BioForward - Wisconsin's R&D Tax Incentives

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Grant Thornton presents to BioForward's membership about Wisconsin's R&D Tax Incentives.

Grant Thornton presents to BioForward's membership about Wisconsin's R&D Tax Incentives.

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  • Before I introduce our speakers, Mike Boenzi and Kristen Chapman, I'd like to spend just a couple minutes to give you a little background on Grant Thornton.
  • Grant Thornton is a CPA firm that has been serving Wisconsin companies for over 85 years. According to AccountingToday, Grant Thornton ranks as the 6th largest CPA firm in the country.Backed by the experience of over 5,000 U.S. professionals and nearly 30,000 professionals internationally, Grant Thornton provides the perfect balance of resources and attention.Our client-base is the growth engine of America’s economy: private entrepreneurial businesses and mid-sized public companies, what Grant Thornton defines as dynamic organizations.
  • With the implementation of our most recent strategic plan, Grant Thornton reconfirmed it's commitment to the technology sector by identifying our technology practice as one of our 3 core industries nationally.The result of helping technology-based companies succeed has translated into approximately a $160 million annual practice for Grant Thornton. To give you an idea of the volume of that practice for Grant Thornton, if we spun that out into a separate firm, it would rank as one of the country's top 25 firms.As you can see by the slide, our technology practice is broken down into a number of subsectors.
  • Nationally as well as in Wisconsin, biotechnology and life sciences is a major portion of our client-base.As we are all aware, UW-Madison ranks as one of the most prolific research universities in the world– providing the perfect environment for a vibrant technology and biotechnology business community.This technology-based business community is critical to the economic growth of Dane County and Wisconsin and Grant Thornton is committed to continuing to support these important entrepreneurs, business owners, investors and executives succeed.So with that, I "thank you" for your attention and "thank you" to Bryan Renkand BioForward for allowing us this opportunity to participate in what will surely be an informative presentation.
  • I'd now like to introduce Mike Boenzi and Kristen Chapman, who are both a part of our Research & Development team at Grant Thornton.

Transcript

  • 1. Welcome!Grant Thornton LLPEd Maginot, Tax Partner & Wisconsin TechnologyPractice LeaderFebruary 8, 2012© Grant Thornton. All rights reserved.
  • 2. About Grant Thornton Our vision is to be the leading audit, tax and advisory firm, serving dynamic organizations. Grant Thornton Grant Thornton Statistics International Ltd* LLP** Revenues US $3.7 billion $1.108 billion Personnel 29,974 5,094 Partners 2,511 540 Offices 488 52© Grant Thornton. All rights reserved.
  • 3. Grant Thorntons technology industry practice • the technology sector is 1 of 3 core industry practices for Grant Thornton • specialists helping companies in the following subsectors: – biotechnology and life sciences – cleantech – Internet – software development – hardware manufacturers – technology services© Grant Thornton. All rights reserved.
  • 4. Wisconsin bioscience Grant Thornton is committed to supporting the Wisconsin technology and life sciences community. We will continue to invest in programs important to bioscience entrepreneurs and business executives.© Grant Thornton. All rights reserved.
  • 5. Welcome, Mike Boenzi and Kristen Chapman • Mike Boenzi, Midwest Region R&D Practice Leader • Kristen Chapman, R&D Senior Associate© Grant Thornton. All rights reserved.
  • 6. Wisconsins R&D Tax Incentives Ed Maginot Tax Partner & Wisconsin Technology Practice Leader Michael Boenzi Midwest Region R&D Practice Leader Kristen Chapman R&D Senior Associate© Grant Thornton LLP. All rights reserved.
  • 7. Todays agenda • R&D Basics • Wisconsin R&D Tax Credit • Wisconsin Super R&D Credit • Wisconsin Research Facilities Credit • Wisconsin Sales Tax Exemption • Biodiesel Credit • Early Stage Seed Investment Credit© Grant Thornton LLP. All rights reserved.
  • 8. Wisconsin • Wisconsin offers a number of tax incentives for corporations and other businesses to locate or expand their operations within the state. Currently, there are 33 credits available for corporations to claim against corporate income and franchise tax, as well as several other deductions and exemptions. • In 2008:  308 corporations claimed $96.6 million of research credits  53 corporations claimed $11.7 million of research facilities credits© Grant Thornton LLP. All rights reserved.
  • 9. R&D basics IRC §174 • allowed to deduct research and experimentation expenditures as expenses not chargeable to capital accounts IRC §41 • allows a non-refundable tax credit for qualified research spending above a base amount • credit attempts to boost business investment in research by reducing the tax price of that research© Grant Thornton LLP. All rights reserved.
  • 10. R&D tax credit Expenses eligible for the credit Qualified Research Expenses (QREs): 1. In-House Research • applies to the wages and salaries of employees and supervisors engaged in qualified research 2. Supplies • cost of materials and supplies used in qualified research 3. Contract Research • 65% of the amounts paid to outside firms or non-employees for consulting, analysis, testing services, etc.© Grant Thornton. All rights reserved.
  • 11. R&D tax creditFour-part test Permitted Purpose Eliminate Uncertainty Eliminate uncertainty concerning capability, Develop a new or improve an existing methodology, or appropriateness of design function, performance, reliability, quality, or IRC 41(d)(1)(A) significant cost reduction IRC 41(d)(1)(B)(ii) "We were trying to…" "We didnt know how to…" Qualified Research Activity Technological in Nature Process of Experimentation Discover information that fundamentally relies on Substantially all the activity constitutes the principles of physical science, biological elements of a process of experimentation science, computer science or engineering IRC 41(d)(1)(C) IRC 41(d)(1)(B)(i) "We tested…" "We learned…" "We use the science of …"© Grant Thornton. All rights reserved.
  • 12. R&D basics – continued Benefits of the credit• 20% tax credit given to taxpayers who engage in qualified research activities• benefit is 6.5 cents on every dollar• 1 year carryback & 20 year carryforward• many states also have R&D credits, including Wisconsin© Grant Thornton. All rights reserved.
  • 13. Wisconsin R&D tax credit • provides incentives to C-corporations for increasing qualified research activities in Wisconsin • does not expire (unlike the federal credit) • credit is nonrefundable – if the credit does not entirely offset against Wisconsin franchise or income taxes due, the balance may be carried forward for 15 years • two calculations methods: 1. Regular Method – models the federal calculation 2. AIRC Method – based on gross receipts© Grant Thornton LLP. All rights reserved.
  • 14. Wisconsin R&D tax credit Regular credit The credit equals 5% of the difference between the taxpayers qualified research expenses conducted in Wisconsin and its Wisconsin base amount.• Base amount a. Established firms are defined as firms with gross receipts and qualified research expenses in at least three tax years from 1984-1988 b. Start up firms are those in which qualified research expenses began after 1983© Grant Thornton LLP. All rights reserved.
  • 15. Wisconsin R&D tax credit Alternative Incremental Research Credit (AIRC) • taxpayers may elect the AIRC computation • equal to the percent of QREs in excess of the taxpayers average annual gross receipts for the previous four tax years – the percentage is equal to: • 2.65% of QREs above 1% but less than 1.5% of AAGR • 3.2% of QREs above 1.5% but less than 2.0% of AAGR • 3.75% of QREs greater than 2% of AAGR • provides a more streamlined computation, but typically results in less of a benefit – advantageous if taxpayer has a high base amount under the regular method or incomplete records to determine base period© Grant Thornton LLP. All rights reserved.
  • 16. Wisconsin super R&D creditFor years beginning on or after January 1, 2011 a "Super R&D"credit is available in Wisconsin for C-corporations that increasetheir research expenditures.The credit is equal to the amount of qualified research expensesthat exceeds 1.25 times the average annual amount of qualifiedresearch expenses in the corporations previous three tax years.The credit can be carried forward for 5 years.© Grant Thornton LLP. All rights reserved.
  • 17. Wisconsin research facilities credit • applies to capital investments to construct and equip new research facilities or expand existing facilities in Wisconsin • credit is equal to 5% of the amount of qualified investments in tangible, depreciable property that is not replacement property • the credit is nonrefundable and unused amounts may be carried forward for 15 years • available to C-corporations© Grant Thornton LLP. All rights reserved.
  • 18. Wisconsin sales tax exemption Manufacturing and Biotechnology Effective January 1, 2012, Wisconsin allows an exemption from sales and use tax for purchase of the following: • machinery and equipment, including attachments, parts, and accessories used in the performance of qualified research, as well as certain tangible personal property that is consumed or destroyed or loses its identity in conjunction with – the exemptions are available to purchasers engaged primarily in manufacturing or biotechnology in Wisconsin • machinery, processing equipment, medicine, semen for artificial insemination, fuel and electricity, and other items that are used exclusively in raising animals for research – these items must be sold to a biotechnology business, an institution of higher education, or governmental unit© Grant Thornton LLP. All rights reserved.
  • 19. Wisconsin sales tax exemption • during 2011, the sales tax exemption is lost when materials are used in the R&D area – this is true even if the materials become part of a unit that is manufactured for sale to a customer • upon audit, an auditor will generally allow either the sales/use tax exemption or the R&D credit – but not both • however, this changes in 2012 when Wisconsin law changes – now taxpayers can claim both the sales/use tax exemption and the R&D tax credit© Grant Thornton LLP. All rights reserved.
  • 20. Wisconsin sales tax exemption • to qualify for the sales and use tax exemption, a company needs certification • the Department of Revenue has yet to update the exemption certificate (Form S-211) for this new exemption, nor has yet to describe how to be certified as a biotechnology business • until the form is updated, purchasers claiming this exemption should enter "exempt under Section 77.54(57) - used in qualified research" in the last box under the other section of the S-211© Grant Thornton LLP. All rights reserved.
  • 21. Biodiesel credit • nonrefundable credit equal to 10 cents per gallon for biodiesel fuel produced in Wisconsin for producers that produce at least 2.5 million gallons of biodiesel fuel per year • for tax years beginning January 1, 2012 and before January 1, 2015 • the maximum credit that a taxpayer may claim in a taxable year is $1 million© Grant Thornton LLP. All rights reserved.
  • 22. Early stage seed investment credit • equal to 25% of investments paid to a fund manager that invests the funds in qualified new business ventures that are certified by the WEDC • the maximum annual amount that may be claimed by all claimants is $20.5 million in 2011 • if the investment is held for less than three years, any previously claimed credits must be repaid© Grant Thornton LLP. All rights reserved.
  • 23. Early stage seed investment credit • A qualified new business venture must:  have its headquarters in the state  have less than 100 employees  have been in business for less than 7 consecutive years • the new business venture must also be engaged in a certain industry, including manufacturing, biotechnology, nanotechnology, communications, agriculture, pharmaceuticals, clean energy, etc.© Grant Thornton LLP. All rights reserved.
  • 24. Any questions, please contact us:Ed Maginot | Tax PartnerT 608.286.6912E ed.maginot@us.gt.comMichael Boenzi | Midwest Region R&D Practice LeaderT 312.602.8046E michael.boenzi@us.gt.comKristen Chapman | R&D Senior AssociateT 414.277.1532E kristen.chapman@us.gt.com