CHARLOTTE – When it comes to federal tax credits for research and development, many small businesses are missing out, says Nick Hebert, a vice president with Probity Tax Recovery who works for the Texas-based company in Charlotte.
“The government gives these tax incentives, but they do not make them easy to get,” says Hebert.
Major manufacturers are aware of the tax credits that have been around since 1981, and made permanent in 2015, says Herbert. Smaller businesses may not know the credits exist or don’t believe they qualify, he says. Dave Tilstone, a board member at Houston-based alliantgroup and senior business development officer at Athena, estimated that less than 3 out of 10 companies that qualify for the credit actually claim it, while virtually every large company makes the claim, according to a report published by the U.S. Chamber.
Hebert points out his work with an Oklahoman custom trailer manufacturer last year who the IRS paid $1.7 million in the form of an R&D tax credit. The man’s business was able to collect tax credits going back three years on the supplies and labor costs of making his trailers, Hebert says.
Hebert now displays a copy of the oversized check while drumming up business. He took part earlier this month at the MFGCON in Winston-Salem, which attracted 450 attendees from manufacturing concerns.
Hebert has worked with Probity Tax Recovery for about seven years. His role involves looking at a manufacturer’s work and then seeing how that might classify as research and development under the federal guidelines.
“If you’re manufacturing something, chances are you qualify for the research and development tax credit,” says Hebert. The credit gives businesses a break of between 6% and 14% in payroll and business taxes related to supplies and labor costs.
“The intention of the credit is to keep manufacturing in the U.S.”
Many companies provide the same services of Probity, including the CPA industry’s “big four” of Deloitte, PriceWalterhouseCooper, Ernst & Young and KPMG. “We’ve made a business in coming in under their target” and working with smaller manufacturers, he says.
He has worked with companies as small as two or three employees and those who have hundreds. Those companies have included manufacturers of medical devices, architects, custom builders and those in the food industry with test kitchens.
An example, he says, would be the growing industry of craft brewing. If a brewer makes a new craft beer, they can likely get a tax credit for their supplies, labor costs, products that didn’t work out and other related expenses to bringing a new beer to market.
“They’re creating a custom product in the U.S. and everything a brewer puts into a new beer could count and they could get a piece of that back,” says Hebert.
Hebert is not an accountant or attorney, although Probity provides both services. The company does not attempt to get its clients to change accounting services. He likened the service Probity provides to a specialty physician compared to a doctor in a family practice.
“Pay your fair share in taxes,” Hebert says, “but take advantage of what’s available to you.”