Industry oversight: Few companies take advantage of lucrative R&D tax credit
By Manufacturing Business Technology Staff -- Manufacturing Business Technology, 7/7/2008 7:13:00 PM
The Research and Development (R&D) tax credit was created by Congress as part of the Economic Recovery Tax Act of 1981 to encourage American industry to invest in R&D activities. The purpose of the credit is to stimulate R&D activities among businesses through tax incentives, and to keep or even increase manufacturing jobs here in the U.S.
Similar R&D Tax Credit incentives exist in most other developed countries.
It's not widely known that the R&D Tax Credit also can be taken by Foreign-Owned Manufacturers that have U.S. operations and are performing qualifying activities. This makes perfect sense since these activities create jobs for Americans. The credit would only take into account activities taking place in the U.S.
According to Paradigm Partners, a Houston-based tax consultancy, recent changes make it even easier to take your credit.
Prior to 2001, mostly large companies could only take advantage of the R&D Tax Credit. Due to the stringent requirements that existed under the provisions of the credit, a vast majority of the small to midsize companies were unable to reap the substantial benefits of the R&D credit. Realizing that a majority of innovation in the U.S. was in fact transpiring from these small to midsize enterprises, Congress in 2001 liberalized the statutory requirements to enable small and midsize companies across the U.S. to take advantage of the R&D benefits.
A manufacturer can go back three years and claim the R&D Tax Credits it missed and receive a refund from the IRS, plus interest. Then going forward the manufacturer can claim its credit every year assuming it continues to perform the qualifying activities.
If you have financial responsibility for a Foreign-Owned Manufacturer with operations here in the U.S., then you need to find out if your company is eligible for the R&D Tax Credit. According to Karim Solanji, J.D., Paradigm Partners, "With a $4 MM payroll, your refund can be $200,000; and for larger payrolls, the refund can be in the seven figures. For a nominal fee you can determine if you qualify for the credit, the amount of your credit, and whether you can utilize the credit." T
The R&D Tax Credit can pay big dividends for your Parent company, but as with most incentives, if you miss a deadline, you can lose the credit.
