Presenter: Jeff Tolson

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Presenter Jeff Tolson October 2008
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Top 10 business activities we all have in common

• Research new products and services
• Implement new applications/software
• Acquire other companies
• Expand facilities
• Consolidate facilities
• Open new facilities
• Retain employees
• Train employees
• Create new jobs
• Hire new employees

Did you know that the government provides
incentives for doing these activities?
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Agenda

• Defining Tax Credits
• Employment Tax Credits
• Location Based Tax Credits
• Federal and State Tax Credits and Incentives
• How you can get help

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What are tax credits?

• Tax credits are financial incentive programs
  created by federal, state and local governments
  to influence behaviors that stimulate the
  economy.
• Employment-based incentives
• Encourage businesses to hire targeted employees
• Motivate employers to locate or relocate in
  development areas
• Help the public revitalize economically
  distressed communities
• Transition individuals from public assistance
  into employment
• Non-employment-based incentives
• Incent businesses to expand and/or invest in the
  community
• Aid in enhancing skills of employees, assisting
  companies with the cost of training/retraining
  employees on new technology, equipment or
  operating systems

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Why Pursue Tax Credits Incentives?

• Key Benefits
• Reduce your federal and state tax liabilities
• Lower your effective tax rate
• Reduce your operating costs
• Increase earnings per share for your shareholders

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The Challenge Objections to Tax Credit Programs

• Too much paperwork
• Too many deadlines
• We worry about sensitive data security
• We dont hire these kinds of people
• Too many legal nuances
• This is not my job
• Whats in it for me theres no benefit for me

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Who Benefits from Tax Credits?
Financial
Healthcare
Restaurant
Manufacturing
Services
Retail
Consumer Products
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Employment Tax Credits
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Employment Tax Credit Opportunities

• Federal Programs
• Work Opportunity Tax Credit / Welfare to Work Tax
  Credit
• Federal Empowerment Zone / Renewal Community
  Employment Credit
• Federal Indian Employment Credit
• State Programs
• State Enterprise Zones / Geographically-Based
  Credits
• Point-of-Hire Credits

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Types of Tax Credits

• Work Opportunity Tax Credit (WOTC)
• Tax credit savings up to 2,400 per eligible new
  hire
• WOTC offers employers an incentive to hire and
  retain employees who qualify as a member of a
  target group
• Welfare to Work (WtW) Now included in WOTC!
• Tax credit savings up to 9,000 per eligible new
  hire
• WtW offers employers a financial incentive to
  hire long-term family assistance recipients (Aid
  to Families with Dependent Children-AFDC) who
  have received welfare for 18 consecutive months

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ADPs Five Principles of a Successful WOTC Program
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WOTC Best Practices

• Screening Compliance
• Gain HR key stakeholder acceptance and train HR
  associates on program details and the process
• Communicate, Communicate, Communicate Importance
  of Program
• Proactively contact non-performing stores/
  locations, encourage better participation and
  provide reminders on best practice procedures
• Eligibility
• Include an FAQ document and an instruction page
  with the 8850 form in order to make the
  eligibility questions easier to understand
• Form Compliance
• Communicate to managers the status of eligible
  employee forms
• Weekly status reports to locations 10 Days to
  expiration and Expired forms
• Follow up on missing 8850 forms as soon as they
  are identified

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WOTC Best Practices

• Certification
• Review the quality of the paperwork before
  submission to state
• Work to reverse improper denials
• Be informed of legislation changes/updates
  regarding tax credits and incentives
• Reporting
• Types of reports suggested for an efficient tax
  credit program are
• Credit Earnings Report based on certified
  employees wages
• Real-time compliance reports comparing the new
  hires reported by your hiring managers to the
  number of screenings
• Activity reports listing the screenings for the
  period

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Location Based Tax Credits
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Tax Credits Incentives (TCI)

• Statutory Tax Credits and Incentives
• Job Creation Credits
• Expenditure Activities / Investment Credits
• Training Credits / Grants / Reimbursements
• Property Tax Credits / Abatements
• And many more!

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Federal and State Tax Credits and Incentives
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Tax Credits Incentives (TCI)

• Economic Development Incentives
• Location Evaluation Selection
• Incentive Negotiation
• Incentive Administration
• Sales and Use Tax Recovery Audit Defense
• Research Development Tax Credits
• National Tax Benefit Exchange (NTBE)

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Economic Development Incentives

• Value
• Tax credit savings vary with program, some in
  millions
• State and local governments award 50 Billion in
  incentives each year!
• Opportunity
• Local incentives to help offset costs associated
  with new construction
• Above the line savings include cash grants,
  property tax abatements, sales tax exemptions and
  electric rate reductions
• Tax benefits include job credits, investment
  credits, research credits

The key to a successful program is getting
started early in the process
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EDS Case Study Pharmaceutical Company
48M Savings

• Project Parameters
• Areas Under Consideration NY, NJ and MI
• Project Location New York, NY
• Type of Project Consolidation
• Capital Investment 600 Million
• Impact on Employment Net gain of 2,000 jobs
• Issues
• Where to locate the 1,000 corporate jobs
  resulting from an acquisition?
• Excess corporate office real estate in NJ and MI
• Location decision contribute to overall company
  performance, while meeting high standards of
  financial accountability.
• Results
• 48.2 Million incentive package
• Provide shareholder value by reducing its costs
  of occupancy in NYC
• New York City and New York State gained
  commitments for 2,000 new jobs and capital
  investments of close to 600 Million.

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State Training Expenditures

• Value
• Most states allow certain dollar amount per
• employee who undergoes approved training
• Opportunity
• Employers that provide or sponsor
• approved training or retraining program
• Training provided at no cost to employee
• Most training related costs qualify for credit

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Training Credit Case Study Home Health Care
Company
318K Savings

• Project Parameters
• Areas Under Consideration Georgia
• Project Location 43-Georgia Locations
• Type of Project New Technology Implementation
• Capital Investment 1.1 million allocated to
  Georgia
• Training Requirements 20-hours per employee
• Impact on Employment No net losses of jobs
• Issues
• Retraining of approximately 1,000 recent hires
  and incumbent workers
• Improve access and distribution of client data
• Improve employee productivity
• Training spanned two-fiscal years, all taking
  place prior to submitting an application for the
  tax credit
• Results
• Amended tax return for 269,000 in tax credits
• Filed 49,000 toward estimated current year taxes
  

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Sales Use Tax Audit Defense Recovery

• Value
• Credit on sales and use taxes paid on certain
  purchases
• Opportunity
• Business conducting multi-state transactionsmay
  have over-paid sales and use tax
• Equipment
• Materials
• Hardware/Software
• Service
• Often purchases must be used exclusively in
  Enterprise Zone
• May be maximum amount of purchaseseligible

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Sales Use Tax Case Study Manufacturing
400k Savings

• Type of Business
• Durable goods manufacturer
• State North Carolina
• Problem
• Audit resulting in 330,825 excluding penalties
  and interest
• Assessment based on purchases that auditor
  believed taxable at regular 7 sales use tax
  rate
• Solution
• Sales use tax experience and focus
  
  to properly handle audit
• Identified documented purchases of
  
  raw materials used in
  manufacturing process
• Result
• Assessment reduced from 330,825 to 60,474
  82 reduction!
• Additional savings of 132,000 dueoverpayment of
  sales taxes to vendors
• Total Savings 400,000

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RD Tax Credit

• Value
• Federal Tax Benefit - 20 statutory rate
• State Tax Benefit
• NJ, MA and PA 10, CA 15
• CT 20 (Qualifying expenses more liberally
  defined)
• Opportunity
• Benefit for increased tech spending in excess of
  defined base spending
• Designed to promote domestic economic growth,
  productivity gains, national competitiveness
• Must be qualified research
• Develop new or improved product or process
• Technology in a field of science (physics,
  biology, chemistry, engineering, computer
  science)

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RD Tax Credit Case Study Defense Electronics
8M in Savings

• Type of Business
• Defense electronics company night vision
  devices, airborne electronic warfare systems
• Service Provided
• Study of open tax years 1998 thru 2003 (6 years)
  to identify projects, activities, departments and
  costs, in order to increase current and prior
  years RD tax credit.
• Findings of Study
• ADP identified additional qualified research
  expenditures of 125 million
• Increased Clients federal RD tax credit by more
  than 8 million
• Client previously failed to claim research funded
  by government for developing new weapon systems
  where client was at risk
• Prior study by a Big 4 accounting firm failed
  to identify these activities as qualifying
• The IRS erroneously cited a lower court decision
  that had been overturned by the Court of Appeals

Power to Grow
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National Tax Benefit Exchange (NTBETM)

• Value
• Potential to reduce tax liabilities by 7 to 20
• Potential to add cash flow when in NOL
• Opportunity
• Some states offer the ability to purchase and
  sell tax credits and/or NOLs (for eligible
  programs) ADP matches Buyers and Sellers of
  Salable State Tax Incentives
• The incentives are used against a variety of
  taxes, including Income, Franchise, Bank and
  Premiums
• Sellable incentives include
• State Research and Development Credits
• Low-Income Housing Credits
• Brownfield Credits
• New Jersey Net Operating Losses
• Film Credits

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Thank You

• Questions?
• Presented by
• Jeff Tolson, ADP Tax Credit Services