Incentives Update 06-04-2019

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 90-day session adjourned Sine Die on May 31st, 2019.
  • Of the 739 bills introduced, the Legislature passed 294 into law. The legislature passed a $9.3B biennial budget and it did NOT pass the ImagiNE Nebraska/business incentive legislation (LB720).
  • The next Nebraska Legislative session, which begins January 2020 and adjourns April 2020. This short session occurs in the middle of a biennial, two-year period, and does not require budget appropriations, therefor it is allotted a ‘short-session’ timetable.

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


ImagiNE Nebraska (LB 720) 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). With both primary property tax bills falling short, the common thread was that, without property tax relief, some in the legislative body would withhold votes for new business incentive legislation. The bill (LB720) will remain on Select File through the 2020 legislative session.

The Business Innovation Act, under LB334, was appropriated an additional $4 million, to further fund programs under the Business Innovation Act. The additional funding was reallocated from the Angel Investment Tax Credit, which was eliminated.


Economic Development around the Country……….

Allstate is continuing its expansion in Texas. Allstate Insurance Co. plans to hire 1,300 new employees and invest $11 million over the next five years, in a major ramp-up at its Irving campus operations. The Company, which has a campus on the northwest side of DFW International Airport, has in excess of 1500 employees. The Company is a recipient of the Texas Enterprise Fund, the state’s primary business incentive fund.

Covance Central Laboratory Services Inc., a subsidiary of Laboratory Corp. of America, is planning a $17.5 million expansion and renovation project at its facilities in Indianapolis that is expected to create 203 jobs. Covance plans to renovate 20,000 square feet of the facility into a state-of-the-art two-story testing laboratory for clinical trials and add a 10,000-square-foot addition for subzero cold storage.

The Michigan Strategic Fund board, in May, approved state incentives including $55 million for land assembly for Fiat Chrysler Automobiles NV’s proposed $2.5-billion plant expansion. Fiat Chrysler’s plans are to invest $1.6 billion in expanding its Mack Avenue facilities with a new plant and investing $900 million to modernize its Jefferson North Assembly Plant. The plant expansion is expected to add 4,950 jobs.

Greenheck announced that it will expand its manufacturing facilities in Shelby, North Carolina. The company will invest $60 million and create 200+ new manufacturing jobs over the next five years. The expansion plans include the purchase of an existing manufacturing facility and construction of a new Architectural Products facility on the Shelby campus.

Merck, a healthcare and pharmaceutical manufacturer, will be investing $1 billion and adding almost 100 jobs over the next three years in Rockingham County, Virginia. The expansion will add approximately 120,000 square feet to its existing 1.1 million-square-foot facility, allowing capacity/production increases of its Human Papillomavirus vaccines.

Prysmian Group announced it would invest $2.8 million and create 12 new jobs to expand its facility in Paragould, Arkansas. The plant is a Tier 2 automotive supplier manufacturing copper wire and cable products.

Texas El Paso’s economic development has had multiple-recent wins with expansions announced by Eaton Corp (manufacturer of electrical, hydraulic and automotive parts and systems), Foster Electric (Japan-based manufacturer of auto accessories) and Technimark. Technimark, a North Carolina company, plans to expand its current medical-device manufacturing plant, already in El Paso, by another 104 jobs.

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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.

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Incentives Update April 2019

Research and Development Credit:

Louisiana:  Extends R&D Credit

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

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

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

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

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

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

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

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

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

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

Multi-State Incentives Highlight:

Georgia:  High technology data center exemption.

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

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

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

Examples of supporting documents include:

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

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

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

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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.

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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.

__________________________________________________________

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.

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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

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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

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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

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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.

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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.

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