The R&D Tax Credit Aspects of Alabama
Innovation is a central focus in Alabama’s current economic
strategy. Manufacturing is the number one industry
in the “Heart of Dixie”. Manufacturing is very R&D
intensive and innovation oriented. The state's manufacturing
sector reportedly employs a larger share of the state's
population than any other U.S. state. With over 300
chemical manufacturing companies statewide, chemical
engineering & manufacturing dominates in this sector.
Agriculture is another important sector in Alabama.
Alabama's agricultural production is dominated by the
production of broiler chickens. Almost 60% of the state's
livestock production is generated by these young chickens. The
poultry industry boosts the Alabama economy by $10 billion
annually. Innovations in this sector involve everything
from developing antibiotics to more effiicent slaughtering
aerospace industry is also extremely innovative and Huntsville
is home to NASA’s building of the Saturn V rocket, which was
the first rocket to put humans on the moon. Since then,
the industry has grown to include at least 300 aerospace
Alabama's automotive industry is significant as well with more
than 1 million cars and light-trucks produced in 2015, setting
an annual automotive production record for the state.
Innovation is central in this industry. New product
offerings drive car sales and parts makers must conduct
research and development in order to keep the pace with
original equipment manufacturers.
The Federal R&D
Enacted in 1981, the federal Research and
Development (R&D) Tax Credit allows a credit of up to 13%
of eligible spending for new and improved products and
processes. Qualified research must meet the following four
Eligible costs include employee wages, cost of supplies, cost
of testing, contract research expenses, and costs associated
with developing a patent.
December 18, 2015, President Obama signed the bill making the
R&D Tax Credit permanent. Beginning in 2016, the
R&D credit can be used to offset Alternative Minimum tax
and startup businesses can utilize the credit against payroll
- New or improved products,
processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
Manufacturing is an extremely innovative
industry in any state. In Alabama it is central to the
state’s economy. Manufacturers in Alabama account for 17.77
percent of the total output in the state, employing 13.23
percent of the workforce. Total output from manufacturing was
$34.40 billion in 2013. In addition, there were 257,800
manufacturing employees in Alabama in 2013, with an average
annual compensation of $60,945. Those
manufacturing employees made up a larger share of the state's
population than any other U.S. state.
Manufacturing is extremely R&D intensive.
Innovations in this industry include new product developments,
improvements on existing products, and process
improvements. Discovering ways to increase productivity,
integration of new equipment, and design of state-of-the-art
facilities also involve innovation.
Chemicals are the most important products manufactured
in Alabama in terms of value added. They are the number
two exported product in the state. Innovations in
the U.S. chemical industry are central to our modern standard
of living. Chemical engineers use raw materials such as
oil, natural gas, air, water, metals, and minerals to create
products we use on a daily basis. Plastics, rubbers,
fibers, polymers, semi-conductors, explosives, detergents,
pesticides, clothing, and even food products all involve some
level of chemical engineering.
R&D credits are also available for food science
manufacturing companies. The U.S. food industry is
undergoing monumental changes as it faces issues of
genetically modified ingredients , educating consumers, and
shifting to a larger focus on environmentally and health
Innovation in the food processing industry
involves changes to flavor, texture, temperature, customs, and
consumer price constraints. Many companies incorporating
better ingredients, such as organic ingredients , face
challenges in finding supplies of suitable ingredients.
Companies are incorporating improved processes and techniques,
confronting the issues of whether the new processes and
techniques are safe for consumers and whether they can be used
on a large-scale.
Agriculture is also an important industry
in Alabama. Alabama farmers sell nearly $4 billion worth of
poultry each year. While most of Alabama's agricultural
production is in livestock, 18% is in crops with greenhouse,
nursery, and sod products leading the way.
Poultry, which has a $15 billion economic impact and supports
more than 86,000 jobs is growing across the state. Last year,
the sector added 615 new or expanded poultry houses, for a
combined construction investment of $296 million. That’s up
from 129 new or expanded facilities and a $30 million
investment in 2010, with the numbers increasing gradually each
Innovation in this industry involves everything from
state-of-the-art irrigation systems, to new machinery
development, to big data analytics and genome
research. According to the United Nations, the world
population is expected to reach 9.6 billion by 2050. In order
to meet this unprecedented demand, global food production will
have to increase by 60 percent, in relation to 2005/07
levels. Climate change, water scarcity, and workforce
and land availability pose major challenges to this goal,
putting the agricultural industry under great pressure to
The aerospace industry in Alabama is more
than 100 years old, starting with the Wright Brothers’
establishment of a civilian flight school in 1910.
Today, there are over 300 aerospace and defense companies in
Alabama including: Airbus, Sikorsky, Lockheed Martin, Bell
Helicopter, Boeing, Northrop Grumman, GE Aviation, Airbus
Military, GKN, General Dynamics, BAE Systems, Goodrich,
Teledyne Brown, Pratt & Whitney and Raytheon.
The aerospace industry is one of the most competitive
industries . Cost reduction and innovation is a necessity in
this sector. Boeing, for example, does everything to
stay competitive; including collaborating with suppliers as
well as introducing more automation technology into
manufacturing. In recent years, there has been a major
demand for new aircraft around the globe. This demand
has created a huge order backlog that has yet to be fulfilled.
Process improvements and efficiency innovations on the
manufacturing floor are therefore critical. Research and
Development tax credits are available for these efforts.
Information technology is an extremely
innovative industry. In Alabama, Information Technology
is particularly prevalent in the Huntsville/ Madison County
area of the state with more than 300 international and
domestic corporations operating in that area. These
companies develop a range of technologies such as modeling and
simulation technologies, cyber security , and data centers.
Their work ranges from the design and production of
electronics and computer-related technology to the
manufacturing of technology hardware to the making of sensors
and radars for advanced missile systems.
The future for this industry in Alabama looks bright.
Computer systems design and management services are projected
to increase employment by more than 650,000 jobs in the next
five years. In North Alabama, Google is building $600
million data center. The state is attractive to Google
because state laws provide competitive incentives for data
center projects. Most of these data center projects also
involve some level of Research and Development.
The automotive industry is critical to
Alabama’s economy. Alabama ranks 5th in the U.S. in car and
light truck production. One-fourth of all passenger
vehicles built in the south are made in Alabama.
Today’s automobile is the most sophisticated technology owned
by consumers. From the early stages of planning, automakers
design innovations into new vehicles. Virtually every
aspect of the modern automobile is now high-tech, using a
high-tech material, or was developed through a high-tech
process. As a result, automakers rank at the top of lists on
most innovative companies, and automakers are recognized
leaders in R&D investments, in Alabama, the U.S. and
Innovation is a central focus in Alabama’s
current economic strategy. When companies innovate,
develop products and improve processes they may be eligible
for federal R&D credits which are available to stimulate