In this issue:
By Timothy J. Giacoletti, CPA, MST BIO
Beginning with tax years after 1/1/08, Michigan’s Business Tax (MBT) allows a tax credit for companies that perform qualified research and development activities, as defined by Internal Revenue Code Section 41 (IRC Sec. 41), within Michigan.
The credit is calculated based on 1.9 percent of the qualified research expenses within Michigan. Qualified research and development expenses under IRC Sec. 41 are wages, supply costs and contract service expenses associated with qualified research activities. The total credits of the Research Tax Credit cannot exceed 75 percent of the total tax liability. Many of Michigan’s other tax credits are limited to 65 percent of the total tax liability; therefore, at a minimum, an additional 10 percent reduction of a company’s Michigan state tax liability may be reduced through this credit as an additional credit to those companies already allowed other credits.
Qualified research activities under IRC Sec. 41 are those that: have a technical uncertainty at the outset of the development of a new business component; are undertaken for purposes of discovering information that is technological in nature and intended to be useful in the development of a new business component of the company; and substantially constitute elements of a process of experimentation for a purpose relating to a new or improved business component (relating to functionality, performance, reliability or quality of a business component).
A business component is a new or improved product or significant component of a product or a new or improved process, technique or formula. Information is technological in nature if the process of experimentation used to discover the information fundamentally relies on principles of the physical or biological sciences, engineering or computer science. A taxpayer may use existing technologies and may rely on existing principles of the physical or biological sciences, engineering or computer science to satisfy this requirement.
A separate and distinct credit is available for Michigan taxpayers that invest in companies performing qualified research within Michigan. You must apply for this credit through the Michigan Economic Growth Authority. Only 20 companies will receive this allowance annually. In order to qualify for this credit, a company must invest at least $350,000 into a business engaged in research and development, with fewer than 50 full-time employees (all affiliated companies are treated as one business) or has gross receipts of less than $10 million. The company investing in the research company cannot have any financial interest in the research company previously.
This credit equals 30 percent of the eligible contribution, limited to $300,000. If the taxpayer’s tax liability is less than the credit, the excess credit can be refunded. Significant penalties can be imposed within five years of the granted credit if the State of Michigan determines that the purpose of the investment no longer meets the original terms of the agreement with Michigan Economic Growth Authority.
Any company (whether headquartered within Michigan or not) that undertakes qualified research activities within Michigan can benefit from this credit. The purpose of the credit is to encourage both Michigan and non-Michigan companies to increase research activities within our state. While the tax law needs more development to fully explain the qualifications and benefits associated with this credit, the law as written is certainly encouraging for those companies already performing research activities within Michigan or planning to locate research facilities within the state.
Timothy J. Giacoletti, CPA, MST BIO, is a principal with The Rehmann Group in the Troy office and is a member of the firm’s Manufacturing Services Group. He has more than 20 years of experience in public and private sector tax accounting and has spent many years with the large international accounting firms, specializing in taxation of manufacturers. Giacoletti can be reached at 248-293-7175 or at firstname.lastname@example.org.
Most companies are on-board with the need to protect their intellectual property (IP) and believe they are doing a good job at it, according to a recent survey released by Enterprise Strategy Group (ESG). However, 54 percent of respondents said they are going to spend more in the future to secure IP, mostly on process automation.
The problem, according to survey author Jon Oltsik, as discussed with DarkReading.com, is that, although enterprises are mostly satisfied that they are keeping their IP safe, they are mostly dissatisfied with the amount of time and effort they have to expend to do it.
More than half of participants revealed that they rely on manual scans of file servers to identify IP, defining it by content type, keywords, author or other criteria, according to the ESG study. Sixty-eight percent of respondents said they spend more than 40 hours or more each quarter to discover and classify their IP. Fifty-six percent of organizations with 20,000 or more employees said they spend more than 80 hours per quarter on IP discovery.
“This simply can’t scale to meet growing security and compliance needs,” the study says. Yet, at the same time, the threat to intellectual property is growing all the time.
As a result, upcoming spending on intellectual property security will probably be geared toward automating the IP discovery, classification and protection processes, Oltsik suggests.
A recent decision of the U.S. Court of Appeals for the Sixth Circuit emphasizes the importance of knowing and abiding by the licensing agreements of the software used in businesses.
In the case of Thoroughbred Software International, Inc. (Thoroughbred) v. Dice Corporation (Dice) [pdf file], Dice had to pay damages to Thoroughbred for installing unauthorized software on computers that weren’t even being used.
Dice licensed accounting software from Thoroughbred and installed it on computers that were rented to customers. Each computer needed its own authorization code, but Dice found a way to ‘crack’ or ‘lock pick’ the program, allowing it to install the software without obtaining the authorization code. Upon an audit, Thoroughbred discovered that Dice possessed 64 unauthorized installations of its software programs, 47 of which were never accessed or used by Dice customers.
After filing a lawsuit in federal district court, alleging copyright infringement under the U.S. Copyright Act, Thoroughbred received a favorable judgment but only for the 17 copies that were actually used. Upon appeal, Thoroughbred argued that Dice’s unauthorized copying of the software was an infringement itself. The Appellate Court agreed and remanded the case back to the district court to award damages to Thoroughbred for all 64 unauthorized installations.
This case brings to light the importance of not only refraining from intentional copyright infringement but also of establishing and following procedures for the discovery and removal of any unauthorized installations of software, whether or not they are being accessed or used.
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The Michigan Departments of Community Health (MDCH) and Information Technology (MDIT) are in the process of awarding more than $4.5 million in grants to set up a statewide health care information system that will be the first in the nation.
The system will help streamline the sharing of medical information, which should drive higher quality care, greater transparency, increased efficiency and more affordable health care.
According to a recent nationwide survey, one out of every three dollars that patients spend on health care goes toward administration costs associated with health care claims. The survey was commissioned by PNC Financial Services Group, Inc.
“When fully implemented, these Health Information Exchanges (HIE) will allow health care organizations within a community to instantly move clinical information between disparate health care information systems while maintaining the meaning of the information being exchanged,” said MDCH Director Janet Olszewski. “The goal of the HIE concept is to facilitate access to and retrieval of clinical data to provide safer, more timely, efficient, effective, equitable, patient-centered care.”
Keeping with the need to educate consumers on medical information, the Senate Health Policy Committee heard testimony on SB 525, which would mandate the upkeep of information provided on the Michigan Department of Community Health’s (MDCH’s) drug pricing Web site.
Senate Bill 525, sponsored by Sen. Roger Kahn (R-Saginaw), statutorily requires the MDHC to include the top 150 prescribed drugs on their prescription drug pricing site, as well as other commonly prescribed prescription medications and links to at least five other pertinent Web sites that could provide prescription assistance to consumers and the MDCH’s phone number.
MDHC expanded their list from 30 to 120 last month.
“We believe the increased utility of the state’s Web site will give citizens the access they deserve and the ability to save thousands of dollars on their prescription drugs per year,” said MDCH Director Janet Olszewski.
A recent federal court ruling in the Western District of Michigan stated that information on a hard drive is fair game in collecting evidence for a lawsuit, according to Kathryn L. Ossian, a principal with Miller, Canfield, Paddock and Stone, PLC.
Applying the new federal electronic discovery rules that took effect last December, the court ruled that the contents of a personal or company-owned computer could be targeted by an opposing party as a source of evidence.
Ossian suggests taking proactive steps now to establish policies and protocols that can save significant time and expense down the road — not to mention the risk of an unfavorable judgment. Her best-practice tips include: