultural economy, clients should contact us to discuss if they fall within a certain industry for the R&D credit.

 

Multi-State Incentives Highlight:

At CFO Services, we are continually looking to help our clients with credits and incentives. All 50 States and many local communities have some sort of tax or financial incentive programs designed to stimulate investment, job growth and economic development. Credits & Incentives can make a big impact on site selection as well as the bottom line. Examples include Investment and/or Job tax credits, sales tax refunds, property tax abatements, training funds and infrastructure grants or even straight cash or land, just to name a few. Most programs have various thresholds to meet along with a compliance reporting period but the benefits are often significant.

CFO Services’ Multi-State practice identifies those opportunities through expert analysis of project-specific information derived from our survey process. The next phase of the process Identifies which incentives are the best fit through our comprehensive Research and concludes with Filing of the application including the negotiation, implementation and incentive compliance reporting.

In our next edition of the newsletter, we start highlighting a state’s incentives and items that we can help with along the way.

 

Technology Update:

Top 5 items you probably did not know about CFO Services and technology.

  • CFO Services can help you build workstreams for your SharePoint environment
  • We have a mobile app, that you can utilize for certain credits and incentive services
  • Our clients are provided technology with every engagement
  • CFO Services uses its own technology
  • Clients work with CFO Services for its consulting, technology or a combination of both

 

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)
  • More to follow in 2018

Incentives Update November 2017

 

 

 

IRS issues a directive to streamline R&D credit exams, which provides numerous benefits

 

Taxpayers and the IRS, during exam, have spent many hours going through issues and arguments related to Qualified Research Expenses (QREs) for the Research and Development Credit (R&D Credit). Recently the Large Business & International (LB&I) division of the IRS released guidance for large taxpayers to verify the QREs on the Form 6765 with detail of research and development expenses from its financial statement.

Basics of the guidance

In a memorandum dated Sept. 11, 2017, the LB&I division of the Internal Revenue Service (IRS) issued guidance to all LB& I employees regarding the examination of the credit for increasing research activities under tax code Section 41 claimed by LB& I taxpayers (the directive).

In the directive (LB&I-04-0917-005), a taxpayer with assets of at least $10 million who follow GAAP to prepare their certified audited financial statement can utilize this directive. The taxpayer must show a separate line item or show a separately stated note, the amount of currently expensed ASC 730 R&D. In addition, the taxpayer must attach a certification statement described in the directive.

The Adjusted ASC 730 is the amount currently expensed on a taxpayer’s certified audited financial statements pursuant to ASC 730 for U.S. Generally Accepted Accounting Principles (U.S. GAAP) purposes, with certain specified adjustments as required in the directive.
The directive applies only to original returns timely filed (including extensions) on or after Sept. 11, 2017, the date of the directive (publicly released Sept. 22) and only to LB& I taxpayers, i.e., those whose assets are equal to or greater than $10 million.
If the taxpayer satisfies these items above, the IRS examiners will not challenge the QREs that align with adjustment to the financial statement R&D. The whole intent of the directive is to reduce time during exam to reach a reasonable conclusion of what are QREs for taxpayers. However, any additional amounts of QREs claimed by the taxpayer on Form 6765 for the credit year over the Adjusted ASC 730 amount are subject to a risk assessment for an examination. In the end, even though the directive has a specific purpose, taxpayers need to evaluate their type of activities and level of effort needed to comply to with the directive.

Key Questions

Since its release, the directive has generated much interest, and along with the interest, many questions have arisen on the application of the directive. Below are some of the questions raised and assuming more will follow as it is applied.

  • What information will the IRS require to support QREs under this Directive?

The directive provides a list of items, but it is not intended to be an exhaustive list. Taxpayers will need to evaluate their facts to determine the best way to show the LB& I exam team how they arrived at their Adjusted ASC 730 amounts and related support that ties back to the ASC 730 reporting. Note that any Form 6765 QREs that are in excess of the Adjusted ASC 730 amount may be subject to the normal audit process.

To comply with the certification process of the directive, LB&I requires the taxpayer to retain documents from the tax year. The list of documents is as follows, but is not limited to these documents. A taxpayer’s facts will need to be considered to determine what other documents should be retained.

 

  • Certified Audited Financial Statement for the Credit Year including auditor’s certifying opinion;
  • Taxpayer’s Chart of Accounts;
  • List of U.S. ASC 730 Financial Statement Cost Centers that make up the ASC 730 Financial Statement R&D amount shown in Step 1 of Appendix C.
  • All ASC 730 R&D GL Accounts with account balance details that make up the ASC 730 Financial Statement R&D amount shown in Step 1 of Appendix C.
  • List of ASC 730 R&D GL Accounts with account balances that make up the adjustments in Steps 2 through 4 of Appendix C.
  • Taxpayer’s organization chart showing employees and levels of management for the Credit Year.
  • Executed contracts pursuant to which Taxpayer is performing ASC 730 research in order to comply with the terms of the contract.
  • Executed contracts pursuant to which persons other than employees of Taxpayer are performing ASC 730 research on behalf of Taxpayer. This would include sufficient information to show what research was performed outside the U.S.

List of employees with their respective W-2 Wage amounts claimed as additions to U.S. ASC 730 Financial Statement R&D in Step 4 of Appendix C, which list would also identify for the applicable taxable year each employee’s job title and reporting level and the cost center where each of those employees worked.

  • Can I eliminate “interviews” or “surveys” of engineering or research individuals during the R&D credit compliance process?

The intent of the directive is to streamline the exam process for the “typical” R&D, but an ancillary benefit is that taxpayers could eliminate some time and resources needed from engineering or research staff. In the R&D credit process, these individuals typically provide contemporaneous documentation and also provide allocations of their projects and/or activities. Now the directive will allow taxpayers to focus on the documents required for the directive and only other items claimed outside the directive, hence reducing the need to depend on those individuals.

  • Does the directive apply to certain industries?

This directive was drafted by LB& I in consultation with the technology industry, but it is not limited to any industry. This directive, is similar to a directive issued for the pharmaceutical industry for costs within certain drug phases. However, there are many industries performing qualified research that report little or no ASC 730 amounts in their financial statements. The directive will not benefit those companies.

  • How do you apply or elect this Directive?

The directive does not require a formal election or application. It only requires that Taxpayers satisfy the conditions in the directive. Taxpayers who satisfy the conditions of the directive may attach the completed disclosure statements at the time of filing of the Federal income tax return; alternatively, taxpayers may provide the completed disclosure statements at the outset of the examination.

General Requirements of the Directive

The directive provides examination guidance to LB& I agents, which means no other offices or divisions within the IRS are subject to the directive, namely, Appeals and Small Business and Self Employment (SBSE). Where a taxpayer appeals LB& I’s proposed assessment upon audit, it is uncertain how Appeals will respond to disputes over the application or interpretation of the directive.

In order to claim the benefits of the directive, LB& I taxpayers must:

  • Follow U.S. GAAP to prepare their Certified Audited Financial Statements, which show as a separate line item on the income statement OR show separately stated in a note the amount of the currently expensed ASC 730 Financial Statement R& D; and

 

  • Provide completed disclosure statements contained in Appendices A through D of the directive, including the Certification Statement in Appendix A.The directive does not require taxpayers to attach the completed disclosure statements at the time of filing of the Federal income tax return; instead taxpayers may provide the completed disclosure statements upon examination. The directive instructs the audit team to verify at the beginning of the examination of the research credit whether the taxpayer followed or plans to follow the directive.

Benefits of Utilizing the Directive

In reviewing the directive, there could be additional benefits to taxpayers in applying this directive. Here is an explanation on a few initially observed.

  • Increase financial certainty for a large portion of the R&D credit
    • In today’s FIN 48 and UTP environment taxpayers need to measure the risk associated with their R&D credit. This directive can significantly reduce the risk level associated with the R&D credit, which has a positive financial impact.
  • Minimize engineering and research employee involvement from the compliance of the R&D credit
    • Many taxpayers have to work significantly to communicate, educate, and capture information from the engineering and researching employees within their organization. The directive allows taxpayers to work around those individuals and require little if any of their time and energy towards the R&D credit.
  • Streamline the IRS exam towards the R&D credit
    • Taxpayers can settle a typically contentious issue rather quickly under this directive, and focus only on the items outside of the directive (contract research, e.g.). In addition, the directive has a “cap” like feeling to the application of the process.

Conclusion

In the end, taxpayers need to address the directive within their current framework of capturing the R&D credit. The challenge is that the application of the directive within exam will not occur for another two years, but it’s intent could be utilized today to streamline and improve the R&D credit process. During the upcoming tax compliance season, it would be prudent to analyze if the directive provide benefit to a taxpayer’s current R&D credit process.

Incentives Update 01-06-2017

Nebraska Legislative Reminder/Update.

  • The Nebraska Legislature began its 2017 session on Wednesday (1/4/17). The 105th Legislature (1st Session) is a 90-day session, which is slated to end June 2, 2017.
  • There are 17 new senators, 5 of which defeated incumbents, and 49 total senators within the legislative body.
  • Carryover legislation does not occur in this session, but it’s still anticipated that hundreds of new bills will be proposed through the January 18th Common themes for primary legislation include  creating a new two-year state budget, address tax reforms (all-the-while dealing with a $900 million budget shortfall) and fixing the state prison system. In addition, and specific to business  incentives, there will be a proposal for a new business incentive legislation (to replace the Nebraska Advantage Act) and additional monies requested for the Customized Job Training fund.

Jim Scheer of Norfolk named as the new Speaker of the unicameral.

Senators voted 27-22 to elect Sen. Scheer, whom will set the Legislature’s daily agenda and play a key role in deciding when legislation gets debated.

New Committee Chairs of the 105th Legislature:

Sen. Lydia Brasch of Bancroft for Agriculture Committee
Sen. John Stinner of Gering for Appropriations Committee
Sen. Brett Lindstrom of Omaha for Banking, Insurance and Commerce Committee
Sen. Joni Albrecht of Thurston for Business and Labor Committee
Sen. Mike Groene of North Platte for Education Committee
Sen. Tyson Larson of O’Neill for General Affairs Committee.
Sen. John Murante of Gretna for Government, Military and Veterans Affairs Committee
Sen. Merv Riepe of Omaha for Health and Human Services Committee
Sen. Laura Ebke of Crete for Judiciary Committee
Sen. Dan Hughes of Venango for Natural Resources Committee
Sen. Mark Kolterman of Seward for Nebraska Retirement Systems Committee
Sen. Jim Smith of Papillion for Revenue Committee
Sen. Curt Friesen of Henderson for Transportation and Telecommunications Committee
Sen. Justin Wayne for Urban Affairs Committee
Sen. Mike Hilgers of Lincoln for Rules Committee
Sen. Dan Watermeier of Syracuse for Executive Board

Performance Audit Results (of Tax Incentives) are in.

In November 2016, as a result of the passage of LB 1022 (during the 2016 legislative session), the Legislative Audit Office completed their performance audit of Nebraska’s tax incentive programs (100+ pages). The audit identified that, as of 2014, there were 78 incentivized companies that had earned $736 million in benefits through the Advantage Act. Nearly two-thirds of those benefits were tax credits on investments such as new construction, while 16 percent were credits on pay for new workers. A link to the report is located at the Nebraska Legislative website at http://www.nebraskalegislature.gov/pdf/reports/audit/naa_2016.pdf.


Economic Development around the Country.

During the past two years, Amazon.com has announced eight fulfillment centers in Illinois alone. In December, Amazon has made public additional plans to build a $90 million distribution hub in/near Lavonia, Michigan and another in Aurora, Illinois. The plant in Aurora will employ 1,000 associates and contain approximately 1 million square feet. Once construction is complete for the most recent announcements, Amazon will have created more than 7,000 full-time jobs in Illinois.

Carrier, in November, reached an agreement to keep approximately 1,000 factory jobs at its furnace plant in Indiana. Earlier in the year, Carrier had plans to relocate the plant’s manufacturing activity to Mexico.

CF Industries Holdings, a global leader in the manufacturing and distribution of nitrogen products, during December, successfully commissioned its new ammonia and urea plants at the company’s Nitrogen Complex in Port Neal, Iowa. The construction project cost in excess of $2B and at peak construction, there were approximately 4,500 employees working at the site.

A Minnetonka, Minnesota based company (CliqStudios), which is an online retailer of semi-custom kitchen cabinets, will invest $1.95 million to locate a new cabinet design center in St. Louis, Missouri. The company plans to hire 98 associates.

CoStar Group, a leading provider of commercial real estate information, analytics and online.