game industry start up 101: business taxes & incentives
DESCRIPTION
This presentation was for the Game Industry Start Up 101 Business Taxes and Incentives workshop. This program is brought to you by the Washington Interactive Network.TRANSCRIPT
RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities.
Tax Help for Start Ups
Presented by Dan Wright and Nicole Wilson
Introductions
• Dan Wright, Business Tax
• Nicole Wilson, WA State Tax Specialist
Agenda
• The Do’s and Don’ts
• WA B&O Tax Changes
• Industry Examples
• Tax Relief
Three biggest issues
• Create and document clear founder, investor, and key employee arrangements
• Prepare for the next step
• Manage your risk
Founder, investor, and key employees arrangements
• Considerations:– Choice of legal entity– Owner agreements– Compensation arrangements– Joint venture arrangements
Prepare for the next step
• Considerations:– Know what you own and keep current documentation
(R&D, intangible characterization, building value)
– Representation and warranty • Tax deal killers (tax records and filings are not
current, under reported/not quantified)
Manage your risk (tax)
• Considerations:– Jurisdictional risk (sales/use tax, VAT, other foreign tax)– Documentation issues (invoice format, contract
considerations, resale certificates)– Understand options before assessing risk (voluntary
disclosure programs)– More disclosure is the trend
• FIN 48
What to expect…
• Federal income tax• State income or business & occupation tax• Payroll tax• Property tax• Sales & use tax
As technology changes, so do taxes…
• Expanded definition of digital goods• Online services now deemed retail sale• Requirement to file electronically• Amnesty for prior periods• Not all states define goods and services the same
Post July 26, 2009 Definitions of Digital Goods…• All digital goods delivered to a buyer in WA state
are subject to retail sales tax regardless of the method of delivery – Digital audio works– Digital audio visual works– Digital books– Other products delivered electronically
• Digital codes
Certain Online Services Now Deemed Retail
• Digital automated services– Services delivered electronically using one or more
software applications• Remote Access Software
– Allows a consumer the right to access prewritten computer software, where possession is maintained by the seller or third party
• Data processing services– Subject to RST if performed by an automated process
Scenario 1
• $2,000,000 revenue annually• One shop – Washington• 2 -4 employees• Platform – handheld• Unit Price - $ 1.99 per game
– Outright sale vs. 30/70 split between Iphone and Developer
IPHONE Developer
Scenario 2
• $2,000,000 revenue annually• One shop – Washington• 4 -6 employees• Platform – PC games
– Developer hosted/ ASP delivery• Unit Price - $10/month subscription
Ghost Hosts
Scenario 3
• $10,000,000 revenue annually• Develop 2 games per year• One shop – Washington• 60 employees• Platform – box distribution (Xbox, Wii, Sony)• Unit Price - $2,000,000 3 months after release and
$ .50 per game sold
Big Game Blowup
Is there any relief from tax?
• Sales & Use Tax Deferral
• Business & Occupation (B&O) Tax Credit for R&D spending
Sales & Use Tax Deferral
• What qualifies:– New structures or, expansion or renovation of qualified
buildings– Qualified machinery & equipment purchases
• For how long:– Life of the business if R&D activity continues– And if you complete your annual surveys
B&O Tax Credit
• Who qualifies:– Any person engaged in qualified research and
development in the 5 high technology areasAnd– Its research and development spending in the calendar
year for which the credit is claimed exceeds .92 percent of the person’s taxable amount for the same calendar year
• Example, for taxable income of $10,000,000, your R&D expenditures must exceed $92,000.
Tax Incentives – B&O Tax Credit Calculation
• Step 1: Determine the greater of the amount of qualified R&D expenditures or 80 percent of amounts received by a person other than a public educational or research institution in compensation for conducting R&D
Example:
2008 Sales $10,000,000$200,000 in R&D
spendingWholesaler (.484%)
Tax Incentives – B&O Tax Credit Calculation
• Step 2: Subtract .92 percent of the person’s taxable amount from amount determined in step one.
Example:
$200,000 R&D spending $ 92,000) X .92 $108,000
Tax Incentives – B&O Tax Credit Calculation
• Step 3: Multiply the amount determined in step two by:– For 2004 – 2006, the person’s average tax rate– For 2007, the greater of the person’s average tax
rate or .75 percent– For 2008, the greater of the person’s average tax
rate or 1 percent– For 2009, the greater of the person’s average tax
rate or 1.25 percent– For 2010 – 2015, the greater of the person’s average
tax rate or 1.5 percent
Example:
$108,000 X 1% $1,080
Questions?