August 7, 2013

By Bob Heller, JD, LLM

Is your company leaving money on the table because you are unaware of available tax incentives?

If your business is involved in high-tech, aerospace or manufacturing, among other industries, you could be.

This year’s Legislature passed several new tax incentives intended to help the state grow and attract new business and improve employment. The new tax incentives are designed to attract or retain certain targeted industries, to make Washington a more competitive place to do business, and to incentivize businesses to expand.

While some tax incentives have been around for years (including the research and development credit for high-technology businesses enacted in 1994, the machinery and equipment sales/use tax exemption passed in 1996 and aerospace incentives approved when the state successfully convinced the Boeing Co. to build its 787 Dreamliner here in the early 2000’s), several new incentives were recently added. Those include incentives in the areas of:

  • Agriculture / Food Manufacturing
  • Renewable Energy/Green Industries
  • Large Private Aircraft
  • Medical Services
  • Amusement and Recreation Services
  • Investment Management Services

Like the preexisting incentives, these new statutory incentives offer a mix of credits, exemptions and exclusions from Washington business and occupation (B&O) tax, sales/use taxes and property taxes. In contrast to many other states, which permit their elected officials and economic development authorities to negotiate deals with individual companies in an effort to win their business, Washington law requires that all tax incentives be enacted through the state’s legislative process and available to any companies meeting the specific qualifying criteria set out by the Legislature.

Many Washington tax incentives also require companies to file additional paperwork to prove they qualify for the tax breaks. In some cases companies must submit annual surveys or similar documents reporting on how the companies’ used the incentives they have claimed. In other cases they must apply for the tax breaks in advance of claiming any benefits.

In many instances companies don’t realize they are engaged in activities that qualify them for incentives, or are unaware of the extent of the credits and exemptions they are entitled to. Speaking to a tax advisor with a strong background in Washington incentives can help the business to:

  1. Determine if any of the company’s business activities qualify for tax breaks.
  2. Determine if such tax incentives were overlooked in the past and can be recouped retroactively.
  3. Make sure that the tax incentives are being taken appropriately and that all administrative requirements have been met.

A skilled advisor can assist in other ways as well. For example, we often encounter high-tech companies taking advantage of the R&D credit to offset a portion of their B&O tax liabilities, but basing the calculation of the credit on only those R&D expenses allowed under federal law. The Washington R&D credit is very similar to the federal income tax credit, but the Washington credit has a broader definition of qualifying expenditures. Companies basing their Washington credit on federal law are typically leaving money on the table.

In appropriate cases Clark Nuber will agree to work with companies on a findings-fee basis, taking a percentage of the amount recovered for past periods. A findings based fee minimizes the cost of exploring whether tax refunds are available from unclaimed tax incentives in prior tax years. In other situations Clark Nuber will work with businesses on a project or hourly basis to understand and maximize the benefit of Washington tax incentives available to them.

© Clark Nuber PS, 2013.  All Rights Reserved

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.