Let’s take a brief look at the current tax issues for companies in the technology, clean technology, life sciences, and communications and media industries.
Tax Extender Bill Enacted
On December 19, 2014, the president signed the Tax Increase Prevention Act of 2014 (TIPA). TIPA is the latest tax relief extender package, a stopgap measure that retroactively extends certain provisions through December 31, 2014, that expired at the end of 2013. The extended provisions include bonus depreciation, increased Section 179 expenses, and the R&D tax credit. For more details, see our TIPA article.
Small Business Relief for TPR: Exercise Some Caution
Over the past two years, the IRS has finalized new rules on how taxpayers are to account for tangible property they acquire, produce, repair, and dispose of. These new rules affect virtually all taxpayers. In an early Valentine’s Day gift, the IRS provided some simplified procedures for small taxpayers. These new simplified procedures apply to taxpayers with less than $10 million in assets as of the first day of the year or $10 million or less in average annual gross receipts for the prior three years. For these taxpayers the administrative burden is greatly simplified. It allows taxpayers to make most of the required method changes prospectively without filing the federal Form 3115, Application for Change in Accounting Method. While this is generally good news, we do recommend to our clients that they understand what changes are available because many are taxpayer favorable. Also, while the simplified rules are easier, they don’t provide audit protection.
Selling into the EU?
Beginning January 1, 2015, the European Union’s new value-added tax (VAT) rules apply to organizations in broadcasting, telecommunications (such as telephone and text), and e-services—that is, software downloads, Web site supply and maintenance, cloud computing, music or video downloads, computer game downloads, and certain types of Internet-based instruction. For more details, see our article on new VAT rules.
There have been a few developments since our last update.
In January the IRS issued new proposed regulations surrounding the R&D tax credit, which expanded and clarified the definition of internal use software (IUS), lifting some eligibility requirements for certain software development activities. The proposed changes aim to make the tax credit more readily available to small businesses and others whose software development activities may not previously have been eligible for the credit. Although the proposed regulations have yet to be finalized, the IRS has stated it won’t challenge return positions consistent with the regulations going forward. For more details, see our article about proposed R&D developments.
In February the IRS issued final regulations that allow taxpayers to make an alternative simplified credit (ASC) election on an amended return. This finalizes a taxpayer favorable position initially proposed in June 2014. In general, the ASC is a simpler way to claim the research credit; however, it may not be as beneficial.
International Tax Planning–Not Dead Yet
Over the past few years, there has been a lot of talk about international tax planning and inversions. While the Treasury Department did take some steps to limit the ability of US companies to re-incorporate offshore, international tax planning still remains a viable tax planning tool. Recently, it was reported that one large public company reported more in foreign earnings than it had in foreign sales. This company is still headquartered in the United States; it has obviously effectively migrated some intellectual property offshore. The benefit to the company was to reduce its effective tax rate to less than 20 percent. This strategy still works for many companies.
Also, over the course of the past few years, many countries have extended or expanded their tax incentives to lure companies to their countries. They want companies to employ their citizens.
If you have or are planning foreign operations, you should be considering if there are potential international tax planning benefits.
California Sales and Use Tax Partial Exemption
This is a reminder to take advantage of the California sales and use tax partial exemption. The exemption is available to businesses classified under NAICS codes 3111–3399 (manufacturing), 541711 (biotech R&D), and 541712 (physical, engineering, and life sciences R&D). To claim the exemption, a business needs to complete BOE 230-M and present it to the seller. The form can be used for a specific purchase or a series of purchases under a purchase order. For more information on the companies and expenses that qualify, contact Ken Huang at (415) 677-8320 or firstname.lastname@example.org, or Kelly Bluth at (916) 503-8210 or email@example.com.
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Moss Adams continuously reviews the regulatory and tax landscape for technology, clean technology, life sciences, and communications and media companies. For more information about any of the issues discussed above, or for insight on how they may impact your business, contact your Moss Adams professional.