Tax Incentives, Credits and Opportunities for Space

Technology Companies
Posted on Mar 26, 2014
There has seldom been a better tax environment for space technology companies, which
can use federal and state tax credits plus many other strategies to help establish
profitable operations and free up cash for ongoing projects.

As a space technology company, chances are you are performing research and development
(R&D). By claiming the federal R&D tax credit, you can recapture 5-10% of every dollar you
spend on wages, supplies or contract research in the form of a credit. You may qualify if you:
Create new or innovative products
Improve existing products
Develop processes, patents, prototypes or software
Hire designer or engineers
To be eligible, your company must demonstrate that you have attempted to eliminate
uncertainty about the development or improvement of a product or process, and that you
have evaluated alternative methods through modeling, simulation, systemic trial and error,
or another method. Your experimentation process must also be technical in nature (that is,
it must rely on the hard sciences), and the purpose of your research must be to create a new
or improved product or process.
Some other strategies to reduce your federal taxes:
Perform a cost segregation study. These studies separate building components into
proper asset classifications and can result in shorter tax lives and front-loaded depreciation
deductions. These studies are particularly beneficial for companies with a significant amount
of plant property and equipment
Form an IC-DISC. For companies that sell their US-produced property internationally,
forming an interest charge domestic international sales corporation (IC-DISC) could reduce
taxes by up to 20%. An IC-DISC is a paper company without employees, which is held by
an individual or flow-through entity
Domestic manufacturing deduction. Qualified production property produced in the
United States may qualify for this deduction, which can effectively reduce your tax rate by
about 3% on qualifying income
At the local level, tax laws vary by state and jurisdiction. Space tech companies of all sizes
can reduce their tax liability by looking into:
Sales and use tax savings. Businesses that closely examine these taxes imposed on
the sale, use or storage of tangible personal property can uncover significant cost savings
and improve their bottom line. Compare available exemptions, tax incentive programs and
refunds with what is offered in other localities to help inform your investment decisions
Property tax abatement. Some states provide tax incentives to businesses through
reduced property assessments, which can have a significant impact on your taxes
Statutory credits. States routinely compete with one another to attract businesses.
These well-defined opportunities are accessible to qualifying businesses that meet given
criteria
Negotiated incentives. Cities and states negotiate these incentives on a case-by-case
basis. They may, for example, acquire land and lease it back to a business under favorable
terms. Discretionary incentives are often also offered to attract large companies that will
create jobs
Space technology companies can significantly reduce their tax liability and recapture
expenses through these tax strategies and others. Consult a tax professional for help
identifying and pursuing credits and incentives you may be eligible to obtain.
by Tom Sanger, Partner; Jeffrey Shilling, Director; and Mark Woodward, Principal, Moss
Adams LLP

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