R&D Tax Incentives — Cash for Fashion & Apparel Retailers
When the topic of research and development (“R&D”) tax credits is discussed, fashion and apparel retailers may not be the first to come to mind. However, these retailers often make investments eligible for significant R&D tax credits. In fact, the average federal R&D credit reported by apparel companies in 2009 is approximately $235,000, according to the most recent IRS statistics. And many companies increase that number considerably, tacking on the “double dip” opportunities afforded by more than 40 states in the U.S. By maximizing these opportunities, fashion and apparel retailers can generate sizeable tax savings, including generating cash today for their past and future investments.
Overview of the R&D credit
To qualify for the credit, regulations require a company to attempt to develop or improve the functionality, performance, quality, or reliability of one of its products, processes, or software (“component”). This is in contrast to what many people imagine when thinking of R&D – a requirement that it must both succeed and do something that has never been done before. Understanding that this requirement does not exist, many apparel retailers are taking credits for many of their design-related expenses.
As defined in the tax code, an activity can qualify if:
1) It attempts to develop or improve a component in one of the ways described above,
2) The company’s capability or methodology for doing so, or the appropriate design of the component, is uncertain;
3) The company must undertake a process of evaluating different alternatives to try to eliminate the uncertainty; and
4) That process’s success or failure depends on engineering or the physical, biological, or computer sciences.
For the federal credit, eligible expenses include wages paid to company personnel and payments to consultants who perform or directly supervise or support activities in the U.S. involving the four elements above, as well as expenses for supplies used in those activities. Many of the states include these same expenses but require the work to be performed within the applicable state.
Eligible activities for fashion & apparel retailers
Among fashion and apparel retailers, qualified activities typically relate to the scientific or engineering design of a business component. Development activities related to the aesthetic design of a business component (e.g. color, patterns and/or style preferences) typically do not qualify. Examples of scientific or engineering design include, but are not limited to, activities related to attempts to develop or improve leather and other fabrics, construction and integrity of fabrics, material usage, weather resistance, manufacturing processes, comfort and cushioning for footwear.
The wages and expenses paid to people performing, directly supervising, or directly supporting these activities, as well as the supplies used to conduct them, may qualify.
Software development expenses can also qualify. As is true with manufacturing and distribution, fashion and apparel retailers are increasingly developing software to increase efficiency and improve customer-facing and internal processes. Qualifying expenses include those to develop or improve systems related to warehouse management, point-of-sale, price optimization, labor scheduling, merchandising and billing.
Opportunities for multinational companies
In addition to the U.S., many other countries offer tax incentives for conducting R&D activities, with some of them being significantly more generous than those in the U.S. R&D. Companies doing business in more than one country can take advantage of varying national tax incentives, including tax credits, deductions, super-deductions, and exemptions.
Like 10 or so U.S. states, many countries allow some or all of their R&D tax credit to be “refunded,” which means that businesses do not need to have any income tax liability or revenue to receive a cash benefit; the credit is effectively a cash subsidy. In addition to a refund, many countries including Australia, Canada, France and the U.K., allow unused credits/deductions to offset tax liability in other periods.
Although the U.S. credit requires activities to be performed in the U.S., several countries allow activities to be conducted in other countries. For multinational companies, this enables them to receive tax incentives for the same activities in more than one country. The U.K., Japan, and Australia are examples of countries that allow at least a portion of qualified work to take place outside their jurisdictions.
While these incentives may be enticing for multinational companies, there are many other factors to consider when comparing subsidies among countries, including varying eligibility requirements, limitations, and definitions of qualified research. However, taking advantage of available programs may allow multinational companies to further their growth objectives and achieve their financial goals.
In the current competitive economy, it is increasingly important to capitalize on all available tax credits and incentives. As R&D incentives exist on the federal, state, and international levels, fashion and apparel retailers may find these incentives to be the perfect fit.
Jonathan Forman ([email protected]) is principal & managing director of BDO’s Global R&D Centre of Excellence. Randy Frischer ([email protected]) is a tax partner in the Retail & Consumer Products practice and Brad Poris ([email protected]) is a R&D manager at BDO USA, LLP, an accounting and consulting firm.
Capital One launches targeted deals program with ShopSavvy
MCLEAN, Va. — Capital One has teamed up with ShopSavvy to deliver personalized deals from the Capital One deals program to ShopSavvy app users while they shop and search for deals. By incorporating Capital One’s deals into ShopSavvy’s leading mobile shopping community, customers can receive targeted merchant offers when they matter most – while they shop.
“Capital One is enhancing the shopping experience for our customers with in-store targeted merchant offers. With ShopSavvy, we’re providing a convenient service and an exciting opportunity for our customers to take advantage of the power of mobile commerce,” said Paul Sun, general manager, Capital One Deals. “Capital One is committed to giving our customers an easy way to save money without the hassle.”
The Capital One deals program offers a targeted, easy to use and smart way to save with no need for coupons, no need to “remember” your coupons, and no pre-buying or pre-selecting offers. Customers simply use their Capital One card at some of the nation’s leading merchants and their account is automatically credited. With ShopSavvy Wallet, Capital One is bringing its deals program to the leading mobile shopping companion app used by millions of customers. When registered Capital One customers search for products and deals with the ShopSavvy platform, they will be notified of any relevant merchant offers.
“We are very excited about teaming up with Capital One because of its potential to improve the shopping experience for our customers and further bridge the divide between online-offline commerce,” said John S. Boyd, ShopSavvy’s co-founder and CEO. “ShopSavvy with its extensive network of retail partners and Capital One are working to provide unique and targeted savings to consumers when shopping with the ShopSavvy Wallet.”
Former Michaels CEO named to interim chief post at Tuesday Morning
Dallas — Tuesday Morning Corp. announced Monday that it has named Michael Rouleau as its interim CEO, effective immediately.
Rouleau, who served as president and CEO of Michaels Stores from 1996 to 2006, joined Tuesday Morning’s board last November. He will lead the clearance retailer until it hires a permanent CEO.
“Michael Rouleau is a highly-accomplished retail executive with an impeccable track record of meeting challenges similar to those we confront at Tuesday Morning," chairman of the board Steven R. Becker said in a statement.
Rouleau succeeds Brady Churches, who has resigned as Tuesday Morning’s CEO but will remain as a consultant, said the company.
Tuesday Morning has retained search firm Spencer Stuart to locate a permanent chief.