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Research & DevelopmentTax Credit Training forManufacturing EngineersBrian Harstad, Finance
Lisa Baumann, TaxJennifer Seeley, Finance
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Emerson ConfidentialSlide 2
AgendaAgenda
Why Youre Here Today & Why Its Important Why Do We Need to Track R&D Expenses?
Explanation of Qualifying R&D Projects for
Manufacturing Engineering How to Track R&D Expenses
Next Steps - Flowchart
Questions?
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Emerson ConfidentialSlide 3
Why Are We Here Today?Why Are We Here Today? Government uses tax credits to encourage
domestic engineering investments
Emerson has a very active program to capture allqualified project expenses
Tax Savings = Cash Flow!!
Expanding focus each year
1st E&D Groups
2nd Mktg/Mgmt support of E&D projects
3rd Mfg Eng projects
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Emerson ConfidentialSlide 4
Why Track R&D Expenses?Why Track R&D Expenses? $ Tax Benefit
FY08 tax benefit - $446,181 federal tax credit$245,167 state tax credit
Approximately 5% of total eligible expenses
Your Involvement
Assist with required IRS documentation needed to support theabove credit
Identify qualified projects
Its Worth Your Time!
Example: $50K Project
Planning 30 min, Complete form 30 min, Tracking 60 min =$200 for your time
$2,500 cash in our bank!
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Emerson ConfidentialSlide 5
IRS Definition of R&D that Qualifies forTax CreditIRS Definition of R&D that Qualifies forTax Credit Elimination of Uncertainty
Re: capability, method, or choice of design
Technological in Nature
Principles of hard sciences
New or Improved Business Component
New product, process, software, technique, formulaor significant improvement
Process of Experimentation
Evaluation of one or more alternatives
Trial & error, testing hypotheses
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Emerson ConfidentialSlide 6
Four Tests to Determine if Activity QualifiesFour Tests to Determine if Activity Qualifies
Test 1 Eliminating Uncertainty
R&D activities must eliminate uncertainty about either thecapability or method of developing the product.
Test 2 Technological in Nature
Discovering info that is technological (physical or biologicalsciences, engineering, computer science)
Test 3 Qualifying Purpose
New or Improved: Function, Performance, Reliability, Quality
Test 4 Process of Experimentation
Evaluation of more than one alternative, trial and error
* Need to meet all 4 tests to qualify *
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Emerson ConfidentialSlide 7
Examples of Qualified R&D ActivitiesExamples of Qualified R&D Activities Development of new products or improvements to existing
products
Prototypes / Pilot models
Developing / Improving production processes
Development of quality control tests
Software used in production / mfg process
Software used to perform qualified research
Automating and/or streamlining internal manufacturingprocesses
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Emerson ConfidentialSlide 8
Examples of Non-qualified R&D ActivitiesExamples of Non-qualified R&D Activities Research after commercial production
Adaptation for particular customer
Duplication of existing product or process
Management studies, market research, routine datacollection
Research conducted outside the U.S.
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Emerson ConfidentialSlide 9
R&D Eligible CostsR&D Eligible Costs
Labor/Wagestracked to a qualified project Wages for actual hours charged to qualifying projects are
included
Or, if you charge a total of 80% or more of your time annually toqualifying projects, 100% of your annual wage will be included
Supervision qualifies, also, not just direct project engineer time
Supplies @ 100%
Contract Labor @ 65% limitation
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Emerson ConfidentialSlide 10
Example of an EDxxxx project MFG Process ImprovementExample of an EDxxxx project MFG Process Improvement
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Emerson ConfidentialSlide 11
Ex. of an EDxxxx project contEx. of an EDxxxx project cont
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Emerson ConfidentialSlide 12
Example of ED project Software Automation in Testing & MfgExample of ED project Software Automation in Testing & Mfg
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Emerson ConfidentialSlide 13
Ex. of ED project Software contEx. of ED project Software cont
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Emerson ConfidentialSlide 14
Ex. of ED project Software contEx. of ED project Software cont
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Emerson ConfidentialSlide 16
Example of ED project MFG Process DevelopmentExample of ED project MFG Process Development
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Emerson ConfidentialSlide 17
Example of ED project MFG Process contExample of ED project MFG Process cont
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Emerson ConfidentialSlide 18
Tracking R&D Expenses - Project NumbersTracking R&D Expenses - Project Numbers MRxxxx Initiated by 85000 E&D work units, defined by
project scope form They should inform you if they want you to charge to their project.
EDxxxx Initiated by non-E&D work units (ManufacturingEngineering, Quality, etc)
To request new project number, fill out questionnaire located atIntruder\GEN\Tax E&D Labor\questionnaire (product) or(software).doc. It should not take you more than a half hour to fillit out.
Email to Lisa Baumann.
Project number will be assigned and set up in Oracle & Tax E&DLabor Access DB so you can charge timecards and invoices to it.
Then Tax & Finance take care of gathering the data necessary fortax return process.
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Emerson ConfidentialSlide 19
Tracking R&D Expenses Internal LaborTracking R&D Expenses Internal Labor If you normally fill out a timesheet, code to project number
and enter in Oracle. Either MRxxxx project if E&D group has told you to use it
Or EDxxxx project that Lisa Baumann has set up for you
If you dont usually fill out a timesheet, use the Tax E&DLabor Access Database. This is also intended for first-linesupervision, marketing, etc.
Located at Intruder\GEN\Tax E&D Labor\TaxE&DLaborFYXX.mdb
Enter an estimate of your time spent on the appropriate project
numbers Complete entry quarterly
If you would like to be added to the quarterly reminder emaildistribution list, please contact Jennifer Seeley
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Emerson ConfidentialSlide 20
Tracking R&D Expenses Internal LaborTracking R&D Expenses Internal Labor Tax E&D Labor Access database
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Emerson ConfidentialSlide 21
Tracking R&D Expenses - MaterialsTracking R&D Expenses - Materials Invoices & POs Code with appropriate project
number & your work unit-account number
For example: ED32MR3SIG / 51170-6316
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Emerson ConfidentialSlide 22
Tracking R&D Expenses Contract LaborTracking R&D Expenses Contract Labor Invoices & POs Code with appropriate project
number & your work unit-account number
For example: ED32MR3SIG / 51170-6962
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Emerson ConfidentialSlide 23
FlowchartFlowchartReview Work Plan for the Quarter /Year and
Identify Potential Qualified R &D Projects
Did E &D Group Give
You a MRXXX Project #
to Charge To ?
Yes No
Fill Out
Questionnaireand Send To Tax
Department
Qualified ?
Yes No
Tax Department
Assigns Project #
EDXXXX
No Further
Action
Needed
Do You
Normally Fill
Out a Time
Sheet ?
Yes No
Code
Project #on Time
Sheet
Use Access
Database
Quarterly to
Estimate Hours
to Project #
ALSO-Charge Supplies &
Contract Labor
InvoicesTo Appropriate
Project #
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Emerson Confidential
Questions?Questions? Tax Department Contacts
Lisa Baumann, x3309
Melissa Hanson, x3918
Finance Contact Jennifer Seeley, x5273
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