Category: Managing Your Business

Advanced Leadership Institute Course 20 Now Accepting Applications

MCAA is currently accepting applications for its flagship executive education program, the Advanced Leadership Institute. Designed specifically for mechanical contracting executives, the ALI is focused on developing the talents and business networks of leaders in the industry.

The intensive, team-oriented, two-week residential program includes lecture, individual coaching sessions, and the development and presentation of final a team project.

The ALI is offered annually at Babson College in Wellesley, MA. The dates for ALI Course 20 are September 13-17, 2020 and November 1-6, 2020.

The application process is competitive, and applicants must provide the endorsement of their CEO/President. While the deadline is May 29, 2020, the course fills up quickly, so early submission is recommended.

For additional program details and application criteria, download the application form.

With New Tax Legislation, MCAA Contractors are Still Able to Claim R&D Tax Credits for BIM and Design

During the negotiation process of the Tax Cuts and Jobs Act at the end of 2017, the tax credit for R&D spending was temporarily removed. Fortunately, MCAA and others worked hard to ensure that the final bill re-inserted the language for the Research Tax Credit (“RTC”) and made changes that potentially increase the credit by more than 20%. With the RTC in place, contractors are able to continue to claim tax credits for qualifying BIM and design work. Unfortunately, many mechanical and plumbing contractors are unaware that they can even claim part of their design and bid work for these tax credits.

This article is intended to offer an overview of the Research Tax Credit for mechanical contracting personnel presented in general non-tax terms, wherever possible. The credit is, however, “tax based”, and as such, the inclusion of all of the applicable rules for every situation is not possible in a brief discussion.

In order to qualify for the research tax credit, activities must pass several tests. Although these tests are fairly specific, “qualifying activities” are generally much broader than many people think. When contractors hear the term “research” they often associate the term with scientists wearing white lab coats who are mixing chemicals in beakers. However, the Internal Revenue Code definition of research, as defined under IRC §41, is much broader than this traditional definition. As a result, many contractors may typically associate a large portion of their research activities as “routine” or “ordinary”, when in fact many of these activities might qualify for the Research Tax Credit.

To successfully build a structure, there may be experimentation or an iterative process on technical design issues and the installation process to properly build it. Although it might seem complicated if you are not claiming these credits, many contractors have been doing so for years. Before you begin, it is recommended that MCAA members contact their tax professionals to ensure that they are properly claiming the appropriate costs and activities under the RTC.

To begin, the Internal Revenue Code states that the activities “must be intended to discover information to eliminate technical uncertainty concerning the capability or method for developing or improving a product or process, or the appropriateness of the product design”. The Code also requires a “process of experimentation” involving the evaluation of alternatives, confirmation of hypotheses through trial and error, testing and/or modeling (this can include iterative steps in evaluating design alternatives, alpha/beta tests, pilot trials, scale-up testing, marketing/field tests directly associated with the R&D efforts, qualification Trials, etc.). Finally, wages, supplies, and contracts associated with qualifying activities qualify. The expenditures can also be either capital or expensed items.

Broadly, this includes any activity where there is some technical uncertainty involved in the development or improvement efforts- i.e., is there a technical problem that needs to be solved before you can effectively launch/implement this equipment design, software, product, process, prototype, etc.? Personnel who are directly engaged in resolving the technical issues will qualify and those individuals who have a support role will also qualify (i.e., performing alpha/beta/unit testing, collecting data or writing programs to collect data, supervision, technical project management, etc.)

Uncertainty exists if the information available to the contractor does not establish the capability or method for developing or improving the product/process or the appropriate design of the product/process. The required level of uncertainty may be established in instances where your work requires the resolution of technical issues when either designing the mechanical and plumbing system or working from a set of drawings that are incomplete or need modification to function.

The definition of activities that qualify for the credit is fairly broad and the driver for the effort can be to produce a new, better or more competitive product/process, to increase reliability/quality, to increase general product/process safety, to respond to new federal/state requirements, to reduce costs or increase speed/efficiency, etc. Furthermore, the success or the degree of technological advancement is not a factor.

Below is a representative sample of activities a taxpayer would typically perform, which often times are misclassified as “routine” or “non R&D” related:

  • Evolutionary advancements to the functionality, performance, reliability or quality of an existing product (Change orders for process improvement);
  • Development of prototypes or models to prove out conceptual ideas (Including BIM);
  • Experimentation to verify if an existing construction technique or process can support a new product with differing characteristics (Testing point loads);
  • Experimentation to verify if a new or existing construction technique or process can be implemented in a new or different geographic region, new environment, or different industry/application;
  • The design and development of custom equipment, tooling, molds and/or dies;
  • The development of microcode used within machinery or robotics;
  • The redesign of an existing construction or building process to improve efficiencies, increase safety or reduce operating expense;
  • Testing to prove out the use of new materials in existing products;
  • Plant and/or Process scale-up activities;
  • Qualifying “Bid and Proposal” efforts; and
  • The development of custom software that is either intended to be used internally or sold, leased or licensed to third parties as a commercial product offering.

However, simply because some items may be new, unique, customized or involve special problems does not mean that they will automatically qualify for a credit. For instance, there may be options or choices in regard the application of standard engineering techniques, but no uncertainty in regard to the resolution of a technical issue facing the project team. Qualifying activities that are intended to resolve technical uncertainties should also involve some iterative type of testing, experimentation, the consideration of alternatives, trial and error evaluations, prototyping, validation, etc.

Thus, although no qualifying activity might occur for most HVAC systems (even where custom designs are involved), technical uncertainty might arise on mechanical engineering and/or design efforts in instances where there are unusual requirements involving, for example: complex temperature, humidity, pressure, ambient air ratio range controls with differing protocols for numerous chambers/rooms; the need to design for particulate and/or chemical fume control/mitigation where the chemistry might require special construction materials; unusual space limitations, local regulations, cost mandates, etc.; instances where numerous alternative methodologies for technical solutions are necessary; development of technical alternatives to address repeated system failures; etc.

The PATH Act of 2015 made the Research Tax Credit permanent but also broadened the impact of the credit for many small to mid-sized businesses. Starting January 1, 2016, small businesses that meet certain criteria can also use the Research Tax Credit to offset the FICA employer portion of payroll tax, with a credit cap of $250,000 for each eligible year.

 

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Mike Foley is the Managing Partner at Foley & Smith, LLC, a firm specializes in Research Tax Credits.

Mike D’Allesandro is the Managing Director at Research Tax Credits, LLC

 

 

Your Business is the Best…Tell the World!

Your business provides the highest quality mechanical, service and plumbing services to all commercial establishments in your market area…but are you getting the word out? With help from MCAA’s Management Methods Bulletins, your company could be the first one called when a project or service is needed.

Public Relations: An Important Marketing Tool for the Mechanical Contractor offers a wide variety of ideas to help you reach out to existing and potential customers about the range of services your company provides. Direct advertising ideas range from television and radio ads to fliers, circulars and newspaper inserts. Your involvement in the community through civic groups, sponsorships of special events and contributions to local charities increases your company’s name recognition and broadens your prospects for new business.

Social media has added to the possible avenues for business marketing.  Facebook, Twitter, LinkedIn, YouTube and others have become popular venues for advertising because they reach a huge audience. Guidelines to Using Social Media in Your Business helps you sort out the best options for your company and issues you should consider when choosing them.

Another tried and true way to connect with your customers is with a newsletter.  A well-written and designed company newsletter keeps your customers—old and new—up to date on project developments, changes to your services, staff, equipment and much more. Creating a Readable Corporate Newsletter provides valuable tips on how to produce an attractive, informative publication that your customers will want to read.

Less tangible but equally important marketing tips suggest ways for you and your staff to promote your company’s name as a service- and people-oriented business. Listening to Our Customers and Why Mechanical Contractors Should Furnish Equipment will help you build your company’s positive reputation and spread the word about its “customer first” culture.

These and many more valuable Management Methods Bulletins, designed to help your company address and overcome a myriad of business challenges, are available for download at no charge as an MCAA member benefit.

And, for complete information about branding, advertising and how to design your own promotions, take a look at Guide Marketing Your Business. It’s also available as a free download to MCAA members.

Looking for Another Management Methods Bulletin?

You can find them on our Management Methods Bulletins page. There, you’ll find the bulletins listed by category with links to help you get what you need quickly.

GO THERE NOW

Or, find them in the Resource Center, where you can use the blue Refine Your Search bar to pinpoint exactly what you’re looking for.

VISIT THE RESOURCE CENTER

Need Help Managing Your Business Finances? Check Out These Bulletins!

Staying on top of your company’s finances can be challenging, especially during periods of economic volatility. With that in mind, MCAA’s Management Methods Committee produced bulletins that address the most critical accounting and financial issues facing your business.

The bulletins cover a wide range of topics from general guidelines—Tips to Help Contractors Manage Through an Economic Downturn, Guide to Financial Statements and Credit Policy Criteria—to more specific issues, such as Cash FlowService Mark-ups vs. Construction Mark-ups and Other Direct Job Costs (ODJC’s) and Indirect Job Costs. Each bulletin provides detailed, current information that will not only help you keep your finances in balance but may also streamline your company’s accounting processes and improve your business relationships with your customers, project associates and equipment suppliers.

Want to See All of the Management Methods Bulletins?

You can find them on our Management Methods Bulletins page, where they’re listed by category with links.

GO THERE NOW

Or in the Resource Center, where you can use the blue Refine Your Search bar to pinpoint exactly what you’re looking for.

VISIT THE RESOURCE CENTER

Get Your Copy of the New Tool and Equipment Rental Guide

MCAA has released the 2016-2017 edition of its Tool and Equipment Rental Guide. The guide puts the latest comprehensive cost recovery information for commonly used tools and equipment at your fingertips. The single download includes both a PDF version and an Excel spreadsheet. The guide is free as a member benefit.

The rental rates are based on ownership and operating costs for contractor-owned equipment and are derived from formulas and data developed by the experts at EquipmentWatch and from analytic methods used in the construction industry.

Generally, these methods consider the purchase price, depreciation, maintenance and overhaul costs, indirect equipment costs and average annual use hours.

Profit, project overhead and general company overhead costs such as office facilities and supplies are not included in the rates.

Download your copy here.

It’s Not too Late to Find an Intern, and Get a Grant

MCAA_GREAT_FUTURESIf you are considering hiring an intern for this summer and you haven’t yet lined up candidates, go to MCAA’s website, MCAAGreatFutures.org.

Over 200 resumes of well-qualified students from across the U.S. and Canada are posted and they’re eager to work for a mechanical, mechanical service or plumbing contractor to learn the business.

And, once you’ve hired someone, you can apply for a Student Internship Grant from the Mechanical Contracting Education & Research Foundation (MCERF). The grants are $1,200 each and you may apply for up two grants (if you hire two interns).

View Resumes

Apply for a Grant