MANSFIELD, Ohio — Speakers from Cleveland’s Tax Credits Group LLC brought good tidings to Mansfield business owners Thursday.
Tax Credits Group, LLC President Michael Krajcer and Managing Director Bethany Jones-Worner visited Gorman Rupp Company to outline a new provision in the Protecting Americans from Tax Hikes Act of 2015 that will permanently benefit small and large companies in Ohio and the nation.
The new provision allows companies of all sizes and within all industries to apply for a Research and Development Tax Credit through state and federal programs.
Ohio has a seven-percent research credit. However, a 14- to 20-percent non-refundable federal income tax credit is available through the federal PATH Act provision.
Before the PATH Act of 2015 passed in December, companies had to generate a profit to claim the R&D tax credit. Under the new provision, companies do not need to generate revenue — the research and development does not even need to be successful.
“It’s a fantastic thing,” Krajcer said.
According to Krajcer and Jones-Worner, companies would need to meet four activity based qualifications in order to claim the tax. First, the business must have “a product, process computer software, technique, formula, or invention, which is to be held for sale, lease, or license by the company or used in the company’s trade or business.”
“So it’s a very broad scope, it’s activity based. You don’t even need to be manufacturing anything really,” Krajcer said.
The broad definition of an activity under the new provision has opened the door for software companies to offset their R&D costs.
Second, those activities “must be intended to discover information not available to the taxpayer and eliminate uncertainty about the capability or method of developing or improving the business component, or about its appropriate design.”
“It doesn’t need to be rocket science or revolutionary. It can be evolutionary. It can be, ‘I haven’t done this before,’” Krajcer said.
“There is potential for a lot of overlooked opportunity here,” she said.
Third, the company must have a process of experimentation, or, in other words, documentation, Krajcer said.
“A process must be utilized, which is designed to evaluate one or more alternatives where the capability or method of achieving a result, or the appropriate design of that result, is uncertain at the beginning of the research activities,” reads part of the provision.
Finally, for a company to qualify for the R&D tax credit, they must use scientific principles during their experimentation. Soft sciences like the humanities, management sciences and social sciences would not qualify.
Jones-Worner said many banks have taken advantage of the R&D credit.
“One of our largest clients is actually a bank out in the LA region,” she said.
The banks that are designing web portals for online banking are the ones benefiting in the tax credit, she said.
“So if you think about going online to actually do your banking, a lot of that is customized for these banks.”
Other businesses also taking advantage of the R&D tax credit include manufacturing, software development, life sciences, aerospace, polymer sciences and agbioscience.
For more information on the R&D tax credit, visit Tax Credits Group LLC online or call 440-331-0714.