Texas’ mix of international appeal and Southern charm has seen the state constantly rank highly in business classifications. The lone star state boasts a broad business network, with Houston being home to the second largest concentration of Fortune 1000 companies in the country. According to Forbes, Houston is also among the 10 Best Cities for Young Entrepreneurs. Indeed, as the saying goes, everything is bigger in Texas.

Markedly, over the past 20 years, Texas has become an increasingly important part of the US economy. In 1995, it made up 6.5% of the total US GDP; by 2014 it was over 9%. In addition, notwithstanding Texas’ commitment to success, is the academia the state harvests.

To elaborate, four Texas universities — Texas Tech University, the University of North Texas, the University of Texas at Arlington and the University of Texas at Dallas — have achieved a monumental breakthrough in their pursuits to join the top tier of the nation’s colleges.

The Carnegie Classification of Institutions of Higher Education registered the universities among 115 schools designated in its highest ranking for research activity. The designation, often denoted as “Carnegie Tier One,” was formerly held only by four Texas schools — the University of Texas at Austin, Texas A&M University, Rice University and the University of Houston. The designation, apart from applauding research prominence,  is also a sign that the universities are moving towards the state leaders’ goal of increasing the number of overall “tier one” universities in Texas.

Moreover, an opulent university research network fosters economic development by embedding the regions with technology, knowledge and talent. It is also important to note that companies are able to claim the research and development (R&D) tax credit for qualifying activities performed at universities.  Typically, companies that engage in this type of research will receive a higher credit than they would if the project was done outside of a university. For instance,  federal returns allow an additional 20% credit for R&D conducted through universities. Furthermore, the credit rates for Texas state credits returns double when working through universities.

Thus, Texas’ high calibre of research universities could certainly benefit the economy, companies and students. As noted above, the R&D tax credit emboldens companies to take on R&D projects that benefit their industry sector but are also suitable to academic research. Contact Swanson Reed today to find out more about the credit and if you qualify.

This case study shows the application of key legislative requirements for qualifying R&D activities as they apply to relevant activities in the water treatment industry. 

Business Scenario

Wise Water Corporation specializes in the custom chemical synthesis of a unique range of proprietary, environmentally compatible and non-toxic water treatment products. All formulations are custom manufactured in the United States using locally sourced US raw materials.

In 2012 and onwards, Wise Water began projects with the main objective to engineer and develop reliable products and innovative solutions for water treatment.  Water Wise constantly conducted R&D to create new and improved products to perform to the best of its ability.

In order to qualify for the Research and Development Tax Credit, Wise Water needed to determine the eligibility of its proposed R&D activities. The “qualified research” must meet four main criteria, known and developed by Congress as the Four-Part Test.  Water Wise’s qualified R&D activities included the following.

Wise Water’s Eligible R&D Activities

Background research to evaluate current knowledge gaps and determine feasibility (background research of the development of Water Wise’s products).

Prior to 2012 Water Wise had no experience in high pressure boiler products. Previously, their work had focused on low pressure installations. Water Wise was approached by a research institute to begin a tailored collaboration in 2012 to develop and trial a treatment metal passivation solution for the many problems plaguing the high-pressure thermal power industry.

Besides the lack of comparable solutions available, the outcomes of activities in this research could not have been known or determined in advance due to a number of specific technical challenges. For instance, a stall in development of conventional cycle chemistry, limitations such as inadequate metal protection, chemistry-related utility failures, downtime, forced outages and high-maintenance costs were involved.

Up to that time, there was no known method to measure Anodamine concentration, especially at such extreme conditions as seen in the high-pressure industry.

Design and development of a series of prototypes to achieve the technical objectives (development and testing of the system’s real-time assessment capabilities). 

Water Wise’s hypothesis for the development stage was if the product could be developed to offer metal protection with environmentally-friendly, green technology.

Apart from the multiple analytical methods employed to validate a products performance, methods of directly monitoring and quantifying the residual of the chemical technology remain of paramount importance for acceptance and successful implementation. Thus, Water Wise was required to develop a simple, reliable, reproducible and site functional spectrophotometric method to monitor the concentration of Anodamine HPFG and validate success.

Moreover, Water Wise specializes in utilizing custom manufactured formulations using locally sourced US raw materials. It is almost impossible to find reasonably-priced, US manufactured water treatment options. Water Wise wanted to fill that gap and created several innovative products designed to fill that need.

Trials and analysis of data to achieve results that can be reproduced to a satisfactory standard and to test the hypothesis (development of an additional trial feature). 

Water Wise undertook continuous improvements through research in development in the following areas:

• Improvements to production time and manufacturing efficiency
• Improvements in quality of products
• Increased metal protection
• Improvement in safety
• Reduced environmental impact
• Decrease in labour and production costs
• Production innovation sourced from:
• Internal ideas
• Existing customers who have business needs which require new solutions

Water Wise eliminated uncertainty by:

• Testing across all supported releases to determine reliability and user-friendliness
• Experimentation with possible fixes until an adequate solution was determined

Ongoing analysis of customer or user feedback to improve the prototype design (feedback of Water Wise). 

Feedback of the product developed  was necessary to evaluate the performance capabilities of the new design in the field and improve any flaws in the design.  To ensure plant protection, reliability and availability of the product, Water Wise’s technologies perform frequent site consultancy services ensure program.

Since the initial development of Anodamine HPFG, the product has constantly been refined and improved, due to economic pressure and to meet additional thermal power industry concerns and changes such as increased transient, peaking, and frequent-shutdown schedules. The compliance and regulatory demands and standards of operation in the high-pressure industry are far more stringent than that of the low-pressure industry.

Moreover, Water Wise’s  R&D program involved hours of on-site monitoring program application and performance and developing new strategies and validation tools to verify plant protection.

Commentary

What records and specific documentation did Water Wise keep?

Similar to any tax credit or deduction, Water Wise had to save business records that outlined what it did in its R&D activities, including experimental activities and documents to prove that the work took place in a systematic manner. Water Wise saved the following documentation:

• Project records/ lab notes
• Conceptual sketches
• Design drawings
• Literature review
• Background research
• Design documents for system architecture and source code
• Testing protocols
• Results of records of analysis from testing/trial runs
• Records of resource allocation/usage logs
• Staff time sheets
• Tax invoices
• Patent application number

By having these records on file, Wise Water confirmed that it was “compliance ready” — meaning if it was audited by the IRS, it could present documentation to show the progression of its R&D work, ultimately proving its R&D eligibility.

Swanson Reed has just partnered with AccelerateH20 to boost water technology innovation and fill demands in Texas’ $9-billion water technology market. Contact us today if you’ve been involved with water technology R&D and would like to achieve generous tax benefits. 

Texas, whilst renowned for oil, football and barbecues, actually has a lucrative, untapped water market. To be precise, the State of Texas’ economy has an undiscovered $9 billion water and water technology cluster of jobs, businesses, and assets – and it’s mounting. In fact, Texas observed a 19-percent job increase from 2005 to 2015 in water-related jobs. By 2025, the total amount of forecasted jobs in water-related professions is 1,168,320, which constitutes a 35-percent job availability jump from the years 2015 to 2025.

In light of this, AccelerateH20 is a Texas-based entity created to identify, promote and invest in new and existing technologies with potential to fill demands in Texas’ $9-billion water technology market. The non-for-profit company aims to promote effective future water strategies for the state’s residential, industrial, agricultural and utility end users. Most recently, AccelerateH2O launched  the first of seven  proposed regional innovative demonstration hubs to test, evaluate, and streamline next generation water technologies. Essentially, these demo hubs will host another company on their site to trial new innovative water technologies. Hence, smaller companies or start-ups will have access to professional services to conduct testing and evaluation under health and safety compliances. Moreover, the hubs will allow companies to access large-scale facilities and millions of gallons of water to enhance engineering review.

Ultimately, the demo hubs aim to connect the market to resources, assets and ideas by tackling barriers and limitations to innovating water in Texas. The demo hubs are predicted to act as a showcase for knowledge sharing among end-users, technology firms, academic researchers and the general Texas marketplace.

In order to further boost innovation, Swanson Reed has partnered with AccelerateH20. Swanson Reed is a global R&D (research & development) tax credit consulting firm, who can help you achieve tax benefits for innovative activities. The Federal and Texas State R&D Tax Credit laws apply to businesses in the water industry that are performing eligible R&D activities, including participation in AccelerateH2O organized pilots and demonstration.

Swanson Reed provides AccelerateH2O partners, technology firms, investors and underwriters with;

• No-Cost feasibility assessment to determine the financial benefit of claiming earned tax credits for qualifying research, development and demonstration activities.
• Sourced grants, incentives, and funding opportunities for water technology innovation.
• Calculated R&D tax credits, technical briefs to substantiate claims, and a finalization pack for your tax accountant to file with the IRS tax returns at a discounted Network rate.
• Advice on the structure of projects and programs to achieve maximum benefit of all federal and state tax credits and incentives.

If you would like to learn more about water technology R&D tax credits, check out our AccerlateH20 page or  get in touch with us today by contacting one of our offices.

A Research and Development (R&D) credit claim could be your company’s passport to reduced tax liability – and it’s all thanks to one rather underused tax incentive.  In specific, the R&D tax credit. This is one of the most bounteous tax incentives and can assist companies in generating generous tax savings. For example, in 2012 alone the IRS estimates that $10.8 billion in federal tax credits were claimed. Considering that this evaluation does not include credits claimed by S-Corps or LLCs or the amount of R&D credits claimed at the state level, the amount of total R&D credits claimed for 2012 is presumably much higher than reported.

However, R&D tax credits are frequently unheeded by entrepreneurs and small businesses, who presume they must have on-site laboratories or breakthrough ‘white-lab coat’ research to claim the credits. Comparatively, others distress that they will face complex tax calculations or that it will trigger an IRS audit. However, many small businesses can claim the R&D tax credit. Moreover, with the changes to the permanency of the R&D tax credit and the PATH Act, the credit is now more easily available to smaller companies and start-ups.

However, despite the evidence that the R&D tax credit is a valuable incentive, its administration has been complicated by uncertainty from companies in a number of areas. Most notably, confusion usually surrounds what constitutes as qualified research expenses and the required manner of documenting and substantiating those expenses. Since we’ve previously discussed what qualifies as research expenses in our latest video tutorial, we will focus on the documentation generally required.

This is particularly important as many companies either understate and/or under-document their credits, consequently losing some or all of them on examination. Thus, how does a company go about properly documenting its R&D expenses?

To begin with, documentation should be assembled while a firm is undertaking the research, even in cases when there is no formal R&D plan yet. Individuals will want to keep all the diagrams constructed and all the schematics. Moreover, time sheets for anyone doing research should be documented with notes on what they are working on and when. This is particularly vital as firms can apply employee’s’ wages towards the credit claim. However, the company must document that 80 percent of the employee’s activities was qualified research and development.  Therefore, if an employee performs qualified R&D services at least 80 percent of the time, then 100 percent of his Form W-2 wages are eligible for the R&D tax credit.

As the New Year begins, it is the perfect time of year for companies to consider how to progress their companies forward in the future. Undeniably, R&D expedites innovation through developing or creating products, processes and systems. However, as can be seen from above, there can be confusion when making a tax claim based on R&D activities. Hence, how can companies avoid errors when making a claim?

One way of escaping error is by engaging in a reputable R&D Tax Specialist, such as Swanson Reed. Our specialists can identify and readily scope out the correct value of your claim. If you should be claiming, an R&D Tax specialist will help you write the technical justification, advise you on what does and doesn’t qualify, clarify what costs should be included and support any questions you may have. If you would like any more information on the R&D Tax Credit, please contact us today to find out more.