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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 Labs Uses New Jersey Tax Incentives to Grow

Arable Labs is a technology start-up in Princeton, New Jersey, breaking new ground in the agriculture sector. It was co-founded in 2014 by Adam Wolf, who today serves as the company’s Chief Scientist. Wolf came to New Jersey to take a research position at Princeton University, where he and his co-founders incubated the ideas that would underlie Arable Labs’ technology. They determined that New Jersey, combining a strong software engineering pool and a deep agricultural research and farming heritage, would be ideal for launching the company.

About The Company

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 Connection

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.

r&d amortization 2022 irs

The Work

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.

The Results

The work, as outlined above, is a simplification of the full process. Source Advisors walked Arable through developing the documentation and addressing the nuances of the requirements. The result was that Arable was approved for nearly 100 percent of its NOL sales.

The sales of its NOLs and its federal and state R&D payroll tax credits yielded non-dilutive cashback to Arable equal to 26 percent of its business investment in New Jersey. The company is now in its third year of benefitting from these valuable programs.

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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.

Discover the Source Advisors Difference

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.

Related Case Studies

State and Local Tax for Tile Manufacturers

Case Studies

State and Local Tax for Tile Manufacturers

A Comprehensive Source Advisors Case Study

Tile Manufacturer Uncovers Over $600K in Missed Tax Credits

In 2019, a Source Advisors partner secured a client with complex U.S. tax compliance needs. This partner was also focused on providing his clients with proactive and strategic services beyond traditional compliance. So, shortly after the relationship began, the partner contacted Source Advisors to help identify possible value-add opportunities.

During the consultation, Source Advisors helped the CPA identify several options, including the Federal R&D Tax Credit, which the client’s prior returns failed to include.

After explaining the additional opportunities with their client, the CPA partner connected them with Source Advisors to begin a multi-state nexus and credit review.

About The Company

The company is a US-based tile manufacturer whose parent company is a $1B European tile retailer.

The Goal

Clients increasingly lean on their tax advisors to tailor offerings specific to their needs. However, not every accounting firm specializes in services to identify nontraditional tax-saving opportunities.

For this CPA partner, communicating the benefits of leveraging an external specialist was essential yet straightforward. The CPA explained to his client that he conducted an internal review of their business and uncovered potential tax-saving areas. He also conveyed that state planning and identifying all possible credits were a complicated matter and recommended that they engage a specialist to assess the potential benefit.

Source Advisors consulted with the client to perform a federal and multi-state credit review and billed the company separately from the CPA firm’s tax returns.

r&d amortization 2022 irs

Key Milestones

With Source Advisors’ support, the partner explained the cost-benefit of claiming the credits, and the client subsequently proceeded with all three projects. Again, clear communication of ROI was essential for buy-in.

The Results

Source Advisors worked on all projects concurrently to have the information available for the 2019 tax filing. The project yielded:

  • A $40,000 Federal R&D tax credit (unfortunately, the client did not qualify for the state tax credit)
  • An $80,000 state inventory tax credit
  • Approval from the state to apply $75,000 of hiring credits on their 2019 tax return. The client untangled a web of challenges regarding site hiring credits earned – but had never previously claimed – over an eight-year period.
  • An amendment of historical tax returns to recover $400,000 in missed tax credits
Request SALT Services

Get Started Today!

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.

Discover the Source Advisors Difference

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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State and Local Tax for Real Estate

Case Studies

State and Local Tax for Real Estate

A Comprehensive Source Advisors Case Study

Real Estate Holding/Management Company Claims Tax Refund for Overpayments

This nationally recognized real estate firm holds and oversees properties in major cities like Boston, Chicago, New York, Los Angeles, Las Vegas, Miami, and San Francisco. As one of the premier landlords in the U.S., they command thousands of residential units. Beyond their own portfolio, they manage assets for an array of clients including sovereign wealth funds, pension plans, endowments, multi-managers, benefits plans, and family offices.

About The Company

The firm’s revenue primarily stems from a combination of management fees and a share of the rental income from the properties they oversee. Their suite of services, tailored to each property, encompasses tenant acquisition & screening, rent collection, maintenance & repairs, financial management, lease agreements, tenant relations, compliance & legal matters, and property inspections. The cost savings the company implements in any of these areas result in a direct increase in the company’s compensation.

The Goal

Given the vast nature of their operations, there’s an intricate web of taxation, especially when dealing with capital improvements and regular maintenance. Their primary aim was to streamline the sales and use tax application, ensuring accuracy and minimizing overpayments.

r&d amortization 2022 irs

Key Milestones

The Results

On a bi-annual basis a review is performed on the spending of between 70 to 100 properties. Due to the varying nature of expenses on a property basis from year to year a refund is typically pursued for between 40 and 50 entities. In the most recent cycle, we secured a refund of $1.2M between 40 properties.

Request SALT Services

Get Started Today!

Don’t leave money on the table. Contact Source Advisors to find out how state and local tax can work wonders for your bottom line.

Discover the Source Advisors Difference

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.

Related Case Studies

State and Local Tax for a Growing Fashion Brand

Case Studies

State and Local Tax for a Growing Fashion Brand

A Comprehensive Source Advisors Case Study

How A Growing Fashion Brand Managed U.S. Sales Tax Compliance

This Canadian shoe brand, having achieved success through its e-commerce channel, aimed to expand into the US market. However, entering the US means navigating complex tax regulations and compliance standards. This case study outlines how Source Advisors assisted the company in meeting all the necessary guidelines for its first US store opening.

About The Company

The company is a Canadian based shoe brand that experienced rapid international growth through a single e-commerce channel. As a result, they ambitiously set goals to enter the US market with an aggressive combination of physical stores and an expanded online presence. Not unexpectedly, the company was exposed to several US tax requirements and needed assistance to mitigate business risks.

The Goal

The client wanted to aggressively expand in the US with multiple retail locations and a broader e-commerce reach. In the prior year, US sales – via the e-commerce platform – reached approximately $500,000. It was their ambition to achieve over five million dollars in two years.

With their anticipated growth in mind, the client wanted to ensure compliance with all taxes, licenses, and fees for their retail locations. In the same way, it was necessary to properly configure their e-commerce platform to comply with US sales tax.

r&d amortization 2022 irs

Key Milestones

The Results

In the end, the company successfully met the necessary guidelines to open its first retail store in the US.

  • Hours of internal labor – and the need for additional salaries – saved
  • Compliance risks managed
  • Lost revenue to tax penalties avoided

Source Advisors established policies and procedures for the client to update relevant tax issues when introducing new products across all sales channels.

Likewise, the team established a monthly process to ensure the client filed future sales tax returns accurately and on time.

Request SALT Services

Get Started Today!

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.

Discover the Source Advisors Difference

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.

Related Case Studies

State and Local Tax for a Consumer Product Manufacturers

Case Studies

State and Local Tax for a Product Manufacturer

A Comprehensive Source Advisors Case Study

Global Consumer Product Manufacturer Recovers Overpaid Tax

The company is one of the world’s largest manufacturers of paper products. With a strong commitment to sustainable production practices, they proactively invest in solutions and technology to drive greater efficiency and quality across their facilities. This case study details how Source Advisors was able to help the company recognize various opportunities for tax recovery due to over paid taxes.

r&d amortization 2022 irs

Key Milestones

The Results

All four claims resulted in a net refund of $275,000. Source Advisors was also able to apply part of the refund against open audit assessments and saved the company an additional $52,000 in interest.

Source Advisors responded sensitively to the client’s desire to correct identified errors, and, with the finance team, established process improvements to:

  •  Identify exempt vendors and issue the appropriate exemption certificates to prevent future sales tax charges.
  • Correct the internal use tax matrix.
  • Work with the construction group to ensure that future projects appropriately identified sales tax exemption opportunities.
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