The R&D Tax Aspects of the Buffalo Billion



By , , and


Buffalo-Billion
        Buffalo’s economy continues to develop and diversify, led by major growth in the healthcare and education sectors.  Particularly encouraging is the Buffalo Billion, an economic investment development plan which was developed at the request of Governor Andrew Cuomo whom has committed to invest more than $1 billion in state funds in order to lure additional private sector investment. 

        In addition to this, at least $5 billion in economic-development projects are under way in the region, the most in more than 50 years. The healthcare and education sectors in New York are particularly driven by research and development and the investments by governor Cuomo, as well as the private sector businesses contributing to the $5 billion in development, largely involve R&D as well.

        The present article will discuss Buffalo’s most innovative industries and present the federal and state tax credits available to support ongoing R&D efforts.


The Research & Development Tax Credit

        Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

• New or improved products, processes, or software
• Technological in nature
• Elimination of uncertainty
• Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On January 2, 2013, President Obama signed the bill extending the R&D Tax Credit for 2012 and 2013 tax years.


The New York State R&D Tax Credit

        Investments in R&D facilities are eligible for a 9% corporate tax credit. Additional credits are available to encourage the creation and expansion of emerging technology businesses, including a three-year job creation credit of $1,000 per employee and a capital credit for investments in emerging technologies.


Buffalo Niagara Medical Campus
        The Thomas R. Beecher, Jr. Innovation Center in downtown Buffalo is a LEED- certified research and development space catering to life sciences and biotech companies. The center boasts that “This ever-changing campus environment encourages groundbreaking advancements via innovation and entrepreneurism and seeks to change the way healthcare, science, and energy enhance quality of life”.  There are over 50 companies on the medical campus which use the schools resources to develop patents, market products, and create new innovations.  A few of these companies are described below.

AccuTheranostics, Inc.  provides clinical laboratory services that improve currently available chemotherapy cancer treatment options available to the physician and patient, and also enable the pharmaceutical industry to more rapidly and cost-effectively develop new cancer treatment drugs.

Kinex Pharmaceuticals is a specialty pharmaceutical company focused on the development and commercialization of next generation therapies for cancer and immunomodulatory diseases. Kinex has developed the proprietary platform technologies, Mimetic and Opal. These technology platforms allow the company to focus on both oncology and immunology markets and the company is building value in its compound assets by continually advancing clinical programs and introducing new discoveries through its R&D efforts. Kinex has emerged as a pipeline company with compounds that address large markets with unmet medical needs.

Medical Acoustics is a commercial-stage medical device company which employs acoustic technologies for diagnostic and therapeutic medical applications. The manufacturing of the Lung Flute, a medical device helping patients suffering from chronic obstructive pulmonary disease (COPD) is locally produced in Orchard Park.

ZeptoMetrix is a biotechnology company that is privately held, serving the diagnostic and pharmaceutical research products industries. Zeptometrix provides large scale virus and bacterial production, diagnostic kit development and manufacturing, controls and calibrators for serology and amplification testing, custom proficiency panel manufacturing and distribution, clinical specimens for assay development, specialty panels and biorepository services.


Buffalo Billion

        The Buffalo Billion is a state economic-development initiative for western New York that will provide over a billion dollars in funding for a variety of projects.  Ideally, the plan aims to incentivize certain private sector behavior that the government believes will foster long term economic growth. The overall strategy involves six major sub-categories, all of which are largely focused on R&D.  Specifically, Governor Cuomo believes that investments in knowledge-based industry sectors and innovation will spur economic growth.  Knowledge-based service sectors comprise nearly 75% of the economic output of developed economies today.  Our society will be increasingly reliant on a pipeline of workers trained for high-skill jobs, entrepreneurs willing to take risks, and researchers able to generate novel ideas.
 
        Manufacturing remains the third largest employment sector in the Buffalo Niagara economy, representing 50,000 employees and $6.3 billion in gross regional products (GRP), 11% of the total.  The Buffalo Billion initiative aims to spur growth in this region, but the manufacturing activities on the radar are not necessarily those which dominated the manufacturing sector in the past. Particularly, the government believes that industries based upon innovative, cutting edge science are usually executed by relatively high-skilled workers and have the most potential for growth in the future.  These industries are commonly referred to as advanced manufacturing.  They include at least four clusters: advanced materials, machinery and metals chemicals, and health/life sciences.

        For more on R&D as it relates to advanced manufacturing see the outline below.  For more on the other three industries visit http://www.rdtaxsavers.com/.

        Advanced Materials companies working with metals, polymers (thermoplastics and thermosets), ceramics, glasses, or composites are likely to qualify for R&D tax credits when engaged in the following activities:

  • Development of new materials and modifications to existing ones generating superior performance in one or more features that are central to the application under consideration.
  • Improvement of the performance characteristics (technology life cycle) and their sales volume (product life cycle).
  • Processing of materials into high-value added niche applications.
  • Creation of new or improved processes for the manufacture of materials.
  • Miniaturization of electronic components.
  • Innovative use of existing materials for medical applications and hybrid methods which use new materials to assist the body in self repair.
  • Development of new or improved nanomaterials.
  • Research and development of superconducting materials.
  • Reprocessing of waste materials.

        In addition to the four major clusters, the government’s plan involves a significant investment of $350 million in a new green-technology hub anchored by a factory which will make solar panels.  Solar panel development, like most manufacturing endeavors, typically involves significant R&D activities.  Particularly, expenses incurred in connection with developing any new technique that can be employed in generating more electricity yield from a solar panel will be credit eligible.  Even expenses incurred in developing novel techniques for lower costs or creating more durable products will typically be credit eligible. As long as the product involves some new feature or upgrade there should be a good opportunity for a credit. 

        In addition to the $350 million for the new technology hub, the government plans to release at least $150 million in tax credits associated with green energy.  This is consistent with the similar NY SUN initiative which creates $1 billion dollars in incentives for ratepayers to incorporate solar capabilities into their electrical systems.  For more on this topic see “NY Offers Billions in Energy Incentives Commencing 2014”.


Collaboration

        Another critical component of fostering health and life sciences innovation is knowledge exchange and collaboration among organizations and people in the life sciences field. Many regions are experimenting with co-location of facilities, creating formal and informal opportunities for interaction, and interdisciplinary exchange. The Buffalo Niagara region is beginning to facilitate this interaction through efforts such as the co-location of clinical and R&D functions at the Buffalo Niagara Medical Campus (BNMC).  This type of collaboration is an emerging trend in all U.S. competitive economies.  For more on this topic see “The R&D Tax Credit Aspects of Innovation in New Jersey”.


Conclusion

        Research and development is crucial to the growth of modern economies.    With the new economic development plan and the state incentives for investment in R&D, Buffalo’s economy is positioned for economic growth. Advanced manufacturers and energy producers should be aware of the state and federal tax credits available to stimulate their efforts.

Article Citation List