development - Linkenheimer LLP CPAs & Advisors

PATH Act Changes to the Research Credit

The recently enacted “Protecting Americans from Tax Hikes Act of 2015” (i.e., the 2015 PATH Act) contains a provision making permanent the popular research credit. This credit encourages businesses to invest more in R&D by allowing a tax credit for spending on qualified research. The credit (1) is for 20% of current year qualified spending that exceeds a base amount related to gross receipts in certain earlier years and (2) can’t exceed 10% of the total spending in the current year on qualified research. Alternatively, taxpayers can irrevocably choose a simpler calculation.

The credit had lapsed for expenditures in 2015, but the legislation is also effective for those expenditures.

And importantly, the new law also makes two major changes to the credit, both favorable to small businesses. First, it provides that beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability. Also, beginning in 2016, the new law also provides that the credit can be used by certain even smaller businesses against the employer’s portion of the Social Security portion of the employer’s payroll tax (i.e., FICA) liability.

Manufacturing and Research & Development Equipment Exemption

Beginning on July 1, 2014, manufacturers and certain research and developers may qualify for a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases and leases. To be eligible for this partial exemption, you must meet all three of these conditions:

Be engaged in certain types of business, also known as a “qualified person.”
Purchase “qualified property.”
Use that qualified property for the uses allowed by this law.

Qualifications

The list of criteria to qualify for the manufacturing exemption can be quite complex. We suggest you take the time to determine if your business and purchases or leases qualify.

Qualified person

A “qualified person” means a person who is primarily engaged (50 percent or more of the time) in those lines of business described in the North American Industry Classification System (NAICS) Codes 311100 to 339999, inclusive, 541711, or 541712 published by the United States Office of Management and Budget (OMB), 2012 edition. (See Understanding Your NAICS code on Industry Topics tab)

These industries generally include those primarily engaged in the business of all forms of manufacturing, research and development in biotechnology, and research and development in the physical, engineering, […]