The document presents a tax help seminar for startups by Dan Wright and Nicole Wilson, covering Washington state business and occupation tax changes, and tax relief options. Key topics include founder and investor arrangements, documentation management, and tax implications of the digital goods economy. It also outlines tax incentives for research and development spending and provides illustrative revenue scenarios with tax relief options.

1. Tax Help for Start Ups Presented by Dan Wright and Nicole Wilson

2. Introductions Dan Wright, Business Tax Nicole Wilson, WA State Tax Specialist

3. Agenda The Do’s and Don’ts WA B&O Tax Changes Industry Examples Tax Relief

4. Three biggest issues Create and document clear founder, investor, and key employee arrangements Prepare for the next step Manage your risk

5. Founder, investor, and key employees arrangements Considerations: Choice of legal entity Owner agreements Compensation arrangements Joint venture arrangements

6. Prepare for the next step Considerations : Know what you own and keep current documentation (R&D, intangible characterization, building value) Representation and warranty Tax deal killers (tax records and filings are not current, under reported/not quantified)

7. Manage your risk (tax) Considerations: Jurisdictional risk (sales/use tax, VAT, other foreign tax) Documentation issues (invoice format, contract considerations, resale certificates) Understand options before assessing risk (voluntary disclosure programs) More disclosure is the trend FIN 48

8. What to expect… Federal income tax State income or business & occupation tax Payroll tax Property tax Sales & use tax

9. As technology changes, so do taxes… Expanded definition of digital goods Online services now deemed retail sale Requirement to file electronically Amnesty for prior periods Not all states define goods and services the same

10. Post July 26, 2009 Definitions of Digital Goods… All digital goods delivered to a buyer in WA state are subject to retail sales tax regardless of the method of delivery Digital audio works Digital audio visual works Digital books Other products delivered electronically Digital codes

11. Certain Online Services Now Deemed Retail Digital automated services Services delivered electronically using one or more software applications Remote Access Software Allows a consumer the right to access prewritten computer software, where possession is maintained by the seller or third party Data processing services Subject to RST if performed by an automated process

12. Scenario 1 $2,000,000 revenue annually One shop – Washington 2 -4 employees Platform – handheld Unit Price - $ 1.99 per game Outright sale vs. 30/70 split between Iphone and Developer IPHONE Developer

13. Scenario 2 $2,000,000 revenue annually One shop – Washington 4 -6 employees Platform – PC games Developer hosted/ ASP delivery Unit Price - $10/month subscription Ghost Hosts

14. Scenario 3 $10,000,000 revenue annually Develop 2 games per year One shop – Washington 60 employees Platform – box distribution (Xbox, Wii, Sony) Unit Price - $2,000,000 3 months after release and $ .50 per game sold Big Game Blowup

15. Is there any relief from tax? Sales & Use Tax Deferral Business & Occupation (B&O) Tax Credit for R&D spending

16. Sales & Use Tax Deferral What qualifies: New structures or, expansion or renovation of qualified buildings Qualified machinery & equipment purchases For how long: Life of the business if R&D activity continues And if you complete your annual surveys

17. B&O Tax Credit Who qualifies: Any person engaged in qualified research and development in the 5 high technology areas And Its research and development spending in the calendar year for which the credit is claimed exceeds .92 percent of the person’s taxable amount for the same calendar year Example, for taxable income of $10,000,000, your R&D expenditures must exceed $92,000.

18. Tax Incentives – B&O Tax Credit Calculation Step 1: Determine the greater of the amount of qualified R&D expenditures or 80 percent of amounts received by a person other than a public educational or research institution in compensation for conducting R&D Example: 2008 Sales $10,000,000 $200,000 in R&D spending Wholesaler (.484%)

19. Tax Incentives – B&O Tax Credit Calculation Step 2: Subtract .92 percent of the person’s taxable amount from amount determined in step one. Example: $200,000 R&D spending $ 92,000) X .92 $108,000

20. Tax Incentives – B&O Tax Credit Calculation Step 3: Multiply the amount determined in step two by: For 2004 – 2006, the person’s average tax rate For 2007, the greater of the person’s average tax rate or .75 percent For 2008, the greater of the person’s average tax rate or 1 percent For 2009, the greater of the person’s average tax rate or 1.25 percent For 2010 – 2015, the greater of the person’s average tax rate or 1.5 percent Example: $108,000 X 1% $1,080

21. Questions?