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Idaho Company Increases Sustainability Efforts

Fish Breeders of Idaho is setting up a feed facility to recycle a waste product into an expensive feed ingredient.

Fish Breeders raises a variety of fish and had been giving away the waste generated by producing fillets and other products for the market. But this is all about to change. This is all about to change. The company is building a facility to generate fish feed without using dry fishmeal.

“The best thing you can feed a fish is another fish,” said Leo Ray, company found and president.

The company has plans to make many different kinds of feed to cater both to the different species of fish raised, and for different life stages.

Ray says that about 30-50% of the store’s fish may be sold while the other percentage would be considered waste products.

“If you grow a fish, you have enough waste to make fishmeal to grow another pound of fish. If you do it right, it’s a very sustainable process, all you have to do is add grains – there’s not excuse for depleting the ocean,” said Ray.

Using an internally generated product instead of fishmeal is supposed to cut the company’s expenses for fish feed almost in half.

To find out more about R&D or to determine whether you may be eligible for an R&D Tax Credit Contact a Swanson Reed specialist to see if you qualify.

How the New R&D Credit is Helping Small Businesses with AMT and Payroll Tax Offsets

AMT Tax Offset

The newly revamped R&D Tax Credit program, as enacted through the PATH Act, now permits eligible small businesses (ESB) to include the R&D credit in the calculation of the Alternative Minimum Tax (“AMT”) for tax years commencing after December 31, 2015.

An eligible small business for purposes of offsetting AMT is:

A corporation whose stock is not publicly traded, a partnership, or a sole proprietorship whose average annual gross receipts (net of returns & allowances) for the 3-tax-year period preceding the tax year of the credit claimed does not exceed $50 million.

If the business did not exist for the 3-year period prior to the claim, then the average annual gross receipts should be based on the period in which the business existed.

AMT removes nearly all deductions and credits in calculation of a truly alternative tax that is imposed on taxpayers who exceed certain statutory thresholds. Without deductions & credits, the affected taxpayers are exposed to a level of taxation that is higher than what would result from following the normal rules. The PATH Act allows the inclusion of the R&D tax credit in those calculations, and, as such, it is one of the few “safe harbors” against the effects of AMT.

Thus, this AMT modification assists small business owners who are currently subject to AMT to actually utilize the benefit of the R&D Tax Credit. Therefore, they can then use these tax savings to reinvest the saved tax dollars back into their businesses to strengthen R&D efforts and cultivate their companies.

In addition, partners and shareholders of LLC’s and SCorps can apply their share of the R&D credits, as passed through the K-1 distributions, to their personal returns if BOTH the entity and these individuals pass the gross receipts test described above. In some softwares, when tax preparers begin to complete the Schedule K-1, they are prompted to select or non-select whether, or not, the distribution satisfies the requirements of an ESB. Indicate affirmatively. This prompt may appear in different places in other softwares. Regardless, the R&D credit can assist these individuals with avoiding AMT in their personal returns.

Moreover, the amended R&D tax credit allows qualified start-ups to use the credit to offset the employer share of FICA taxes as discussed below.

Payroll Tax Offset

Previously, startups with no income tax liabilities could only carry forward R&D credits to a time that income taxes were owed. However, the new R&D tax credit now allows qualified small businesses to elect to use all or a portion of their R&D tax credit to offset the employer portion of payroll taxes, instead of waiting to use the credit against income taxes.

Highlights of the rules:

Available for tax years beginning on or after January 1, 2016.
Gross receipts cannot exceed $5 million in the year claimed & zero in all years preceding the four years prior to the year of claim (aka “the five years ending with the current year”). The law does not specify the threshold applicable to the four years preceding the current year, so certain, conservative assumptions must be made until clarity is provided.
These companies can take a credit against the employer portion of FICA taxes only–other payroll taxes are excluded.
Credits used are capped at the lesser of credits earned or $250,000 per year for five years.

To elucidate on the above, these companies can now take a credit against the employer’s portion of FICA taxes. The FICA tax is the Federal Insurance Contributions Act tax and is a United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare. The former is derived at a rate of 6.2% of gross wages, while the latter is derived at a rate of 1.45% of gross wages, a total of 7.65% of gross wages. Employees’ paychecks are levied at these rates, and employers pay the same amounts. Only the employer portion is subject to offset.

In addition, there is a maximum credit capped at up to $250,000 per each eligible year for five years. The payroll tax offset is effective for 1/1/2016, but not available for 2015 or earlier periods. It is important to note that the total of payroll tax credit claimed does not decrease the amount of deductions permitted for payroll taxes on the tax returns. Furthermore, any unused credit may be carried forward to offset against future payroll tax liabilities.

A “Qualified Small Business” for purposes of the payroll tax credit election is described as a corporation or partnership with under $5 million in annual gross receipts and has no gross receipts preceding five years. Hence, this is particularly valuable for start-up companies, who majority of the time will produce R&D expenses but won’t have a taxable income and aren’t paying federal income taxes.

To provide further clarification, we’ve provided two examples:

Example 1

DEVO, a small tech company founded in 2014, had acquired substantial R&D and payroll expenses in tax year 2015, however no revenue was produced. Since it worked at a loss, DEVO did not claim any R&D Tax Credit in 2015. Moreover, the small company expects 2016’s activities to be comparable with those of 2015.

DEVO’s 2016 Activity

Business Form of the Taxpayer	C-Corporation
R&D Tax Credit Eligibility	$150,000
Payroll Tax Liability	$100,000

Because of the PATH Act, DEVO should secure the $150,000 of R&D Tax Credit in 2016 and elect to offset it against the $100,000 of payroll tax liability and carry forward the remaining $50,000 to offset against future payroll tax liability.

Example 2

DEVO’s 2017 Activity

Business Form of the Taxpayer	C-Corporation
R&D Tax Credit Eligibility	$200,000
Income Taxes	$100,000
Payroll Tax Liability	$150,000

In 2017, DEVO started to make a profit. DEVO will apply their $200,000 R&D Tax Credit against their income taxes, leaving $100,000 of the credit remaining. Under the PATH ACT, this remaining credit will be used to offset $100,000 of their $150,000 payroll tax liability.

How To Apply

The IRS recently released Notice 2017-23, which provides interim guidance regarding how eligible businesses can elect the payroll tax offset. To apply, the business must complete and attach Form 6765, Credit for Increasing Research to their income tax return. However, if a business has already filed this tax season, they can still take advantage of the new option. Due to a special rule for the 2016 tax year, businesses that did not originally choose the option can still do so by completing an amended return by December 31, 2017.

To be eligible for the extension, the company must indicate on the top of Form 6765 “FILED PURSUANT TO NOTICE 2017-23,” or attach a statement to its Form 6765 that the form is filed pursuant to Notice 2017-23.

Once the option has been selected, businesses can claim the payroll tax credit by filling out Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities and attaching it to their payroll tax return. The taxpayer filing the employment tax return claiming the credit must provide on Form 8974 the EIN used on the Form 6765 reflecting the election.

For further information on claiming the Payroll Tax Offset or the AMT Tax Offset for small businesses, contact a Swanson Reed tax specialist today.

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Invent Penn State Driving Innovation and Economic Development

Launched in 2015, Invent Penn State has created innovation hubs across the Commonwealth. The university is committed to becoming a first-class innovation hub in order to contribute to Pennsylvania’s economic development.

The Invent Penn State program connects researchers with those who can commercialise their discoveries and intends to encourage entrepreneurship, economic development and student career success over the long-term. The university is developing a culture that encourages, nurtures and rewards entrepreneurship in all fields of study. Areas include energy, environmental protection, healthcare, food security and manufacturing.

Recognizing that great ideas need support, Penn State have invested an initial $30 million in the program with $5 million in funding annually, in order to turn research into commercial products and services while creating jobs in the process. The investments will allow students to be placed in emerging fields and provide job opportunities.

Penn State University contributes over $16 billion to the state’s economy per year, making it the single largest provider. Graduate starting salaries are very highly ranked in business magazines. Their Fund for Innovation is proving very successful and has already started seven new ventures and has funded around 50 emerging technologies. This fund wants to accelerate and de-risk the commercialization process for new technologies.

The Fund for Innovation awards grants to inventors from the colleges at various stages of commercialization. It administers these awards in partnership with college commercialization grant programs such as the College of Engineering ENGINE Grant Program.

The faculty Associate Dean for Research issues a request for proposals up to twice a year and chooses the most commercially viable projects. The college then provides a grant and matched funding is provided by the Fund for Innovation.

State and federal R&D tax credits are available for start-ups in Pennsylvania. To find out whether your business is eligible, contact one of our Swanson Reed offices for an obligation-free assessment.

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North Carolina R&D project receives $1.47m Grant

SeaTox Research Inc. and the University of North Caroline Wilmington (UNCW) have collaborated in an R&D study to further develop toxin tests for seafood.

The study has now received a $1.47 million R&D grant, which will provide significant advancement in its ability to detect neurotoxins from harmful algal blooms that make people sick when they eat contaminated fish and shellfish.

The tests are designed to be used by research groups and regulatory agencies to monitor toxin content in fisheries to protect the public from the detrimental effects of neurotoxins.

SeaTox Research Inc. is a biotechnology company located in UNCW’s CREST Research Park. It is involved in assay development and pharmaceutical R&D utilizing materials, originating from the marine environment.

Assay development involves inventing and designing scientific tests, modifying the tests to optimize efficiency and then validating those tests with a large pool of data to determine effectiveness.

The university’s strategic plan includes innovation as one of its core values as this is a commitment to continuous improvement and breakthrough advances to ensure distinctiveness.

To find out more about R&D or to determine whether you may be eligible for an R&D Tax Credit Contact a Swanson Reed specialist to see if you qualify.

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New 3D printing R&D facility opening in North Carolina

North Carolina may become the next 3D printing hub in the near future after Swiss company, Oerlikon, announced it will be opening a new R&D production facility for advanced 3D printed parts in Charlotte, NC.

The new facility will offer clients integrated, end-to-end services for advanced additive manufacturing. 3D printing offers manufacturers a number of advantages over traditional manufacturing processes, such as customization and efficiency in terms of materials, lead time, and cost.

Oerlikon, the globally recognized technology group, will be investing roughly CHF55 million (Approximately $55 million USD) into the new facility over the next two years and will create over 100 new jobs.

The company says additive manufacturing has been identified as a potential growth area, and is primed to leverage its strong materials heritage, service reputation, access to markets, and more.

With its new 3D printing R&D and production facility, Oerlikon is aiming to further establish itself as a global leader in surface solutions and advanced materials. The expansion of the company’s global additive manufacturing business can be owed to the simultaneously growing demand for advanced 3D printed metal parts in various industries.

The planned R&D facility in Charlotte will be an important step in Oerlikon’s plans to grow their additive manufacturing business and investment in key technology areas.

To find out more about R&D or to determine whether you may be eligible for an R&D Tax Credit Contact a Swanson Reed specialist to see if you qualify.

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Minnesota Researchers Develop Groundbreaking Process

A groundbreaking one-step, crystal growth process for making ultra-thin layers of material with molecular-sized pores, has been developed by a team of researchers at the University of Minnesota. Researchers demonstrated the use of the material, called zeolite nano-sheets, by making ultra-selective membranes for chemical separations.

This new discovery could improve the energy-efficiency of chemical separation methods used to make everything from fuels to chemicals and pharmaceuticals.

“Overall, we’ve developed a process for zeolite nano-sheet crystal growth that is faster, simpler, and yields better quality nano-sheets than ever before,” said Michael Tsapatsis, the lead researcher on the study. “Our discovery is another step towards improved energy efficiency in the chemical and petrochemical industries.”

Today, most chemical and petrochemical purification processes are based on heat-driven processes like distillation. These processes are very energy-intensive. For example, chemical separations based on distillation represent nearly 5 percent of the total energy consumption in the United States.

Several companies and researchers are developing more energy-efficient separations based on membranes that can separate molecules based on size and shape. One class of these membranes is based on zeolites, which are silicate crystals that have pores of molecular dimensions. However, the multi-step processes for manufacturing these membranes are costly and difficult to scale up, and commercial production remains a challenge.

The researchers at the University of Minnesota have developed the first-ever, bottom-up process for direct growth of zeolite nano-sheets, which can be used to make high quality molecular sieve membranes. The new material, is only about five nano-meters in thickness, and several micrometers wide. The new nano-sheets also grow in a uniform shape making it much easier to make the membranes used in chemical purification.

Mi Young Jeon, the first author of the study describes the new material as being like tiling a floor with large, uniform tiles compared to small, irregular chips of tile. Jeon explains that uniform-shaped zeolite nano-sheets also make a much higher-quality membrane with surprisingly high separation values that can sieve-out impurities.

The research findings are a big step forward and researchers are looking forward to the future changes the discoveries will make to energy efficiency in chemical and petrochemical industries.

To find out more about R&D or to determine whether you may be eligible for an R&D Tax Credit Contact a Swanson Reed specialist to see if you qualify.

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R&D creates a new form of boating docks…

Forest Lake-based R&D Manufacturing Inc. has made a name for itself in Minnesota and Wisconsin for its easy-to-install, lightweight V-Dock boating docks and accessories. R&D manufacturing sells an average of three miles of decking per year, the equivalent of 15,840 feet. Docks made by the company, which employs only six people, range from 32 to 300 feet.

The company’s Roll-in and Roll-n-Float portable docks allow consumers to roll docks into the water ‘as is,’ with no further assembly other than connecting the self-locking pieces together using a steel pins. If water levels rise or fall, the dock can be raised or lowered by using a cordless drill or a handle provided by R&D Manufacturing.

Most docks on the market require owners to remove decking tiles before rolling it into or out of the water. Simplifying the installation process has led to R&D Manufacturing’s growing popularity.

Three years ago, the company ramped up its online marketing and expanded its consumer base by shipping its portable docks to other destinations in the U.S. Some of their most recent shipments went to Texas and Alaska. The move has resulted in two consecutive record years for the company.

In 2016, the company saw sales growth of 35 percent, marking the company’s most profitable year, said co-owner Rick Johnson. All docks are sold and shipped directly to customers.

The company was founded in 1982 by Johnson’s father, Dick Johnson, who wanted to create a more sturdy and easy-to-install boating dock for Minnesotans. A trained welder, Johnson created his own brand of docks using V-shaped beams located under the dock for better support and to better absorb impact and movement. Johnson designed his own tools and machinery to make the docks and in 1982 started R&D Manufacturing. The company has since produced five patented designs.

“The customers we get are not first-time home buyers,” Johnson said. “The kids are out of the house. They need a simple way of installing the dock. They don’t want to go in the water to put posts in. They want to put it in and out.”

To find out more about R&D or to determine whether you may be eligible for an R&D Tax Credit Contact a Swanson Reed specialist to see if you qualify.

New La-Z-Boy Innovation Center In Dayton

Exciting times of innovation lie ahead for La-Z-Boy – Users may soon be able to operate their chairs with their iPhones!

Chief Executive Kurt Darrow, says innovation at the company is vitally important and is one of the things that makes the company different from others. In light of this, La-Z-Boy have opened a new $16 million research and development center in Dayton, Tennessee. The 70,000-square-foot center will serve as the innovation hub for the entire company.

The innovation center will be located directly across the road from its 1.2 million-square-foot manufacturing plant, which is also due to receive a $10 million upgrade and renovation.

The R&D center will add an additional 115 employees to the existing 1,400 people who already work at the Dayton site, where more than 800,000 pieces of furniture are made every day.

Gregg Schweir, the company’s vice president of R&D, said the work is a commitment to customers, employees and the Dayton community. “We build great products and spend a lot of time innovating,” he said. “It’s an investment in people and will keep us competitive for years to come.”

Allen Borden, assistant commissioner for the Tennessee Department of Economic and Community Development, said the state’s workforce and improved education offerings are the biggest reason why Tennessee is making R&D strides.

The new R&D center, which is planned for opening in approximately 12 months, will about double the size of the company’s existing facility in Dayton. It will have much more equipment and hold added space for working teams. The facility will house approximately 75 people and will have a model shop, technology center, test lab and 3-D printing capabilities.

The Dayton plant is the only La-Z-Boy facility that makes furniture in all three upholstery categories — recliners, motion sofas and stationary upholstery. It also makes about 90 percent of the various frame styles in the company’s manufacture-branded product line and services the Southeast, Midwest and Northeast parts of the country.

Don Mather, vice president of La-Z-Boy Tennessee, said the work produced at the new innovation center will “drive a stake in the ground” for Dayton. It will help the company be an innovative leader in its industry.

To find out more about R&D or to determine whether you may be eligible for an R&D Tax Credit Contact a Swanson Reed specialist to see if you qualify.

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Navy to conduct drone flight research

The short-term R&D project, in which unmanned aerial systems (UAS) will be tested, is being conducted by the Office of Naval Research with the Raspet Flight Research Laboratory at Mississippi State University.

According to the office of Naval research, the flight testing to evaluate UAS capabilities will commence at the Stennis Space Center in coastal Mississippi in May and continue through to June. One of the features planned to evaluate are drone-mounted lasers that can measure water depth from the air, known as Light Detection And Ranging technology (LIDAR).

LIDAR measures the distance to a target by shining a laser light beam on the target, it is the same technology being used by law enforcement agencies now, in replace of radar guns, to measure the speed of a moving vehicle.

The drone in use for the test is called the Outlaw SeaHunter, developed by Griffon Aerospace in Huntsville, Alabama. The twin propeller drone has a 16-foot wingspan and a length of 9.9 feet, according to Griffon Aerospace. With a payload capacity of 90 pounds, the drone can fly for over four hours and over eight with an external fuel tank.

SeaHunter is the most capable member of Griffon’s unmanned aerial vehicle (UAV) family, it is designed as a cost effective, reliable, Class III Multi-engine platform. SeaHunters are currently being used by military, universities, and research agencies for training, testing, data collection, and system R&D.

The demonstration of the LIDAR technology will be a short-term project, so there won’t be a permanent presence of the Navy. That being said, it is suggested that the research associated with the project could lead to a better understanding of coastal ecology and wetlands ecology.

To see whether your company can take advantage of the R&D tax credit, speak to one of our expert advisers at Swanson Reed.

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Kansas is the new hot spot for global baking innovation!

Plano county in Kansas is now home to a state-of-the-art, 30,000 square-foot, innovation baking center. Middleby Bakery Group has installed their truck-sized innovative baking machinery into the innovation center and is already churning out diet-busting sweets at almost the speed of sound.

The collection of machinery at the facility work together to automate baking in a way unimaginable to most bakers. The $2.3 million center will serve as a test kitchen, allowing commercial bakers who have been testing new products in small batches, to ramp up production and see what tweaks are needed when the muffins, buns or breads roll out at a rate of four tons an hour.

The facility is an extended R&D lab for bakers worldwide who want to try new things without having to shut down their own production lines to conduct tests. It allows bakers and food makers to test-drive their ideas at the center instead of spending large amounts of money in producing experimental lines in their stores. For consumers, the benefits consist of significantly reducing the time its takes innovative goods to come to the market, and also providing better consistency in the products out now.

Mark Salman, president of Middleby Bakery Group, says with the equipment available at the center, adjusting products to specific consumer dietary requirements or providing less fat and sugar options, can now be developed and produced in weeks and months, as apposed to several years. Additionally, the facility will also work on projects to improve the overall shelf life of its baked goods.

In addition the the hundreds of highly innovative and world class machinery at the facility, the R&D baking center also contains the world’s widest tunnel oven and is expected to draw commercial baking customers from across the globe to the industrial area. The center is also expected to bring people to the area from outside the state that want to partner with Middleby on improving the food production process and using automation and leveraging technology.

Currently the most impressive piece of machinery at the center is the Auto-Bake Line, a 46-foot long by 11-foot tall oven with three baking levels, which can produce more than 25,000 golden-topped blueberry muffins an hour.

While the introduction of the new equipment is a significant adjustment, the majority or workers have been able to embrace the change. Ron Baker, strategic campaign coordinator with the Grain Millers International Union, says “As a union, we don’t reject technology, we embrace it and make sure people are treated fairly when innovation comes into the workplace.”

To find out whether your experimental activities are eligible for the R&D tax credit, contact Swanson Reed R&D Tax Advisers for an obligation-free assessment.

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