FOR LIVE PROGRAM ONLY State Research and Development Tax Credits: - PowerPoint PPT Presentation

FOR LIVE PROGRAM ONLY State Research and Development Tax Credits: Navigating Multi-State Apportionment Rules TUESDAY , JUNE 27, 2017, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . • Listen on-line via your computer speakers. • Respond to five prompts during the program plus a single verification code . You will have to write down only the final verification code on the attestation form, which will be emailed to registered attendees. • To earn full credit, you must remain connected for the entire program. WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Live Program : -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.

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State Research and Development Tax Credits June 27, 2017 Joe Stoddard, CPA, Partner Stacey L. Roberts, CPA, State and Local Tax Senior Manager Eide Bailly, Salt Lake City Eide Bailly, Denver jjstoddard@eidebailly.com sroberts@eidebailly.com Daniel F . Laughlin, Senior Manager FGMK, Chicago dlaughlin@fgmk.com

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STATE RESEARCH & DEVELOPMENT TAX CREDITS Navigating Multi-State Rules

R&D Tax Credits Today’s Presenters Joe Stoddard Stacey Roberts Dan Laughlin Partner Senior Manager Senior Manager Eide Bailly Eide Bailly FGMK, LLC 6

R&D Tax Credits Experience Eide Bailly Brand Promise You can expect a better experience working with Eide Bailly — one that is caring, insightful and focused on your business needs. 59,000 1,600 25 clients partners & staff Top 25 Accounting Firm 7

R&D Tax Credits Eide Bailly Office Locations 29 Offices in 13 States 8

R&D Tax Credits About FGMK FGMK is a leading professional services firm providing assurance, tax and advisory services to global public companies, middle-market companies, entrepreneurs, high-net-worth individuals and not-for- profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. Our Services Assurance Advisory Tax Risk & Controls • Audit Review and Compilation • Mergers and Acquisitions • Planning and Consulting • Cybersecurity • Employee Benefit Plan Audit • Valuations • Federal • SOC Reporting • Entrepreneurial Services • Dispute Consulting, Forensics and Valuations • State and Local • IT Assessment • Agreed -Upon Procedures • Turnaround and Restructuring • International • Internal Audit • Statutory Audit • Performance Improvement • Tax Credits and Incentives • Internal Controls Optimization • FAR Audit and Consulting • Management Consulting • Tax Controversy • Sarbanes -Oxley Compliance • Surprise Exams • Compensation Advisory • Transfer Pricing • Fund Administration • Employee Benefit Plan Consulting • IC -DISC • Forecasts, Projections and Modeling • Investment Advisory • Cost Segregation • Estate, Gift and Trust • Private Client Services • Transaction Structuring • Research and Development Tax Credit 9

R&D TAX CREDITS About FGMK Industries We Serve • Architecture and Engineering • Construction • Manufacturing and Distribution • Retail and Consumer Products • Asset Management • Family Office • Metals • Senior Care and Living Centers • Automotive • Financial Services • Not -For-Profit • Specialty Finance • Biotech and Pharmaceutical • Food and Beverage • Plastics • Technology • Broker -Dealer and Futures Commission Merchants • Franchising • Private Equity and Venture Capital • Transportation and Logistics • Business Services • Healthcare • Law Firms • Industrial Equipment • Real Estate Recognition • 10th on “Largest Accounting Firms” list 2016, Crain’s Chicago Business • “Largest Privately Held Companies” list 2016, Crain’s Chicago Business • Ranked #43 largest accounting and advisory firm in the US on “Top 100 Firms” list 2016, Accounting Today • 5th on “Top Firms: Great Lakes” list 2016, Accounting Today • 1st on Firms under $100m “Leaders in MAS” list 2016, Accounting Today • 5th fastest- growing firm on “Top 100 Firms” list 2015, Accounting Today • 10th on Overall Top 100 Firms “Pacesetters in Growth” list 2015, Accounting Today 10

R&D TAX CREDITS Agenda  Purpose of R&D Tax Credits  Qualified Research Activities  Qualified Research Expenses  Recent Federal Credit Updates  Federal Credit Method as Introduction to State Credit Concepts  State Credits Overview  Specific State Credits of Interest  Case Study  Documentation Requirements & Audit Trends  Q&A 11

R&D TAX CREDITS Purpose of R&D Tax Credits 12

R&D TAX CREDITS Types of R&D Incentives in the United States  Investment Credits Against Income Tax  Job Credits Against Income Tax  Payroll Tax Credits  Sales & Use Tax Credits & Exemptions  IRC § 174  Grants 13

R&D TAX CREDITS Purpose of R&D Incentives  Incentivize innovation  Incentivize job creation  Incentivize capital investment  Positive productivity spill-over to other firms in the state 14

R&D TAX CREDITS Value & Benefits of R&D Credit  Reduces income tax burden  Lowers effective income tax rate (EITR)  Increases cash savings  Provides permanent (rather than temporary timing) book versus tax difference  Improves earnings per share (EPS) 15

R&D TAX CREDITS Qualified Research Activities 16

R&D TAX CREDITS Qualification Criteria  Broad definition of R&D  Qualification of new or improved “business components” Products  Processes  Software  Techniques  Formulas  Inventions  17

R&D TAX CREDITS Qualification Criteria: 4 Part Test 18

R&D TAX CREDITS Qualification Criteria: Types of Activities That Typically Qualify  New product design / product improvements  Manufacturing process development / improvement  Designing / modifying production equipment  Molds, tooling, dies, fixtures, jigs design / modification  Raw materials research  Construction design activities (e.g. bridges, roads, buildings, etc.)  Developing software 19

R&D TAX CREDITS Qualification Criteria: Application to Specific Industries  Manufacturing  Technology  Construction / Architecture & Engineering  Agriculture  Oil & Gas / Energy  Life Sciences  Banking / Insurance 20

R&D TAX CREDITS Qualification Criteria: Software Projects  Software that is considered internal use software (IUS) only qualifies if it meets one of the following: Software developed for use in an activity that is qualified research  Software developed for use in a production process that qualifies as R&D  Combined hardware / software product developed as part of an integral package  Software that meets the “high threshold of innovation” criteria  • Innovative – reduction in cost, improvement in speed, or other substantial improvement • Significant Economic Risk – taxpayer commits substantial resources and there is substantial uncertainty, because of technical risk, that such resources will be recovered within a reasonable period • Not Commercially Available – cannot be purchased, leased, or licensed without significant modifications 21