FIDELITY INDUSTRIES INC. USES R&D TAX CREDITS TO EXPAND DESIGNS AND CAPABILITIES

Background

Located in Wayne, New Jersey, Fidelity Industries is the leading independent manufacturer of vinyl wallcoverings for the commercial hospitality and healthcare markets. The company began in the 1970s as a textile supplier and at that time wall covering only accounted for about 30% of their business–primarily selling high-end residential wallpaper. As the years went on, and popularity of stylistic and high-end wallpaper declined, Fidelity had to reevaluate where they were focusing their sales and marketing efforts. In the 1990s Fidelity got involved in commercial wallcoverings for healthcare and commercial properties and has been evolving and innovating ever since, standing at the forefront of innovation and design. Since then, they’ve grown to encompass over 350,000 square feet of production and warehousing space where they manufacture thousands of styles, textures, and patterns, offering many well-known brands and full flexibility to custom design wallcoverings to suit their customer’s unique specifications. All of their products meet or exceed specifications for Type I and II accordance with ASTME 84 standards and CE declaration of conformity, and they’ve also been a pioneer of “green” corporate philosophy, producing sustainable products in an environmentally responsible manner.

Nearly two decades ago, when much of the industry was slow to address the environmental impact of manufacturing, Fidelity made the decision to eliminate toxic, solvent-based inks from all products, instead opting to use inks that are free of ozone-depleting chemicals.  They also implemented an aggressive recycling program that would heavily reduce the amount of waste produced, including scrap metal, paper and cardboard, as well as scrap vinyl and wallcovering trim. They’ve made substantial progress in the reduction of water and energy use in their manufacturing facilities, offices, and warehouse, as well as encouraging the use of better, more fuel-efficient vehicles by their employees wherever possible. Fidelity remains committed to their “Green Mission” and are continuously seeking new ways to be proactive in manufacturing wallcovering products with the least amount of impact on the environment—without ever compromising on style or quality.

Challenge

NJMEP came into the picture about 10 years ago and originally worked with Fidelity Industries to help them get LEAN and optimize certain areas of their production and manufacturing processes, and since 2016 NJMEP has been helping them on exploring various cost-saving methods, particularly in reference to Research and Development (R&D). Although they’re considered a fashion business, there’s a lot more R&D involved than one would initially suspect. Since then, Fidelity has gotten involved with world-class fashion designers and can sometimes spend upwards of $1 million on research and development annually–costs that with the proper guidance can qualify manufacturers like Fidelity Industries for R&D Tax Credits, allowing them to utilize their saving to further reinvest in their products and manufacturing procedures.

No doubt, Fidelity was going to consult with NJMEP’s expert resource again to ensure they not only deployed their expertise and verified the proper R&D activities, but also because their services come with a built-in Audit Defense.

Solution

NJMEP’s expert resource worked closely with Fidelity’s team to establish a comprehensive list of qualified R&D activities and to determine all qualifying expenses (wages, supply expenses, and contract expenses) attributable to the identified research efforts. They then used these costs to calculate final figures relating to the IRS and State tax credits. Upon completion, the resource supplied Fidelity and their CPA a copy of the report in a preliminary form to use for filing the Federal and State tax returns.

“They gave me the rules of the game, told me what has to be done. The first year we applied for R&D Tax Credits was very challenging, we had to learn everything from scratch. We had an interview with [NJMEP’s Expert Resource] and they sent me all the forms, went through our billing to see what we were billed for certain things, and make sure that was okay.”

-Shmuel Brook, Vice President – Fidelity Industries Inc.

The resource then conducted telephone interviews with senior technical staff to obtain information pertaining to the company’s overall R&D process, including the manner of participation of key personnel and a discussion of the types of contemporaneous documentation maintained by the company as well as additional information pertaining to each of the qualified activities. The resource then provided a description of the company’s overall R&D process, a Project Summary covering certain qualified activities, and Project Descriptions presenting the technical challenges and process of experimentation associated with the qualifying research activities.

The last step in the R&D Tax Credits process was to assemble and deliver a final R&D Tax Credit Study to Fidelity Industries. In total, the process may only take a few hours but has the potential to save tens of thousands of dollars in tax credits—allowing small to medium-sized manufacturers to deploy their resources elsewhere. According to Mr. Brook, “After a few years of doing the tax credits, a lot of it was simply copying information over to the forms. It was very smooth sailing—then they come for an hour to review the paperwork and I would say if the process took more than 2 hours per year, that would be a lot.”

In addition to providing all the financial and technical documentation necessary, the expert resource also provides an additional eight hours of audit defense support at no additional charge if the tax credit claim and/or supporting documentation is subjected to questions, review, or audit by either the IRS or the State authorities.

Results

The following results were cited as a direct result of engaging with NJMEP 12-18 months following the conclusion of the project outlined above.

“[R&D tax credits] help us in many ways to develop our product,” says Mr. Brook.

• New & Retained Sales: Between $20,000,000 and $50,000,000
• New Jobs: 4
• Retained Jobs: 37

Fidelity Industries has worked with NJMEP in the past, and programs like the R&D Tax Credits is a simple project that allows them to recoup certain expenses and stay agile in a regularly shifting market, bringing new and exciting products from world-class designers consistently to market. “We’re sent a very detailed report every year and from year-to-year there’s not much that changes that we need to keep up with. In our business we deal with high-end designers that want to try different things and the R&D Tax Credits gives you the opportunity to do business with people you might otherwise not be able to work with.”

Fidelity Industries is currently working with NJMEP’s expert resource on additional R&D Tax Credit projects, and when asked whether he’d recommend our services he said, “Absolutely, I think that most companies could use the type of assistance NJMEP offers.”