State and Local Tax for a Tech Start-Up
Case Studies State and Local Tax for a Tech Start-Up A Comprehensive Source Advisors Case Study How Tech Start-up Arable
Source Advisors
October 24, 2023
Case Studies
A Comprehensive Source Advisors Case Study
Wolf describes Arable as a data and analytics company focused on supply chain and risk management in agriculture, something, he says, no one has tackled before. Arable does this by monitoring conditions in its clients’ fields via a proprietary device and then analyzing the data it gathers via the specialized software it developed. Arable monitors and analyzes some 40 conditions, including weather, irrigation levels, and crop health.
Financed through government grants and venture funding, Arable has obtained patents for its technology and processes. It rapidly attracted small-to-enterprise-level clients across the U.S. and abroad. Like most savvy start-ups, Arable sought to push additional capital raises as far into the future as possible to increase its value before further diluting ownership.
The New Jersey R&D tax credit and the Technology Business Tax Certificate Transfer Program, which enables qualified, unprofitable NJ-based technology or biotechnology companies with fewer than 225 U.S. employees to sell a percentage of net operating losses (NOL) and research and development tax credits to unrelated profitable New Jersey corporations.
Adam Wolf learned about these incentives when Source Advisors’ reached out to him via email. According to Wolf,
“I was intrigued, and we had an initial conversation.
They were smart and utterly clear about how it works, but I thought it was too good to be true. I checked with our tax accountant, and sure enough, this was real. For every start-up, cash is king. I know it’s more complicated than this, but to me, it amounts to free money on the table, and it’s obvious to take advantage of it.”
Wolf did some homework and was impressed with Source Advisor’s reputation in the industry and decades of experience in this narrow line of business. Arable launched a partnership with Source Advisors to establish its qualifications for the incentive programs and make the application.
Making a successful application for R&D tax credits at the federal and state levels and New Jersey NOL sales is a highly complex process. Source Advisors took Arable through the four-step qualifying process for federal R&D tax credits. This process also helped identify what payroll is related to qualifying research and development activities. Once qualified per the federal guidelines, Arable was also qualified for the New Jersey R&D payroll tax credit.
As the company had at least two years of operating losses, Source Advisors worked through the Technology Business Tax Certificate Transfer Program qualification list. To outline the basics, in addition to two years of operating losses, the company must provide documentation of:
Arable’s application for the incentives was filed with the New Jersey Economic Development Authority (NJEDA). Its corporate business tax returns were filed in time for the deadline for June 30 of the application year – 2017.
To be certain that the application was complete, Source Advisors followed an internal practice of submitting a pre-application to the NJEDA for review and comment. Source Advisors also took the application through its own checklist process at least three times to be certain that the NOLs were accurately reflected.
Don’t leave money on the table. Contact Source Advisors to find out how our State and Local Tax Services can work wonders for your bottom line.
Our industry experience with state and local taxes has helped businesses claim billions of dollars in tax credits and incentives.
Source Advisors has demonstrated success in assisting many growing businesses with complicated tax issues and is able to leverage that experience to avoid common pitfalls
Our 40-year history of achieving substantial tax credit savings for clients across various industries is a testament to our commitment and expertise.
Source Advisors has a network of national accounting and sales & use tax experts. By extension, clients have access to assistance in every region regarding state, county, and local tax issues.
Our dedicated support team is readily available to guide you through every step of the process, ensuring a smooth and stress-free experience.
Our recommendations stand in full compliance with tax legislations, offering clients unmatched peace of mind.
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