State R&E credits.The Federal research and experimentation (R&E) credit provides a tremendous incentive for companies to increase their investment in U.S.-based research and development. The regular research credit generally is 20% of the excess of (1) the qualified research expenses for the year over (2) the "base amount." While taxpayers and practitioners are generally familiar with the Federal credit, many are unaware of, and often do not look beyond, the R&E credit to the opportunities that exist at the state level. Currently, 26 states have enacted R&E incentives to assist businesses and to attract new businesses. Over the past several years, numerous states have come to recognize the long-term benefits of implementing the R&E credit and how it affects their economies by creating new products and jobs and attracting new businesses. Currently, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Iowa, Kamas, Louisiana, Maine, Massachusetts, Minnesota, Mississippi, Missouri, New Jersey, North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures Area, 52,586 sq mi (136,198 sq km). Pop. , North Dakota North Dakota, state in the N central United States. It is bordered by Minnesota, across the Red River of the North (E), South Dakota (S), Montana (W), and the Canadian provinces of Saskatchewan and Manitoba (N). , Ohio, Oregon, Pennsylvania, Rhode Island Rhode Island, island, United States Rhode Island, island, 15 mi (24 km) long and 5 mi (8 km) wide, S R.I., at the entrance to Narragansett Bay. It is the largest island in the state, with steep cliffs and excellent beaches. , Utah, West Virginia West Virginia, E central state of the United States. It is bordered by Pennsylvania and Maryland (N), Virginia (E and S), and Kentucky and, across the Ohio R., Ohio (W). Facts and Figures Area, 24,181 sq mi (62,629 sq km). Pop. and Wisconsin have enacted some form of R&E credit. Generally, states that have enacted R&E incentives base their credits in part on the Sec. 41 credit. Since 1981, the Code has provided a benefit for R&E expenditures in the form of an income tax credit. However, successive years of Federal tax legislation, in which the credit has lapsed LEGACY, LAPSED. A legacy is said to be lapsed or extinguished, when the legatee dies before the testator, or before the condition upon which the legacy is given has been performed, or before the time at which it is directed to vest in interest has arrived. Bac. Ab. Legacy, E; Com. Dig. and been reinstated while state R&E credits were still available, have added complexity and uncertainty, causing taxpayers to overlook the opportunity that state R&E credits offer. Coupling this complexity with 26 different state-level modifications creates a high level of uncertainty and complexity, and causes taxpayers to fail to take full advantage and maximize the benefits at the Federal level (and almost always overlook the state-level opportunities). Another complicating com·pli·cate tr. & intr.v. com·pli·cat·ed, com·pli·cat·ing, com·pli·cates 1. To make or become complex or perplexing. 2. To twist or become twisted together. adj. 1. factor causing taxpayers to overlook state R&E opportunities is the December 1998 IRS-proposed regulations for the R&E credit, which most of the 26 states look to for a definition of "qualified research" expenses (for which the R&E credit is available). Prop. Regs. Sec. 1.41-4 provides rules but no definitions for determining when research (1) is "undertaken for the purpose of discovering information ... which is technological in nature" and (2) consists of activities that "constitute elements of a process of experimentation" Also, Prop. Regs. Sec. 1.41-4 puts forth the concept that "qualified research" must "exceed, expand, or refine" the "common knowledge" of skilled professionals in the taxpayer's field. Thus, a potpourri of undefined terms further intimidates taxpayers. In addition, two recent court cases, United Stationers United Stationers NASDAQ: USTR is the largest wholesale distributor of office products in North America, with sales in excess of $4 billion. Its brands include Azerty, a computer products distributor, and Lagasse, a sanitary maintenance company. , Inc., 7th Cir., 12/24/98, and Norwest Corp., 110 TC 454 (1998), analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. the existing tests for determining qualified research, in particular the "innovativeness test," "significant economic risk test" and the "commercial availability test" that surround the R&E credit for internal-use software. Regardless of this uncertainty and complexity, taxpayers and practitioners alike must aggressively review and analyze the state-level R&E opportunities, as the long-term benefits can result in significant income tax savings and value to those businesses conducting research. FROM RONALD RONALD Rocketborne Optical Neutral gas Analyzer with Laser Diodes G. WAINWRIGHT Wainwright, town (1991 pop. 4,732), E Alta., Canada, SE of Edmonton and near the Sask. border. It is a trade center and railroad division point for an oil and natural gas area. It has oil refineries, grain elevators, and flour mills. Nearby is a military base. , JR., RALEIGH, NC |
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