Williams Works RD Field

May 27, 2005
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GRAND RAPIDS — In addition to winning professional awards in civil engineering, Williams & Works Inc. assists in engineering research and development tax credits that manufacturers and tech companies use to reduce their federal tax liability.

William & Works, which has been in business locally since 1892, works with Monetek, a two-and-a-half-year-old consultant in Bloomfield Hills, to find and document a customer’s research expenditures that qualify for a federal tax credit.

Karona Inc. of Caledonia is one of those clients. Karona makes unique, architectural-grade, solid-core doors that have a veneer exterior. Part of the research the company had to conduct dealt with how it could get the veneer to adhere to the door and how it could bend the veneer over a routed shape.

“We’re providing technical support to Monetek and our role is to assist Monetek in determining what technology is being used and how it qualifies under the tax code as R&D,” said Steve Williams, Williams & Works principal and a registered professional engineer.

“We worked with Karona to help develop their qualified research expenditures,” he added.

Williams said his job was to figure out how much labor and how much money Karona had invested to come up with the process it uses to produce the door and how much of both could be convincingly claimed as an R&D tax credit. Typically, any cost that creates a new product or improves an old one can likely be considered a legitimate expense.

“Steve’s group essentially provides a small engineering report to us as to the technical qualifications. Then we provide a detailed technical report to the client,” said Andy Walker, a principal with Monetek, a specialized technology consulting firm.

“Some of us worked in a large patent law firm. Our background here is in intellectual property law,” added Walker. “We’ve documented technology in a lot of different contexts over the years and now we’re largely specialized in documenting it for this purpose.”

The two firms got together because Williams and Walker have known each other for more than two decades, having been neighbors at one time, and both believed that each company would complement the other in this venture.

But what Williams does isn’t part of the everyday routine for most civil engineers.

Normally only large accounting firms that have engineers on board that do this type of work. But many companies can’t afford the service that a big accounting firm offers, so Monetek stepped into the picture to fill that void and brought Williams aboard for his professional insight into how engineering impacts the manufacturing process.

“In addition to that, (Monetek) has provided support even to the large accounting houses where they’ve needed additional expertise in the area of R&D tax credits,” said Williams.

Most of their clients are manufacturers. Some, however, have been software developers. But all the tax credits have been federal because the state doesn’t offer any for R&D, one of the few states that doesn’t. Walker pointed out that Gov. Jennifer Granholm included these types of credits in the Jobs and Investment Act she unveiled in March.

“I think it’s also important to point out that most foreign countries have R&D tax credits as well, some significantly more generous than ours,” said Williams, “and this is part of remaining competitive in the area of technology.”

The federal credit equals 20 percent of the amount by which a taxpayer’s qualified research expenditures for a taxable year exceed a calculated base amount for that year. Filers, though, are subject to a loss of the corresponding deduction.

“If you take the full deduction, you have to reduce your credit. Either that or you take your credit and lose the deduction. You have the option,” said Walker

“If a firm was spending 10 percent on qualified research expenditures, it would amount to about 6.5 percent of their gross. A lot of firms work on margins of 5 to 10 percent of gross, so it can be a significant number. It goes directly to the bottom line and could increase profits from 5 to 10 percent easily,” said Williams.

Shareholders take the R&D credits standard corporations receive, while members of subchapter S companies and LLCs do the same. Unused credits can be carried forward for up to 20 years to use against future tax liabilities. A bonus to the regulation is that companies can claim the credit for three previous tax years.

“If you’re a calendar-year taxpayer, on Jan. 1 your next year started. You can go back probably to the years of 2002, 2003 and 2004, amend your returns, claim the credit and get a refund,” said Walker

“A lot of our studies are four-year studies where we’re doing the three open tax years plus the current year. Assuming they had qualified credits, they can go back and say we’re entitled to these credits.”       

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