Industry Specific Issues – Swanson Reed | Specialist R&D Tax Advisors

Invent and Manufacture in America Act: the bipartisan, bicameral bill that could change the landscape of R&D Tax

Since 2000, the United States has lost over five million manufacturing jobs, more than 70,000 manufacturing plants, and only 1 in 10 Americans work in manufacturing compared to 1 in 4 back in the 1960s. The causes for the depreciating manufacturing sector stem from outsourcing labor to other countries as well as the increased use of automation to replace workers. In an effort to revive the industry, a bipartisan, bicameral bill was introduced earlier this year: the Invent and Manufacture in America Act.

The bill was introduced by U.S. Senators Chris Coons (D-DE) and Pat Roberts (R-KS) in June 2017, and U.S. Representatives Mike Kelly (R-PA) and Ron Kind (D-WI) brought a companion bill in the House. If passed, the Invent and Manufacture in America Act would offer an increased tax cut for companies conducting research and development in the United States and who manufacture their products domestically. According to Representative Kelly, “If you want to do something, you usually incentivize any good behavior. So, we’re looking at the loss of jobs we’ve had — manufacturing jobs, the number of manufacturing plants have closed, and when you ask them why is it that you’ve closed … why did you choose to actually assemble it someplace else, it’s usually because of a more favorable tax situation.”

The Invent and Manufacture Act has significant ramifications for the R&D Tax Credit in creating this favorable tax situation. While the R&D Tax Credit is still under-claimed for most industries, the manufacturing sector has been shown to benefit the most from the R&D Tax Credit, comprising 39.5% of the credit’s claimants and receiving nearly 61% of the total amount claimed from the credit across all industries. Coupled with the fact that innovation prompts nearly 50 percent of economic growth in the United States, the manufacturing industry has much to benefit from more investment in R&D. If passed and made into law, the Invent and Manufacture in America Act would increase the R&D Tax Credit up to 25 percent for companies that engage in R&D and manufacture domestically.

The proposed bill has been lauded by most innovators in the country. Keith Roe, president of American Society of Mechanical Engineers, said, “When American innovations are manufactured abroad, we surrender our competitive advantage. This bill will strengthen innovation at home and make the United States more competitive globally by encouraging more domestic R&D and manufacturing.”

Still Have Questions about the New Tax Changes?

Swanson Reed regularly hosts free webinars and provides free IRS CE credits as well as CPE Credits for CPA’s. For more information please visit us at www.swansonreed.com/webinars. To find out more, please contact a Swanson Reed R&D Specialist today.

Austin-based Banyan Water Makes a Splash in Water Conservation with Technological Solutions

Austin-based software company Banyan Water knows water is essential to human life. It’s integral to our sanitation, energy, food, and health systems yet in the United States, water infrastructure is one of the most underdeveloped utilities. According to the 2017 Infrastructure Report Card, nearly 2 trillion gallons of drinkable water was wasted this past year as a result of 240,000 reported water breaks. The infrastructure’s inefficiencies have and will cost Americans, particularly as water rates are on the rise since 2010. An estimated 40 million Americans will lose access to affordable water if these trends continue.

For President and CEO of Banyan Water, Gillan Taddune, upgrading water infrastructure is not enough to mitigate water waste issues. To truly address natural resource scarcity and ensure long-term sustainability, advanced technological solutions are needed. As she wrote on The Environmental Leader last September, “Curtailing water-related risks goes beyond simple smart meters. Additional investment in internet of things-style hardware and analytical software capable of identifying leaks and inefficiencies needs to become a cornerstone of America’s present and future plans for the world’s most precious resource.”

To tackle these problems, Banyan Water has innovated a variety of technological tools to assist commercial users with more efficient, sustainable water management. The company applies smart devices, real-time monitoring, and analytics to help its customers, predominately real estate enterprises, track and control their water usage and cost. For one, Banyan Water provides an irrigation system that helps reduce water use by 50-70% and an indoor monitoring service that notifies of a leak. The company is constantly developing new ways to conserve water.

The company’s customers often highlight a marked difference when implemented Banyan Water’s software services. One of Banyan Water’s recent high-profile clients is the Thacher School in California which is prone to drought and water scarcity. Banyan Water technology allows the school to detect leaks and control usage as well as monitor different variables like plant and soil types and flow rates.

Michael Mulligan, head of the Thacher School, stated, “Implementing Banyan’s technology will be game-changing for the water management on our property, especially during times of extreme scarcity. We will gain significant insight into our campus-wide monthly water usage, prevent water loss through real-time leak detection, and are projected to save more than 11 million gallons of water per year while maintaining the quality of our landscape.”

Since 2011, Banyan Water has helped save over 2.3 billion gallons of water in the United States. This is enough to meet the water needs of more than 16,000 households for a year. The company received the Top Project of the Year Award in the Environmental Leader Product and Project Awards in June 2017.

Developing solutions for environmental sustainability like Banyan Water? You could be eligible for the R&D Tax Credit and receive up to 14% on your expenses. To find out more, please contact a Swanson Reed R&D Specialist today.

Swanson Reed regularly hosts free webinars and provides free IRS CE credits as well as CPE credits for CPA’s. For more information please visit us at www.swansonreed.com/webinars or contact your usual Swanson Reed representative.

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When Dallas researchers introduced Twistron, they may have sparked an energy revolution

Scientists from The University of Texas (UoT) in Dallas, in collaboration with researchers from Hanyang University in South Korea, have developed a new fabric that generates energy: twistron. A lightweight yet resilient yarn made from carbon nanotubes woven together, twistron can produce electricity simply by stretching and without the need of a battery or other energy source.

Dr. Carter Haines, an associate research professor at UoT’s NanoTech Institute in Dallas, said, “The easiest way to think of twistron harvesters is, you have a piece of yarn, you stretch it, and out comes electricity.” Carbon nanutobes, from which twistron is constructed, are 10,000 times smaller in diameter than human hair and therefore offer a lightweight material. To harvest energy, twistron initially needed to be soaked in electrolytes, such as saltwater or even human sweat. However, through experimentation and research, the scientists were able to use a solid-state electrolyte to coat the yarn, without soaking the material. From testing, the scientists found stretching the yarn 30 times a second could 250 watts per kilogram. Dr. Na Li, another research scientist at the NanoTech Institute, further described the process, ‘Whenever a harvester yarn is twisted or stretched, the volume of the carbon nanotube yarn decreases, bringing the electric charges on the yarn closer together and increasing their energy. This increases the voltage associated with the charge stored in the yarn, enabling the harvesting of electricity.”

The scientists hope the twistron could be used in clothing and other commercial uses one day. They tested twistron by sewing it into clothing and found that even normal respiration stretched the fabric enough to power electricity. One of the scientists also tested twistron in ocean currents. Dr. Shi Hyeong Kim submerged 10 cm of twistron on the east coast of South Korea and the material successfully generated electricity. Dr. Kim hopes this is a breakthrough for harnessing the strength of the ocean. From these small scale activities, the researchers are confident these activities could be scaled up in the future. The team has patented the technology and are continuing to test its capabilities. Perhaps they could even make batteries superfluous.

Are you also engaging in R&D experiments to develop new ways to generate energy? Did you know that If you conduct your R&D projects in universities, you could receive up to an additional 20% credit for your expenses? To find out more, please contact a Swanson Reed R&D Specialist today.

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R&D Recreating Business

Competitive Differentiation

We are all beyond aware of the rapidity of innovation today. In less than twenty years we have seen the technological dreams of Sci-Fi favorites come to life. Just this July we watched as the launch of Pokemon GO transformed the business sphere overnight, creating new methods of engaging consumers. As we accelerate our technological capabilities the challenge we face is to balance that technological innovation within human spheres such as workplaces, learning environments and business.

In a review of R&D transformation in relation to digitalization, SAP Vice President – Thomas Ohnemus, wrote that, “only five percent of companies say they’ve mastered digital transformation to the point of competitive differentiation.” In this quickly evolving market, competitive differentiation can be achieved through rapid response to the demand for innovation. This is where R&D must constantly be one step ahead of the game.

Shifting Business Structure

While this race of market prediction is typically seen in the electronic industry, Ohnemus draws attention to the frequency in which companies are shifting from offering products to offering services. In this way companies must rethink the way they perform business; selling a service often requires continued customer relations, troubleshooting and preventative care to keep the service running smoothly.

Innovating to Create Innovation

As the industry itself transforms, so must the workplace and the expectations surrounding furthered education within companies. Google has been one of the greatest workplace innovators – as the source of much of the world’s information Google employees are encouraged to take full advantage of the resource. Furthering education on topics of interest as well as using the company’s wide range of technological innovations to improve company culture and communication. This can be extended from personal interests to company training as education methods become faster and more accessible harnessing the strengths of millennials.

A famous example of this is Google’s 20 percent projects. Google allowed creativity to blossom and subsequently produce major projects such as Gmail and Google News by allotting for 20 percent of working hours to be dedicated to furthering personal projects and interests. While the 20 percent project time is rumored to have lost momentum it is true that, “any company can benefit from learning how to better attract and manage innovators, foster engagement and ultimately lead to success.” Thomas Ohnemus suggests that nowhere are these innovative techniques more important than in R&D.

If you would like to discuss the R&D Tax Incentive further, please do not hesitate to contact one of Swanson Reed’s offices today.

Competitive Differentiation innovation r&d R&D Tax research and development

Underused Financial Incentives In the Design and Construction Industry

According to the U.S. Green Building Council, over a third of all non-residential construction and design today is considered green. The council is predicting for more than half of all construction in the U.S. to meet “green” requirements over the next five years.

Designing and constructing buildings to green guidelines requires certain demands. Two federal tax incentives are there to benefit architects, engineers, contractors and builders who work under these demands. The Research and Development (R&D) Tax Credit and the Energy Efficient Commercial Building Deduction (aka Section 179D) are two effective economic incentives that are missed and underutilized every year by the design and construction industry. Large Public Corporations seem to be the only ones reaping the benefits. A study shows that less than 20 percent of SMEs are aware they might qualify.

The R&D Tax Credit is an incentive to encourage innovation among U.S. companies. Regulations and guidelines have loosened since its creation in 1981, making it easier for taxpayers to qualify and claim the credit. In simple terms, it’s a tax incentive that rewards the creation of something new – an improved product, a more efficient process or even a cheaper development.

The Energy Efficient Commercial Building Deduction (Section 179D) is a powerful financial tax incentive for designers to meet or exceed energy reduction requirements for new and existing constructions. The more energy-efficient the building is, the bigger the deduction will be. Currently, one can receive up to $1.80 per square foot. Typically, owners of the building may qualify, but in the case of a government-owned building, the government may allocate the deduction to the person(s) – architect, engineer or contractor – responsible for designing the qualified energy-efficient requirements.

Read a case study exemplifying the application of essential legislative requirements for eligible R&D activities as they apply to activities in the design and construction industry.

Texas Leads the Nation In Total Energy Production

Since the discovery of the Spindletop Oilfield in 1901, Texas has been a hub for energy production in the U.S. The Texas energy industry is made up of three sub-industries:

oil and gas exploration and production
electric/coal/nuclear power generation
renewable and sustainable energy generation

Texas’ success in energy production is due to its natural resources and geography, qualified labor force, exceptional transportation systems and leadership in environmental research.

Texas has its own grid which allows its electrical transmissions and energy development to be independent from federal regulation.

With two of the largest wind farms in the western hemisphere, Texas ranks number one in the nation for installed wind capacity with 12,335 MW.

The energy industry is crucial to Texas, contributing over $172 billion to its economy. Overall Texas leads the nation in total energy production, biodiesel production capacity, and solar energy potential.

Nice work, Texas.

If you are conducting business in this industry you should absolutely be taking advantage of the R&D tax credit, both federally and locally. Most activities performed in the energy production industry satisfy the IRS’ 4-part test and therefore qualify for the R&D tax credit. Contact a Swanson Reed specialist for more information or take our eligibility test online today.

Source: texaswideopenforbusiness.com

R&D Regulations on Internal Use Software

On April 17, 2015 the IRS gathered in Washington to hear the newly proposed R&D regulations on Internal Use Software (IUS). The new regulations were introduced on January 20, 2015 and were based off of a 1998 court case, Norwest Corporation v. Commissioner, which questioned whether IUS constituted as qualified research.

The regulations state that IUS can qualify as R&D, but it must follow specific guidelines. On top of the 4-Part Test, Congress introduced a three-part “high threshold of innovation” test to qualify internal use software.

The three-part high threshold of innovation test consists of the following:

The software needs to be innovative. This means there must be an economically significant reduction in cost or improvement in speed or other measurable improvements.
The development involves significant economic risk. This requires both technical uncertainty and economic risk. The uncertainty exists at the outset of the development as to whether the resolution of the technical uncertainties can be achieved and the costs recovered within a reasonable period.
The software is NOT commercially available. The traditional requirement that the software not be commercially available is retained.

The IUS must satisfy all 3 of those requirements as well as the original requirements of the 4 part test.

The proposed regulations contain examples of how the IRS will apply the process of experimentation requirement.

An eligible process of experimentation must

Identify uncertainties related to the development of the business component
Systematically design a proposed solution
Identify alternatives intended to alleviate those uncertainties
Conduct systematic trial and error testing to prove the viability of each alternative.

Here are some examples of non-qualified activities:

Certain types of web design
Installation of ERP software
Evaluation of vendor software products.

These new regulations are proposed to be applicable for tax years ending after the date they are published as final regulations. This would be no earlier than calendar year 2016 or possibly later.