ECONOMIC INCENTIVES & PROGRAMS
from LED
Incentives:
From Louisiana's Economic Development Office
Digital Media Incentive
Provides a 25% tax credit for qualified production expenditures in Louisiana and a 35% tax credit for Louisiana resident labor expenditures.
Economic Development Award Program
Provides funding for site and/or infrastructure improvements for projects creating new jobs.
Enterprise Zone
Provides a $2,500 tax credit for each certified net new job created; and either a 4% sales/use tax rebate on capital expenditures or income and franchise tax credits up to 1.5% of investment.
Industrial Tax Exemption
Provides a 100% property tax abatement for up to 10 years on materials used in new manufacturing.
Live Performance Tax Credit
Provides a tax credit up to 25% on qualified production or infrastructure development expenditures, with additional tax credits available for payroll and transportation expenditures.
Louisiana FastStart™
Provides workforce recruitment, screening, and training to new and expanding Louisiana companies at no cost.
Mentor-Protégé Tax Credit
Provides up to $50,000 in tax credits for Louisiana-based contractors who provide competitive technical assistance to protégé construction firms.
Modernization Tax Credit
Provides a 5% refundable state tax credit for manufacturers modernizing or upgrading existing facilities in Louisiana.
Motion Picture Industry Development Tax Credit
A transferable tax credit of 30% for qualified motion picture production expenditures and an additional 5% tax credit for Louisiana resident labor expenditures.
Quality Jobs
Provides up to 6% rebate on annual payroll expenses for up to 10 years; and either a 4% sales/use tax rebate on capital expenditures or an investment tax credit equal to 1.5% of qualifying expenses.
Research & Development Tax Credit
Provides a tax credit up to 40% to existing businesses with operating facilities in Louisiana to establish or continue research and development activities within the state.
Restoration Tax Abatement
Provides a five-year 100% property tax abatement for the rehabilitation of an existing structure.
Sound Recording Investor Tax Credit
Provides a 25% refundable tax credit for qualified production expenditures on state-certified sound recording projects.
Technology Commercialization Credit and Jobs Program
Provides a 40% refundable tax credit for companies that invest in the commercialization of Louisiana technology and a 6% payroll rebate for the creation new, direct jobs.
Provides a 25% tax credit for qualified production expenditures in Louisiana and a 35% tax credit for Louisiana resident labor expenditures.
Economic Development Award Program
Provides funding for site and/or infrastructure improvements for projects creating new jobs.
Enterprise Zone
Provides a $2,500 tax credit for each certified net new job created; and either a 4% sales/use tax rebate on capital expenditures or income and franchise tax credits up to 1.5% of investment.
Industrial Tax Exemption
Provides a 100% property tax abatement for up to 10 years on materials used in new manufacturing.
Live Performance Tax Credit
Provides a tax credit up to 25% on qualified production or infrastructure development expenditures, with additional tax credits available for payroll and transportation expenditures.
Louisiana FastStart™
Provides workforce recruitment, screening, and training to new and expanding Louisiana companies at no cost.
Mentor-Protégé Tax Credit
Provides up to $50,000 in tax credits for Louisiana-based contractors who provide competitive technical assistance to protégé construction firms.
Modernization Tax Credit
Provides a 5% refundable state tax credit for manufacturers modernizing or upgrading existing facilities in Louisiana.
Motion Picture Industry Development Tax Credit
A transferable tax credit of 30% for qualified motion picture production expenditures and an additional 5% tax credit for Louisiana resident labor expenditures.
Quality Jobs
Provides up to 6% rebate on annual payroll expenses for up to 10 years; and either a 4% sales/use tax rebate on capital expenditures or an investment tax credit equal to 1.5% of qualifying expenses.
Research & Development Tax Credit
Provides a tax credit up to 40% to existing businesses with operating facilities in Louisiana to establish or continue research and development activities within the state.
Restoration Tax Abatement
Provides a five-year 100% property tax abatement for the rehabilitation of an existing structure.
Sound Recording Investor Tax Credit
Provides a 25% refundable tax credit for qualified production expenditures on state-certified sound recording projects.
Technology Commercialization Credit and Jobs Program
Provides a 40% refundable tax credit for companies that invest in the commercialization of Louisiana technology and a 6% payroll rebate for the creation new, direct jobs.
Programs:
From Louisiana's Economic Development Office
Bonding Assistance Program
Aids certified small and emerging businesses in reaching the bonding capacity required for specific projects.
Contract Loan Program
Provides a loan participation and guarantee to a bank for government contract loans.
Hudson Initiative
Provides small businesses with greater potential for access to state procurement and public contract opportunities.
Louisiana Contractors Accreditation Institute
The Louisiana Contractors Accreditation Institute is a management training course designed to support the state’s growing construction industry.
Micro Loan Program
Provides loan guarantees and participations to banks for micro-business loans, ranging from $5,000 to $50,000.
Microenterprise Development Program
Provides self-employment training that gives entrepreneurs the competitive advantage they need to succeed.
Small and Emerging Business Development Program
Assists Louisiana’s small businesses with entrepreneurial training, legal needs, marketing, business planning, computer skills, and accounting.
Small Business Loan Program
Provides loan guarantees and participations to banks in order to facilitate capital accessibility for businesses.
Veteran Initiative
Provides veteran-owned and service-oriented, disabled veteran-owned small businesses with greater access to state procurement and public contract opportunities.
Aids certified small and emerging businesses in reaching the bonding capacity required for specific projects.
Contract Loan Program
Provides a loan participation and guarantee to a bank for government contract loans.
Hudson Initiative
Provides small businesses with greater potential for access to state procurement and public contract opportunities.
Louisiana Contractors Accreditation Institute
The Louisiana Contractors Accreditation Institute is a management training course designed to support the state’s growing construction industry.
Micro Loan Program
Provides loan guarantees and participations to banks for micro-business loans, ranging from $5,000 to $50,000.
Microenterprise Development Program
Provides self-employment training that gives entrepreneurs the competitive advantage they need to succeed.
Small and Emerging Business Development Program
Assists Louisiana’s small businesses with entrepreneurial training, legal needs, marketing, business planning, computer skills, and accounting.
Small Business Loan Program
Provides loan guarantees and participations to banks in order to facilitate capital accessibility for businesses.
Veteran Initiative
Provides veteran-owned and service-oriented, disabled veteran-owned small businesses with greater access to state procurement and public contract opportunities.
Louisiana Digital Media FAQs
Basic Information
What is digital interactive media?
In the context of Louisiana’s Digital Interactive Media program, it’s essentially an interactive software product (e.g. video game, training software, web platform, etc.) that’s built for commercial export, and not for the producer’s internal use.
Is Louisiana’s Digital Interactive Media incentive a grant program?
No, it is an incentive that awards state tax credits to producers of Digital Interactive Media.
What’s a tax credit?
A tax credit is a credit that can be used against Louisiana tax liability. In the case of the Digital Interactive Media program, it’s a transferrable credit
What can I do with the tax credits once I receive them?
Firstly, you can cover your Louisiana state tax liability. Since the credits awarded in the Digital Interactive Media program are transferrable, the remainder of your credits can be sold on the secondary market. Often, recipients also give the excess credits to investors. PLEASE NOTE: As per Louisiana law, tax credits cannot be sold or transferred until they are received by the applicant in the Final Certification stage (see below in the “Post-!pplication” section)
How long are the credits good for?
The credits awarded in this program have a ten year “carry-forward”, meaning that they can be redeemed against Louisiana state tax liability for up to ten years after they’re originally issued.
Will I need to hire a CPA?
Yes, but only at the end of the process. In the 2009 legislative session the program was altered to no longer require an audit, but instead a cost report performed by a CPA. (For more information on the steps involved in participating in the program, please see the sections titled “!pplying” and “!fter !pplication”)
Incentive Questions
How much do I receive back in tax credits for what I spend?
Digital Interactive Media projects are awarded a 25% tax credit on qualified production expenses paid to a Louisiana entity/vendor, and labor costs (for Louisiana residents) are awarded an additional 10% (an effective 35% total awarded on labor costs paid to Louisiana residents).
Can I still get tax credit for hiring out-of-state labor?
Any qualified expenditures can receive the tax credit award of 25%, regardless of whether the labor is performed by Louisiana residents, so long as the work is done in the state of Louisiana. Any work performed outside of the state would not qualify
What project expenses costs qualify?
The simple answer is costs that are directly related to the project itself. This includes items such as hardware and software, labor and lease costs-but not for costs associated with running the company (administrative, clerical, etc.) or marketing/distributing the product
What constitutes a purchase made in Louisiana?
An expenditure paid to a Louisiana company that has an active registration with the Louisiana Secretary of State.
Is there a minimum investment?
For the Digital Interactive Media tax credit program, there is no minimum spend required.
Is there a maximum for how many tax credits my project or company can receive?
There isn’t a maximum amount of tax credits that a project or company can earn, nor is there a cap on the program as a whole
Can this incentive be used in combination with other incentives?
LED has many business incentives, and some of which may be combined with the Digital Interactive Media Incentive. Other incentives may carry their own “anti-stacking” clauses, and the various branches of LED can work with your firm to see what all you might be eligible for.
Can this incentive be used in combination with LED’s Quality Jobs program?
A specific exclusion in the Digital Media program prohibits a firm from taking advantage of both the additional Digital Media incentive as well as LED’s Quality Jobs program for the same employee. However, a firm may have some employees enrolled in the Quality Jobs program, while others are claimed under the Digital Media incentive.
Question about Applying
Before I can apply, do I have to begin production or expend any money in the state?
An applicant can apply before beginning production or expending funds in Louisiana.
How much does it cost to apply for each project?
Application to the Digital Interactive Media program does not carry a fee.
If I apply, does that obligate me to do the production in Louisiana?
No, an applicant to the Digital Interactive Media program is not obligated to expend funds in the state-even after an application has been pre-certified.
Do I apply once, as a company?
No, firms interested in joining the program should separately apply for each project. By doing this, we can more easily separate production costs and tax credits awarded.
Does my project qualify?
The best way to determine this is to apply. Applying to the program is free, and the form should take less than half an hour to complete. If you have any questions about filling-out the application, please contact us.
Post-Application Questions
Once I’ve applied, what happens?
Here’s are the key steps in the process, with more details in the questions below:
1. Submit the application ( http://www.louisianaentertainment.gov/interactive/default.cfm) LED will contact applicant, and discuss any follow-up that’s needed to determine eligibility
2. Once both the project is qualified as eligible and qualified expenses are determined, LED issues a “Pre-_ertification” letter that details guidelines for expenditures for that project.
3. Once the project is completed, applicant then submits the cost report called for in the law to LED
4. Pending review of cost report and final authorization, LED issues a “final certification” letter, which officially issues the tax credit.
To redeem the tax credit, by the original applicant or another party, one works with a designated representative from the Louisiana Department of Revenue.
When do I receive my tax credits?
Is above in step #5, tax credits are issued with a project’s final certification.
How do I know if my project has been accepted into the program?
is soon as we’ve had a chance to review and clear-up any outstanding issues in the application (which we strive to complete as quickly as possible), we would then send the applicant a letter of “precertification” that acknowledges a project’s applicable expenditures of those proposed in the application.
When can I transfer the tax credits that I’ve earned?By law, they cannot be sold or otherwise transferred until they are officially issued by LED (in step #5 above).
How many times can the tax credits be transferred?
By law, there is no limitation on how many times the credits can change hands during their ten year life.
What is digital interactive media?
In the context of Louisiana’s Digital Interactive Media program, it’s essentially an interactive software product (e.g. video game, training software, web platform, etc.) that’s built for commercial export, and not for the producer’s internal use.
Is Louisiana’s Digital Interactive Media incentive a grant program?
No, it is an incentive that awards state tax credits to producers of Digital Interactive Media.
What’s a tax credit?
A tax credit is a credit that can be used against Louisiana tax liability. In the case of the Digital Interactive Media program, it’s a transferrable credit
What can I do with the tax credits once I receive them?
Firstly, you can cover your Louisiana state tax liability. Since the credits awarded in the Digital Interactive Media program are transferrable, the remainder of your credits can be sold on the secondary market. Often, recipients also give the excess credits to investors. PLEASE NOTE: As per Louisiana law, tax credits cannot be sold or transferred until they are received by the applicant in the Final Certification stage (see below in the “Post-!pplication” section)
How long are the credits good for?
The credits awarded in this program have a ten year “carry-forward”, meaning that they can be redeemed against Louisiana state tax liability for up to ten years after they’re originally issued.
Will I need to hire a CPA?
Yes, but only at the end of the process. In the 2009 legislative session the program was altered to no longer require an audit, but instead a cost report performed by a CPA. (For more information on the steps involved in participating in the program, please see the sections titled “!pplying” and “!fter !pplication”)
Incentive Questions
How much do I receive back in tax credits for what I spend?
Digital Interactive Media projects are awarded a 25% tax credit on qualified production expenses paid to a Louisiana entity/vendor, and labor costs (for Louisiana residents) are awarded an additional 10% (an effective 35% total awarded on labor costs paid to Louisiana residents).
Can I still get tax credit for hiring out-of-state labor?
Any qualified expenditures can receive the tax credit award of 25%, regardless of whether the labor is performed by Louisiana residents, so long as the work is done in the state of Louisiana. Any work performed outside of the state would not qualify
What project expenses costs qualify?
The simple answer is costs that are directly related to the project itself. This includes items such as hardware and software, labor and lease costs-but not for costs associated with running the company (administrative, clerical, etc.) or marketing/distributing the product
What constitutes a purchase made in Louisiana?
An expenditure paid to a Louisiana company that has an active registration with the Louisiana Secretary of State.
Is there a minimum investment?
For the Digital Interactive Media tax credit program, there is no minimum spend required.
Is there a maximum for how many tax credits my project or company can receive?
There isn’t a maximum amount of tax credits that a project or company can earn, nor is there a cap on the program as a whole
Can this incentive be used in combination with other incentives?
LED has many business incentives, and some of which may be combined with the Digital Interactive Media Incentive. Other incentives may carry their own “anti-stacking” clauses, and the various branches of LED can work with your firm to see what all you might be eligible for.
Can this incentive be used in combination with LED’s Quality Jobs program?
A specific exclusion in the Digital Media program prohibits a firm from taking advantage of both the additional Digital Media incentive as well as LED’s Quality Jobs program for the same employee. However, a firm may have some employees enrolled in the Quality Jobs program, while others are claimed under the Digital Media incentive.
Question about Applying
Before I can apply, do I have to begin production or expend any money in the state?
An applicant can apply before beginning production or expending funds in Louisiana.
How much does it cost to apply for each project?
Application to the Digital Interactive Media program does not carry a fee.
If I apply, does that obligate me to do the production in Louisiana?
No, an applicant to the Digital Interactive Media program is not obligated to expend funds in the state-even after an application has been pre-certified.
Do I apply once, as a company?
No, firms interested in joining the program should separately apply for each project. By doing this, we can more easily separate production costs and tax credits awarded.
Does my project qualify?
The best way to determine this is to apply. Applying to the program is free, and the form should take less than half an hour to complete. If you have any questions about filling-out the application, please contact us.
Post-Application Questions
Once I’ve applied, what happens?
Here’s are the key steps in the process, with more details in the questions below:
1. Submit the application ( http://www.louisianaentertainment.gov/interactive/default.cfm) LED will contact applicant, and discuss any follow-up that’s needed to determine eligibility
2. Once both the project is qualified as eligible and qualified expenses are determined, LED issues a “Pre-_ertification” letter that details guidelines for expenditures for that project.
3. Once the project is completed, applicant then submits the cost report called for in the law to LED
4. Pending review of cost report and final authorization, LED issues a “final certification” letter, which officially issues the tax credit.
To redeem the tax credit, by the original applicant or another party, one works with a designated representative from the Louisiana Department of Revenue.
When do I receive my tax credits?
Is above in step #5, tax credits are issued with a project’s final certification.
How do I know if my project has been accepted into the program?
is soon as we’ve had a chance to review and clear-up any outstanding issues in the application (which we strive to complete as quickly as possible), we would then send the applicant a letter of “precertification” that acknowledges a project’s applicable expenditures of those proposed in the application.
When can I transfer the tax credits that I’ve earned?By law, they cannot be sold or otherwise transferred until they are officially issued by LED (in step #5 above).
How many times can the tax credits be transferred?
By law, there is no limitation on how many times the credits can change hands during their ten year life.
Louisiana's Research and Development
By Adam M. Weems, Managing Director of TRCG Advisors
Unbeknownst to many technology firms and video game developers, the state of Louisiana offers some of the most advantageous credits and incentives for small companies. Perhaps the best-kept secret is the Louisiana Research & Development Tax Credit, which is undoubtedly the best incentive offered for R&D by any state.
How is this incentive so valuable?
In 2009, Gov. Jindal signed into law two major enhancements to the state’s R&D Credit: (1) an increase in the size of credits available to small businesses, and (2) a change in the character of the credit, from a “transferable” credit to a fully-refundable credit. As a “refundable” credit, taxpayers may receive a refund over and above any Louisiana or Franchise tax liability they may have incurred, even if they incurred no tax at all for a given year.
To measure the magnitude of this incentive, consider that the Research & Development Tax Credit available at the Federal Credit typically equals 6% - 10% of a taxpayer’s qualified research expenses for a given year and can only be utilized in that year if the taxpayer incurred a tax liability (unused credits may be carried back & carried forward). For a company with less than 50 Louisiana employees, the State offers a credit equal to 40% of the taxpayer’s qualified research expenses that is fully refundable – even if the taxpayer incurred no state income or franchise tax liability, they will recover the full cash value of the credit in that year. That means a company with $100,000 in qualified research expenditures will receive a refund of up to $40,000.
How do technology companies qualify?
There are two main elements to any R&D Credit claim – qualified research activities, or QRAs, and qualified research expenses, or QREs. Louisiana follows the definitions for “qualified research” contained in Internal Revenue Code 41, which governs the Federal Research & Development Credit. IRC 41 lays out a four-part definition for qualified research:
Business Component / Permitted Purpose - This initial test requires that the goal of the activity is to improve the quality, functionality, durability, or performance of a business component. The IRS defines a "business component" as any product, process, computer software, technique, formula, or invention. For video game developers, development of new software components for games, such as a new or improved game and graphics engine, new or enhanced artificial intelligence, new player interaction schema, and new game tools will meet the Business Component / Permitted Purpose test.
Technological in Nature – The second test requires that a qualifying research and development activity fundamentally relies on the principles of physics, biology, chemistry, mathematics, and computer science, essentially the “hard sciences.” Video game developers fulfill this requirement because they employ principles of computer science, engineering and other “hard sciences” as they design and improve their games.
Uncertainty – The third test requires the research and development activities have an associated level of uncertainty related to the development or improvement of a product. There must be uncertainty as to the taxpayer’s capability of creating or improving the business component, the taxpayer’s methodology for doing so, or there must be uncertainty as to the final outcome or design of the new or improved business component. Certainly, a video game designer encounters uncertainty at every turn, from how to program certain functionalities into their games to determining whether it is even possible to do so.
Process of Experimentation – The final test is whether a taxpayer can demonstrate a process of experimentation that was undertaken to resolve the uncertainty issues. In this last test, the company must incorporate a process of experimentation designed to evaluate one or more design alternatives. Video game designers and software developers by nature undertake a process of experimentation as they create their games and software. Rarely, if ever, does a video game developer arrive at a finished product without a great deal of evaluation and experimentation.
Assuming that the individual activity or project qualifies under the 4 part test, a taxpayer must then allocate QREs for the project. There are three categories of QRE’s:
Wages- The most significant portion of an R&D Tax Credit claim for most technology-based companies is found in employee wages. Wages are generally defined as compensation subject to withholding for employees for engaging in, directly supervising, or supporting qualified research. In smaller companies, the owners sometimes compensate themselves with guaranteed payments, bonuses, and other types of compensation. As long as those payments are subject to withholding, and the owners are engaging in qualified activities, those amounts may be included in the credit calculation.
Contractor expenses- The second type of allocable R&D costs is contract research. A taxpayer may allocate 65% of contract research done by third parties as long as the taxpayer was required to make payment to the contractor regardless of whether the research was successful, and the taxpayer retains intellectual property rights to the research. For the Louisiana R&D Credit, the contract research activity must take place in Louisiana, although the contractor need not be a Louisiana company. For example, a video game developer who uses a Georgia-based programmer could allocate costs if the programming work is being performed in Louisiana.
Supply Costs- The second type of allowable R&D costs is supplies. Supplies are defined as any tangible property other than land or improvements and property subject to depreciation. Generally, video game designers and software developers are not able to allocate supply costs, since the supplies generally must be consumed in the creation or improvement of the business component. For example, hardware purchases would generally not qualify as a supply cost for purposes of the R&D Credit.
Federal Benefits
In addition to the Louisiana state R&D Tax Credit, there is a Federal Research and Development Tax Credit that generally equals 6 to 10% of qualified research expenditures. Although the Credit is not refundable, it can be of benefit to companies who are paying federal tax. Even for companies who do not have any current federal tax liability, the Federal Credit may be carried back one year and carried forward for up to 20 years.
In sum, Louisiana video game programmers have an excellent opportunity to claim the Research and Development Tax Credit. The significant refunds that the Louisiana Credit offers can power even more innovation and creation of products, which will lead to more and better paying jobs and foster a hospitable climate for innovation within Louisiana.
TRCG Advisors is a leading tax advisory firm specializing assisting companies and their CPA’s in capturing and supporting federal and state tax credits and incentives, including the Research and Development Tax Credit. Adam Weems, founding partner and Managing Director of TRCG Advisors, earned his B.A. from LSU and his law degree from Loyola University in New Orleans. For more information, call Adam at (225) 336-8000 or email at aweems@trcgadvisors.com.
How is this incentive so valuable?
In 2009, Gov. Jindal signed into law two major enhancements to the state’s R&D Credit: (1) an increase in the size of credits available to small businesses, and (2) a change in the character of the credit, from a “transferable” credit to a fully-refundable credit. As a “refundable” credit, taxpayers may receive a refund over and above any Louisiana or Franchise tax liability they may have incurred, even if they incurred no tax at all for a given year.
To measure the magnitude of this incentive, consider that the Research & Development Tax Credit available at the Federal Credit typically equals 6% - 10% of a taxpayer’s qualified research expenses for a given year and can only be utilized in that year if the taxpayer incurred a tax liability (unused credits may be carried back & carried forward). For a company with less than 50 Louisiana employees, the State offers a credit equal to 40% of the taxpayer’s qualified research expenses that is fully refundable – even if the taxpayer incurred no state income or franchise tax liability, they will recover the full cash value of the credit in that year. That means a company with $100,000 in qualified research expenditures will receive a refund of up to $40,000.
How do technology companies qualify?
There are two main elements to any R&D Credit claim – qualified research activities, or QRAs, and qualified research expenses, or QREs. Louisiana follows the definitions for “qualified research” contained in Internal Revenue Code 41, which governs the Federal Research & Development Credit. IRC 41 lays out a four-part definition for qualified research:
Business Component / Permitted Purpose - This initial test requires that the goal of the activity is to improve the quality, functionality, durability, or performance of a business component. The IRS defines a "business component" as any product, process, computer software, technique, formula, or invention. For video game developers, development of new software components for games, such as a new or improved game and graphics engine, new or enhanced artificial intelligence, new player interaction schema, and new game tools will meet the Business Component / Permitted Purpose test.
Technological in Nature – The second test requires that a qualifying research and development activity fundamentally relies on the principles of physics, biology, chemistry, mathematics, and computer science, essentially the “hard sciences.” Video game developers fulfill this requirement because they employ principles of computer science, engineering and other “hard sciences” as they design and improve their games.
Uncertainty – The third test requires the research and development activities have an associated level of uncertainty related to the development or improvement of a product. There must be uncertainty as to the taxpayer’s capability of creating or improving the business component, the taxpayer’s methodology for doing so, or there must be uncertainty as to the final outcome or design of the new or improved business component. Certainly, a video game designer encounters uncertainty at every turn, from how to program certain functionalities into their games to determining whether it is even possible to do so.
Process of Experimentation – The final test is whether a taxpayer can demonstrate a process of experimentation that was undertaken to resolve the uncertainty issues. In this last test, the company must incorporate a process of experimentation designed to evaluate one or more design alternatives. Video game designers and software developers by nature undertake a process of experimentation as they create their games and software. Rarely, if ever, does a video game developer arrive at a finished product without a great deal of evaluation and experimentation.
Assuming that the individual activity or project qualifies under the 4 part test, a taxpayer must then allocate QREs for the project. There are three categories of QRE’s:
Wages- The most significant portion of an R&D Tax Credit claim for most technology-based companies is found in employee wages. Wages are generally defined as compensation subject to withholding for employees for engaging in, directly supervising, or supporting qualified research. In smaller companies, the owners sometimes compensate themselves with guaranteed payments, bonuses, and other types of compensation. As long as those payments are subject to withholding, and the owners are engaging in qualified activities, those amounts may be included in the credit calculation.
Contractor expenses- The second type of allocable R&D costs is contract research. A taxpayer may allocate 65% of contract research done by third parties as long as the taxpayer was required to make payment to the contractor regardless of whether the research was successful, and the taxpayer retains intellectual property rights to the research. For the Louisiana R&D Credit, the contract research activity must take place in Louisiana, although the contractor need not be a Louisiana company. For example, a video game developer who uses a Georgia-based programmer could allocate costs if the programming work is being performed in Louisiana.
Supply Costs- The second type of allowable R&D costs is supplies. Supplies are defined as any tangible property other than land or improvements and property subject to depreciation. Generally, video game designers and software developers are not able to allocate supply costs, since the supplies generally must be consumed in the creation or improvement of the business component. For example, hardware purchases would generally not qualify as a supply cost for purposes of the R&D Credit.
Federal Benefits
In addition to the Louisiana state R&D Tax Credit, there is a Federal Research and Development Tax Credit that generally equals 6 to 10% of qualified research expenditures. Although the Credit is not refundable, it can be of benefit to companies who are paying federal tax. Even for companies who do not have any current federal tax liability, the Federal Credit may be carried back one year and carried forward for up to 20 years.
In sum, Louisiana video game programmers have an excellent opportunity to claim the Research and Development Tax Credit. The significant refunds that the Louisiana Credit offers can power even more innovation and creation of products, which will lead to more and better paying jobs and foster a hospitable climate for innovation within Louisiana.
TRCG Advisors is a leading tax advisory firm specializing assisting companies and their CPA’s in capturing and supporting federal and state tax credits and incentives, including the Research and Development Tax Credit. Adam Weems, founding partner and Managing Director of TRCG Advisors, earned his B.A. from LSU and his law degree from Loyola University in New Orleans. For more information, call Adam at (225) 336-8000 or email at aweems@trcgadvisors.com.
