Tag Archives: R&D

taxes

Taking advantage of Arizona’s R&D tax credit

Research and development (R&D) tax credits are available to companies that bear the financial risk of developing new or improved products or processes. And claiming them can be lucrative, since they offset a company’s tax liability, making more cash available to invest in ongoing projects. Companies that perform qualified R&D and meet certain requirements can claim a 20 percent tax credit at the federal level, and many states offer their own R&D tax credit, usually at a rate of five to 10 percent. But both federal and state levels considered, Arizona takes the cake, offering companies that perform R&D the most generous tax credit rate in the nation at 24 percent. Furthermore, it offers this benefit in the form of a refundable credit to qualifying businesses.

Why refundable matters

In some cases companies may not be able to use the full amount of the credit Arizona awards them. This could be because they’re operating at a loss or because the amount they’re awarded exceeds their Arizona tax liability. With the refundable credit option, qualifying businesses may elect to receive the excess in the form of an immediate cash payment rather than carry it forward to offset a future liability. The refundable opportunity is limited to companies with fewer than 150 full-time-equivalent employees; the nonrefundable credit has no such limit.

Act quickly

While Arizona places no annual cap on nonrefundable R&D credit claims, the total amount of refunded payments allowed each year is limited to $5 million, so timing is critical if your company hopes to claim the refundable credit. Funds are allocated on a first-come, first-served basis until the $5 million is exhausted. For the 2013 tax year, the refundable option was depleted by the end of February. It’s uncertain how quickly this reserve will go for the 2014 tax year.

Eligible refundable credit applicants must obtain pre-approval by submitting an application prior to filing their tax return, and a full R&D credit calculation needs to be submitted with this application. You’ll need to begin an R&D study immediately to allow for its timely completion and submission.

Who can claim the credit?

Both the refundable and nonrefundable Arizona credits are available to individuals, companies, and all types of pass-through entities, such as S corporations. You may be surprised to learn that the tax definition of R&D is quite expansive: A wide range of businesses can qualify for the credit, from companies in the food and beverage, apparel, and agriculture industries to those involved in construction, manufacturing, and energy production. Don’t let the common misconception that R&D tax credits are limited to large high-tech companies keep you from taking advantage of this lucrative opportunity.

Next steps

Whether you’re interested in pursuing the refundable or nonrefundable Arizona credit, consult a team dedicated to understanding the technical requirements of the R&D credit—including Arizona’s particular requirements — to help you navigate the process.

Peter Henderson is manager and Tom Sanger is partner at Moss Adams LLP.

Garmin, Chandler, WEB

Garmin opens new research, development office in Chandler

Garmin International Inc., a unit of Garmin Ltd. (NASDAQ: GRMN), the global leader in satellite navigation, Friday formally opens its new 60,000 square foot research and development facility in the Chandler Corporate Center.

“We are delighted to open such a state-of-the-art research and development facility here in Chandler,” said Merlin Smith, director of auto OEM software at the Garmin Chandler facility. “We chose to expand in Chandler because there is a large population of highly-skilled engineers here locally – and we have very much appreciated the support of both the city and state throughout this process.”

The new facility, located near McClintock Drive and Chandler Boulevard, is LEED Gold-certified and contains space for offices and research and development labs. Currently, approximately 130 associates work in the Chandler office, and this expansion will allow the office to gain an additional 141 new engineering and R&D jobs, as business conditions warrant.

The Chandler office supports Garmin’s software engineering needs, including aviation, automotive OEM, and desktop applications. Garmin has been an employer in the greater Phoenix area for more than 15 years, and has been leasing office space at a nearby office in Chandler for five years. The new facility represents $11 million in new capital investment.

“Chandler welcomes Garmin’s expansion here as we continue to grow our research and development community with solid, progressive employers,” Chandler Mayor Jay Tibshraeny said. “Leading edge firms like Garmin choosing to locate and expand in Chandler show that we continue our commitment to bring the best companies and jobs to our community.”

Garmin was founded in 1989 and employs more than 10,000 associates globally. The company designs and manufactures a wide range of consumer electronics, many of which are enabled with GPS. Its product portfolio includes wearable fitness and wellness devices, GPS-enabled high-definition action cameras, and navigational products for pilots, boaters, hikers, hunters, and drivers.

stem.cell

Webinar teaches you to utilize R&D tax credit

Arizona now offers the single most generous R&D credit in the nation. While most states have an R&D credit rate of about 5 percent, Arizona’s is at 24 percent, which even exceeds the maximum federal R&D credit rate of 20 percent. But Arizona holds another special distinction in the realm of R&D credits – it offers this benefit in the form of a refundable credit to qualifying businesses.

On Wednesday, January 15, Moss Adams will host a Webinar and discuss Arizona’s research and development tax credit and explain why the state offers the most generous R&D incentives in the nation. Most important, they will discuss if and how your company can take advantage of these lucrative incentives, which are within closer reach than most companies think.

The refundable credit presents a rare opportunity for companies that cannot currently utilize their full Arizona R&D credit because they are either in a loss position or their credit amount exceeds their Arizona tax liability.  In such situations, qualifying businesses may elect to receive this excess credit amount in the form of an immediate cash payment in lieu of carrying the credit forward, up to a maximum of 15 years, to offset future tax liabilities.  The refundable opportunity is limited to companies with fewer than 150 full-time-equivalent employees while the non-refundable credit has no such limit.

Timing is critical for the refundable credit.  While there is no annual cap on total non-refundable R&D credit claims, refundable claims are limited to $5 million per year. These funds are allocated on a first-come, first-serve basis until the $5 million is exhausted. Since the refundable credit option was first offered in 2010, the $5 million cap has been substantially depleted by the end of April each year.  However, it’s uncertain how quickly this reserve will go for the 2013 tax year.

Eligible refundable credit applicants must obtain preapproval by submitting an application prior to filing their tax return.  A full R&D credit calculation needs to be submitted with this application. Therefore, R&D studies must begin immediately to allow for timely completion and submission of the preapproval process.

It’s a common misconception that R&D tax credits are limited to large high-tech companies that perform cutting-edge development.  In actuality, the tax definition of R&D is far more expansive than most people assume. A wide range of businesses can qualify for the credit – from companies in the food and beverage, apparel, and agriculture industries to those involved in construction, manufacturing, and energy production. Both the refundable and non-refundable Arizona credits are available to individuals, corporations, and all types of pass-through entities.

Whether you’re interested in pursuing the refundable credit or the non-refundable credit, it is always helpful to consult a dedicated team of R&D credit specialists, such as those at Moss Adams, who can help you navigate the process.

 

Peter Henderson is manager, R&D tax credit team at Moss Adams. He is based in Irvine, Calif. and can be reached at peter.henderson@mossadams.com. Jose Tezanos is senior manager, state and local tax practice for Moss Adams. He is based in Phoenix and can be reached at jose.tezanos@mossadams.com.