Tax Incentives for the Aerospace Industry. Star Fischer, CPA

Transcription

1 Tax Incentives for the Aerospace Industry Star Fischer, CPA 1

2 The material appearing in this presentation is for informational purposes only and is not legal or accounting advice. Communication of this information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials may have been prepared by professionals, they should not be used as a substitute for professional services. If legal, accounting, or other professional advice is required, the services of a professional should be sought. 2

3 AGENDA Washington State Incentives o Reduced B&O Tax Rate for Aerospace Businesses o B&O Credit for Preproduction Development Expenditures o B&O Credit for Property/Leasehold Taxes paid on Aerospace Business Facilities o Sales & Use Tax Exemption for Computer Hardware/Software/Peripherals o B&O High Technology Credit and Exemption Federal Tax Incentives o R&D Tax Credit o Cost Segregation o Energy Efficient Commercial Building Deduction 3

4 WASHINGTON AEROSPACE TAX INCENTIVES NOTE: In order utilize any of the aerospace incentives except for the sales/use tax exemption, an annual report must be filed by April 30 following the year in which a business uses an incentive. 4

5 GENERAL BACKGROUND According to a 2011 Report to Legislature published by the Department of Revenue, 331 firms claimed at least one aerospace incentive. This represents only half of the aerospace companies in Washington. Many aerospace companies may only be claiming some of the incentives that they are entitled to. Moss Adams contact: Jin Choi, CPA Jin.Choi@mossadams.com 5

6 REDUCED B&O TAX RATE FOR AEROSPACE BUSINESSES Manufacturers & Processors for Hire % Manufacturing and sales by the manufacturer of commercial airplanes or component parts or tooling especially designed for use in manufacturing commercial airplanes and component parts of commercial airplanes. Aerospace Product Development Businesses 0.9% Aerospace non-manufacturers engaged in the business of aerospace product development Aerospace product development means research, design, and engineering activities performed in relation to the development of an aerospace product. Aerospace product is defined as follows: o o o Commercial airplanes and their components; Machinery and equipment (M&E) that is designed and used primarily for repair performed on commercial airplanes or their components by FAA Part 145 certificated repair stations; and Tooling specifically designed for use in manufacturing commercial airplanes or their components. Certificated FAR Part 145 Repair Stations % Businesses in retailing activities for maintenance, repair, overhaul, or refurbishing of airplanes or their components by the following customer types: o United States government; Business use in conducting interstate or foreign commerce; or Business use in providing intrastate air transportation by a commuter air carrier Moss Adams contact: Jin Choi, CPA Jin.Choi@mossadams.com 6

7 OTHER AEROSPACE INCENTIVES B&O Credit for Preproduction Development Expenditures o Credit equal to the amount of qualified aerospace product development expenditures multiplied by 1.5% B&O Credit for Property/Leasehold Taxes paid on Aerospace Business Facilities For FAR Part 145 repairers, additional B&O tax credit is available for property taxes paid on computer hardware, computer peripherals, and software Sales and use tax exemption applies to purchases of computers, software, and peripherals used primarily in the development, design, and engineering of aerospace products, or in providing aerospace services Moss Adams contact: Jin Choi, CPA Jin.Choi@mossadams.com 7

8 HIGH TECH R&D INCENTIVES Deferral and ultimate waiver of state and local sales and use taxes on construction or purchase of facilities or machinery by taxpayers engaged in qualified activities. B&O credit for eligible expenditures on qualified activities in excess of.92% of taxable income. Qualified activities o Advanced computing o Advanced materials o Biotechnology o Electronic device technology o Environmental technology Moss Adams contact: Jin Choi, CPA Jin.Choi@mossadams.com 8

9 Federal Tax Incentives Available for the Aerospace Industry NOTE: In order utilize any of the aerospace incentives except for the sales/use tax exemption, an annual report must be filed by April 30 following the year in which a business uses an incentive. 9

10 RESEARCH AND DEVELOPMENT CREDIT Applies to taxpayers involved in new product and/or process development. Can be equal to 6.5% of qualified expenditures (dollar for dollar tax reduction) Qualified expenditures o Wages o Supplies o Contract Research Moss Adams aerospace client profile o Annual credit claims ranging from $5,000 - $1,500,000 o Average annual credit is $100,000 Moss Adams contact: Star Fischer, CPA Star.Fischer@mossadams.com 10

11 COST SEGREGATION What is Cost Segregation? o Tax Deferral Strategy that accelerates depreciation deductions o Reclassification of qualified real and personal property into shorter depreciable tax lives from 39 years to 5, 7 or 15 years o Average net present value per $1 million in building cost is $50,000. Benefits o Increases Cash Flow - Personal property has shorter depreciable life and more accelerated depreciation rate than real property o Time Value of Money Benefit - Net Present Value savings is generated by deferring taxes to a later date Cost Segregation Candidates o Project costs of at least $300,000 for improvements to $1,000,000 for ground up new construction o Constructed, Purchased or Improved within the last years depending on depreciable basis remaining o Planned holding period of 5 years or more Moss Adams contact: Jason Thompson, CPA Jason.Thompson@mossadams.com 11

12 179D ENERGY EFFICIENT COMMERCIAL BUILDING DEDUCTION Energy Policy Act of 2005 (Currently applies thru 2013) o Established an immediate tax deduction of up to $1.80 per sf Related to 50% reduction in power costs over established standard Encompasses 3 components ($0.60/each): Lighting, HVAC, Building Envelope Available for newly constructed or renovated commercial buildings o Interim Lighting Rule Up to $0.60/sf deduction for reduction in lighting power density (25%) o Government Entities may assign deduction to primary designer Moss Adams contact: Jason Thompson, CPA Jason.Thompson@mossadams.com 12

13 QUESTIONS? Star Fischer, CPA Jin Choi, CPA Research Tax Credit Group State and Local Tax Moss Adams LLP Moss Adams LLP Jason Thompson, CPA Cost Segregation Moss Adams LLP