Catbridge Machinery Benefits from Qualified R & D Tax Credits

BACKGROUND

Catbridge Machinery is a ‘MADE in New Jersey’ company that designs and manufactures high-performance web converting machinery. Founded in 2002, this Montville, NJ manufacturer provides slitter rewinders and web converting systems for countless industries to help customers succeed in today’s dynamic global markets.

This industry leader utilizes decades of precision engineering and machine building experience to make highly optimized converting machinery for their customers’ specific needs. They take pride in their dedication to producing durable machines with faster cycle times with less set up, less waste, and fewer operator errors, giving customers better results.

A company like Catbridge Machinery is the perfect example of an organization that innovates constantly and should be able to benefit from this investment and effort.

CHALLENGE

Manufacturing companies are eligible to apply for certain types of tax credits but aren’t aware of the credits or sure how to apply for them. New Jersey is an expensive state to do business. Every single business can benefit from tax incentives for the contributions to their industry, their local community, and the nation. Tax credits can reduce the amount of taxes companies owe to the federal or state governments or increase a return, but they are generally complex and require the combined expertise of engineering and financial professionals. Smaller manufacturers don’t have the staff or the knowledge to understand what credits they may be entitled to receive. Catbridge Machinery was looking to see if they could take advantage of specific R & D tax credits and leadership was referred to NJMEP by some of their peers. Catbridge’s leadership consists of individuals with engineering backgrounds but needed additional support to ensure they were in compliance and would receive the largest tax credit possible. They needed to enlist the assistance of NJMEP’s team of experts to see how they qualify for the tax year 2020 credits.

SOLUTION

From prior positive experiences of working with NJMEP on previous tax credits, Catbridge Machinery turned to their account manager, Jeff Meister for help once again. Catbridge has had lots of success with NJMEP’s services in the past and has credited NJMEP with helping their business grow substantially from a $4 million company to an over $30 million business since 2006. Jeff, who has had years of experience working with manufacturers to qualify for tax credit, worked with NJMEP’s R & D resource to review Catbridge’s operations and discovered they qualified for the R & D Tax Credit TY2020.

Through examining each of Catbridge’s research and development activities, the team was able to identify which ones qualified. A list and documentation were compiled of all these qualified R & D activities to calculate the tax credits. This would ensure Catbridge qualified for the credits. “We talked to [NJMEP] about helping initially with some hiring and then we found out about the tax credit. I’m an engineer by degree and have learned the business aspect of running a company as we have grown. After talking to other manufacturers, they suggested, ‘Oh you need to do the R & D tax credit because you guys do a ton of product innovation,’ and then I really learned about it through our rep at NJMEP. There’s always challenges to it,” Catbridge Machinery, Vice President William Christman explained. “We’re two engineers that run the company, so we always like to take on challenges. The R & D tax credit was new for us since we needed to collect all our innovations, all the data to back it up, then compile all that information and get it all into one coherent analysis.”

The following steps were taken:

1. A summary of the qualified research expenditures (QREs) incurred by Catbridge Machinery for the tax year
2. Calculations of Federal and State tax credits for the tax year in a format suitable for easily transferring the figures to the appropriate Federal and State tax forms
3. A table summarizing the qualifying research activities carried out by Catbridge Machinery during the tax year
4. A detailed description and sample contemporaneous documentation (if provided) pertaining to one or more representative project(s) to demonstrate the company’s process of experimentation and how the research activities meet the IRS guidelines
5. A company profile containing general information about Catbridge Machinery, its products and/or manufacturing processes and its need for carrying out research activities
6. A review of IRS criteria for identifying qualified research activities and expenditures, together with demonstrations as to how the company’s activities and expenses satisfy these criteria
7. A description of Catbridge Machinery’s overall approach to research and development, including how various personnel are involved in research activities and the types of contemporaneous documentation that are maintained

Each of the points above requires multiple individual steps and documentation to finish. Qualifying for R & D tax credits is long and complex without the right support and partner. Having an R & D professional with experience put together a report after identifying all the activities, documents, familiarity in Federal and state tax credits ensures Catbridge has everything needed to qualify.

“Putting together the report is a lot of work. We really appreciate the ability of the engineers and the accounting people that we work with. Having built very complex equipment for over 25 years, getting the ideas to paper can be daunting.  Our partners on the R&D tax credit team really help to coherently organize all the information and create final package to memorialize all our hard work,” Christman said.

RESULTS

Catbridge was able to successfully meet all the R & D Tax Credit TY2020 requirements while saving time and the added stress of putting all the information together. This is how much they qualified in R & D tax credits:

• Estimated Qualified Research Expenditures: $2,900,187
• Estimated IRS Credit: $218,830
• Estimated IRS Cash Benefit: $172,875

“We’ve always been very satisfied. There were some ownership changes with our original consultant that NJMEP connected us with. But with some effort, they were able to maintain continuity with the team we had worked with for many years.  Without NJMEP as the intermediary, we may have just kind of lost our connection completely and had to engage a new firm. NJMEP is familiar with our business, and they have a good idea on how to approach the analysis going into it. It makes the process very easy for us,” stated Christman.