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alliantgroup's Dean Zerbe, tax incentive expert, talks R&D expansions and deductions
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Central Pennsylvania Business Journal
January 20, 2012
By Jason Scott
Beginning to change Pennsylvania's business climate was one of the bigger 2011 themes for the Corbett administration.
State officials got a budget done on time that filled a $4.2 billion hole, along with tort reform and some business
tax reductions, including the reinstatement of a capital stock and franchise tax phase-out.
Business leaders have said addressing the corporate tax structure needs to be high on the priority list in 2012.
Additionally, a Pennsylvania lawmaker introduced a bill that would expand the commonwealth's research and development tax credit by $20 million in the next budget cycle. House Bill 2084 is in the House Finance Committee.
One of the people keeping an eye on business tax incentives and how they affect small- and medium-size companies is Dean Zerbe, national managing director of Texas-based tax incentives consulting firm alliantgroup.
The 47-year-old works out of the firm's Washington, D.C., office and is the former senior counsel and tax counsel to the U.S. Senate Committee on Finance.
The Business Journal recently spoke with Zerbe about state and federal tax policies, new and underutilized incentives, and business tax reform.
Q: Tell me about alliantgroup's services and experience working with Pennsylvania businesses.
A: alliantgroup is the nation's largest provider of tax services for small and medium companies. We work with small and medium businesses throughout Pennsylvania, helping them benefit from federal and state tax incentives such as the research and development tax credit. Pennsylvania businesses — with a strong tradition of manufacturing and diverse economy — have many opportunities to take advantage of a number of tax incentives. We have helped businesses claim about $2 billion over the last 10 years.
What state or federal tax breaks have recently expired, and what might that mean for business growth in Central Pennsylvania?
The biggest tax break out there that has expired is the (federal) R&D tax credit. It is the biggest tax credit out there for business. The R&D credit is the engine that drives the entire train. It gets money to the most innovative firms.
While the credit has expired, the good news is that Congress has always renewed it, and the expectation is that they will do so again before the end of the year. Companies can still take the R&D tax credit on their 2011 tax returns as well as for any open tax years — basically back to 2008 in most cases.
A state lawmaker has proposed a bill to expand the R&D tax credit in Pennsylvania to $75 million in the next budget cycle. How could an additional $20 million help Pennsylvania?
It is good news that Pennsylvania is looking at expanding the state R&D tax credit. Many states have a strong, robust R&D tax credit and have been successful in attracting good jobs with the credit.
The biggest problem is really that Pennsylvania businesses aren't taking advantage of the R&D tax credit and other incentives that are available. These businesses self-censor, convincing themselves that the R&D tax credit is only for a very narrow group of businesses. Nothing could be further from the truth. The credit is available for not only manufacturing, but also architect(ure) and engineer(ing) firms, software, food production, energy, biotech, et cetera.
Unless you are making the exact same widget the exact same way, you probably are doing R&D and may be eligible for the credit. An extra $20 million for the R&D tax credit could translate into scores of small and medium businesses having much-needed extra dollars in their pockets. (These are) dollars that can go to keep jobs and grow jobs in Pennsylvania. Most importantly, the R&D credit is supporting our most innovative businesses, so helping economic growth today and tomorrow.
What tax programs are the most underutilized by Pennsylvania businesses?
Along with the R&D credit, businesses in Pennsylvania are failing to take advantage of export incentives such as the interest-charge domestic international sales corporation, also known as IC-DISC, a tremendous way to cut your taxes for income for overseas sales. This tax benefit applies not only if your company directly ships overseas but also if your company makes a part that is a component of something bigger that is shipped overseas (think of a company that makes tires that go on a car that is shipped to Canada).
Another big tax break that Pennsylvania companies are missing out on is a tax deduction for energy-efficient commercial buildings. If you are the owner of a private-sector commercial building that was placed into service in the last six years or if you are an architect, engineer or contractor working on a federal, state or local building in the last three years, you may be eligible for this benefit. It doesn't require you to put grass on your roof to qualify for this benefit.
What new tax incentives are available in 2012, and how do you see that translating to business success?
The hiring credit for veterans was recently passed and signed into law and should provide some benefit to companies.
You worked for the U.S. Senate Committee on Finance. In your opinion, what was the most significant piece of tax legislation signed into law over the past decade?
The three biggest bills would have to be the 2001 and 2003 tax cut bills — sometimes referred to as the "Bush tax cuts" — as well as the 2004 Jobs Act. The bills had a significant number of policies. Those that stand out are ones that sought to encourage manufacturing as well as lower the tax burden for small and medium businesses, especially family business.
What long-term tax policy changes are needed to help local businesses compete successfully and grow?
When we talk about corporate tax reform, we need to talk instead about business tax reform. Over 90 percent of businesses in this country are organized as pass-thru entities and would not benefit from a reduction of the corporate rate. We need to ensure that we have business tax reform that helps all businesses, not just the Fortune 500.
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For more information, please call alliantgroup at 800.564.4540 or contact us here.
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