If you’ve ever had the nagging suspicion that your company is paying too much in taxes, chances are you’re right. At a recent webinar hosted by Aronson LLC, tax experts Michael Colavito and Jim Fennel highlighted the wide variety of state tax credits available within the mid-Atlantic region, many of which often go unnoticed by government contractors and other eligible companies in Maryland, Virginia, and Washington D.C.
Being in compliance with the state and local tax filing requirements, Fennel stated, is a key priority for most businesses – and justifiably so. Oftentimes, however, companies become so focused on maintaining the proper levels of compliance that they fail to be strategic in their tax planning approach, ultimately missing out on valuable credit opportunities and leaving significant tax dollars on the table.
Colavito, who specializes in state and local tax planning at Aronson and is responsible for helping companies take advantage of tax saving opportunities, offered up several examples of valuable credits available to government contractors and companies.
The state of Maryland, for example, recently rolled out a Cybersecurity Investment Tax Credit that allows Qualified Maryland Cybersecurity Companies (QMCCs) – specifically those that secure investments from investors selling cybersecurity products – to claim a refundable tax credit of up to 33% of the investment. While similar to the state’s biotechnology investment credit, this program allows the company to take the credit, rather than the investor. This may be a potentially beneficial credit for many companies, but the application procedure, which begins on December 9th, will require a fair amount of documentation. As such, interested businesses are encouraged to consult with a tax advisor and to start preparing paperwork immediately.
As another example, some Maryland taxpayers may be eligible for the Employer Security Clearance Costs (ESCC) credit, which includes provisions for security clearance administrative expenses, Sensitive Compartmented Information Facility (SCIF) costs, and first-year leasing costs for small businesses. Applications for this credit must be submitted by September 15th following the year in which the eligible expenses and costs were incurred, and taxpayers must then file an amended return to claim the credit once certification has been procured.
WashingtonD.C. taxpayers should be aware of the jurisdiction’s various Qualified High Technology Company credits (QHTC) and incentives. In a blog post written back in March, Colavito commented on various QHTC incentives, including a reduced franchise tax rate, a five-year corporate franchise tax, and entity-level unincorporated business tax exemptions. He also discussed credits related to the hiring and training of qualified disadvantaged employees, employee relocation costs, and much more. While Colavito did admit that the District is having some difficulty properly administering their programs, he said that well-prepared and researched applications have the potential to net major tax savings for qualifying companies and activities.
Government contractors doing business in Virginia should take note of the the Major Business Facility Job Tax Credit, which is ultimately a job creation credit that allows for a $1,000 credit per employee (over the 50th employee) for companies that have a central management location in Virginia. For companies headquartered in an economically distressed area, the employee threshold goes down to 25. This credit, which can be carried forward 10 years, requires that a Form 304 be filed 90 days before the return is filed, making now a great time to start preparing.
Virginia employers may also be eligible for the Telework Expense Credit. It should come as no surprise to anybody who drives on the Beltway each morning that this program is designed to reduce traffic in the state by encouraging employers to transition current employees into telecommuters. In order to qualify for the credit, which maxes out at $50,000 per year, a company must have formal telework policies and agreements in place. Colavito recommends that employers visit telework.gov for more information on how to put a formal telecommuting program in place. While the deadline for applying for this year’s credit has already passed, companies should keep it in mind for next year and start planning their telework strategies today.
Fennel stressed that what was discussed in Aronson’s webinar was by no means an exhaustive list of available tax credits. For a more complete picture, he suggests that executives consult with their tax advisor and consider several key questions:
1. Where are you performing work?
For example, if you are headquartered in Virginia and performing work in Maryland and D.C., you might be eligible for multiple jurisdictional credits.
2. What type of work are you performing?
There are a wide variety of work categories that are eligible for tax credits.
3. What triggers do you have in place to identify available credits?
As your business model, services and locations change, it is important to have a system in place to track data and revenue in consideration of tax credits.
The bottom line is that with the myriad of tax credits available to businesses in the region, eligible government contractors and companies alike have the opportunity to take advantage of considerable tax incentives and, in the process, save a significant amount of money in the coming years. If your business is not making tax planning part of your core operational strategy, you’re very likely leaving money on the table.
To find out how your company may be able to benefit from available tax credits, please consult a qualified tax advisor or contact Aronson LLC’s Michael Colavito at 301.231.6200.
Michael L. Colavito, Jr. is a senior manager in Aronson LLC’s Tax Services Group, where he provides multi-state taxation services pertaining to income, franchise, sales and use, and property taxes. Michael’s experience also includes representing clients at all stages of tax controversy, from audit through appellate litigation, and advising them on restructurings, state tax refund and planning opportunities.
James D. Fennel, CPA is a partner in Aronson LLC’s Government Contract Services Group. He has extensive experience in helping a wide array of clients with matters such as audits, financial statement review and compilation, compliance with Federal Acquisition Regulations (FAR), Section 8(a) business development program strategies and compliance, business and shareholder taxation, purchase accounting and private equity investments, and synthetic equity compensation strategies.