The R&D Tax Credit Aspects of Illinois



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Illinois Research and development (R&D) plays an essential role in innovation by bringing ideas to the market, promoting economic growth, creating jobs, and keeping Illinois competitive.

The present article will discuss the R&D tax credit opportunity available for innovative companies in Illinois.


The Research & Development Tax Credit

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 criteria:

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

Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On December 19, 2014, President Obama signed the bill extending the R&D Tax Credit for the 2014 tax year.


Illinois’ R&D Credit

In 2011, the Illinois General Assembly and Governor Quinn approved a five-year extension of the state Research & Development tax credit through to 2016. The 2011 extension ensured innovative businesses are rewarded for initiating new R&D projects and enabled others to continue budgeting ahead for long-term R&D projects.

Illinois’ R&D tax credit is a non-refundable tax credit of 6.5% of qualifying research expenditures on in-house and contractual R&D performed in Illinois . Using the the federal definition to determine qualifying research expenditures, businesses calculate their credit based on their average expenditure on R&D for the latest three tax years. The R&D tax credit is an effective way to support research and development, which plays a critical role in any innovation ecosystem.


Illinois’ R&D Investment

In 2012, academic institutions throughout the state of Illinois invested a total of $2.36 billion in R&D, as illustrated in the table below. This total was an increase of $11.2 million, or 0.5 percent, over 2011.

Illinois R&D Investment Chart


Academic R&DIllinois MSAs by academic R&D Specialization,
              2012

Illinois is one of the top 10 states for total academic R&D investment source. The table below represents the various academic R&D specializations throughout Illinois and each MSA’s total expenditures:

As illustrated, the academic institutions in the Chicago MSA invested $1.67 billion in R&D in 2012. This kind of spending helps Chicago academic institutions conduct cutting-edge research as well as attract top talent in science fields. The second highest spending MSA in Illinois was Champaign-Urbana with R&D expenditures of more than $538 million.  Champaign-Urbana’s R&D expenditures increased by $38 million from 2011 to 2012.



Academic Institutions


Math and Computer Science
In 2012, Illinois academic institutions excelled in many categories. That year, the state ranked sixth in the nation by total investment in math and computer science R&D and graduated the third-highest number of students with master’s and doctorate degrees in this field. According to the National Center for Education Statistics, more than 8,000 undergraduate students were enrolled in engineering fields across the Chicago, Urbana, and Champaign University of Illinois campuses.

The emergence of several MSAs in selected categories is responsible for strengthening the state’s academic network. For example, the Champaign–Urbana MSA’s R&D expenditures increased by $38 million in just one year, from 2011 to 2012. Its $97.6 million investment in math and computer science R&D ranked seventh in the nation among MSAs.  Champaign–Urbana recorded the highest LQ in math and computer science among the top 100 metros while Peoria ranked third out of 235 metros. Springfield was the most specialized in social science R&D investment out of all 235. Cumulatively, these results indicate that Central Illinois is becoming a powerhouse for both research and partnerships with private companies.


University of Illinois Research Park
The University of Illinois at Urbana-Champaign (UIUC) is a world leader in research, teaching, economic development, and public engagement. The Research Park at the University of Illinois was created by the University to advance in its economic development mission. This environment provides technology-based businesses opportunities to work with faculty and students and, accordingly, take advantage of opportunities for collaborative research and commercial endeavors. It also helps discover talent for immediate and future workforce needs. Many large corporations have research relationships with the University that have resulted in sponsored research, curriculum and teaching contributions, faculty consulting, and partnerships on federal grants. Such innovations may qualify for the R&D tax credit.


Caterpillar
Caterpillar’s innovative approach to its Research Park operation started 15 years ago, when it pioneered the Research Park student employment model. This is when “corporations in the Research Park employ students in their innovation centers to help them creatively address technical challenges, augment staff through summer and year-round internships, and create a talent/recruitment pipeline ”. This model is unique to Illinois as it is not often implemented this way in other research parks.
As Caterpillar celebrated 15 years of its Champaign Simulation Center at University of Illinois, they announced plans to build a new data analytics center in the University’s Research Park in celebration of this milestone. Supporting their innovation strategy, they will engage future science, technology, engineering and mathematics (STEM) talent through additional research and development opportunities. The new lab will foster real world innovation by bringing together university researchers and Caterpillar analytics professionals from engineering, computer science, statistics and economics to work on challenges and opportunities raised by technological and cultural change. This investment aligns with the company’s strategy to exceed customer expectations with outstanding products and solutions .


Abbott Nutrition
Abbott is funding new strengths on campus through interactions with the Beckman Institute for Advanced Science and Technology as well as the Institute for Genomic Biology. As a result, the establishment of the first-ever multi-disciplinary nutrition and cognition research center on the UIUC campus, The Center for Nutrition, Learning, and Memory, was created. Directed and solicited research will be led on the impact of nutrition on learning and memory in the human brain . Abbott values positive relationships with universities and colleges and have expressed that such relationships are a necessity for innovation to flourish for the company.


Neustar
Neustar agrees that the Research Park operations and University relationship is not only a fundamental part of its innovation strategy, but essential for the company’s future. Neustar’s tech areas of focus are IT security and Big Data . They collaborate with the Computer Science department, the Graduate School Library and Information Science, the Statistics department, and the NCSA at the University of Illinois to put forth new and exciting solutions that will impact the market.



Digital Manufacturing and Design Innovation (DMDI) Institute
President Obama announced that Illinois would be home to the new Digital Manufacturing and Design Innovation (DMDI) Institute. This honor recognized the state’s vision to establish an advanced manufacturing hub.  This achievement will be advanced by utilizing academic R&D. UI Labs will host the institute, which received $70 million in federal funding and an additional $250 million in industry commitments.

The project represents an important collaboration between 23 academic institutions, 41 corporations, and 9 nonprofit organizations. The DMDI Institute will focus on the flow of digital data across design, engineering, manufacturing, and maintenance systems and the networked supply chain as a whole.


3-D Printing

Many organizations are attempting to learn more about and potentially improve 3-D printing  (also referred to as additive manufacturing) due to its growing popularity. One group in particular is the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST).
NIST announced in September of 2013 that they were awarding two separate grants , lasting two years, in order to improve the measurements and standards for the 3-D printing field. These grants were made through NIST’s Measurement Science for Advanced Manufacturing Cooperative Agreement Program. NIST is anticipating that with these two grants quality parts can be produced, utilized, and certified for additive manufacturing. Northern Illinois University received one of the grants in the amount of $2.4 million. This funding will be used by the university to develop additional tools to be used in tandem with the technology.


Biomedical Research

Biomedical research is on the cusp of making transformative discoveries. It can help lengthen lives and shrink deficits. Medical research is also where many of the most promising new jobs and industries will come from.

In March 2014, U.S. Senator Dick Durbin supported federal investment in academic R&D by introducing legislation, a bill that will be called The American Cures Act that would provide $150 billion over the next decade to fund biomedical research . He urges the U.S. to keep competitive with other nations such as China and the United Kingdom, whom are placing a tremendous emphasis on medical research. The American Cures Act will create a mandatory fund to provide continual funding for breakthrough research at our nation’s top four biomedical research agencies: the National Institutes of Health, the Centers for Disease Control and Prevention, the Department of Defense health programs, and the VA’s Medical and Prosthetic Research Program. The new funding will start at $1.8 billion the first year and increase gradually each year for 10 years. Overall, a total of $150 billion will be devoted to the research over the next decade for innovative medical research.


Food Innovation

Tate and Lyle opened an 110,000 square foot Commercial and Food Innovation Center in Hoffman Estates near Chicago. In addition being the North American headquarters of Tate and Lyle’s Specialty Food Ingredients division, it is also the foundation for the company’s increasing global network of research, food application and technical support laboratories. The facility will serve as the global headquarters of its Innovation and Commercial Development unit. The center is designed to facilitate customer collaboration from “idea to plate.” The center focuses on the increase of their delivery to market while fostering the development of new food and beverage products that satisfy consumers’ increasing demand for health, convenience, value and taste. The new center contains “advanced food science research and processing laboratories, applications and technical services laboratories, a culinary demonstration kitchen, a full suite of consumer insight and sensory testing facilities, pilot plant and prototype manufacturing facilities, and extensive global communications capabilities .” The new center demonstrates their commitment to create innovative food ingredients and solutions.


Conclusion

R&D and innovation encourages continual economic growth in Illinois. There are many R&D tax credit opportunities available for innovative companies in Illinois. Taxpayers should be aware of Federal and State tax incentives which are available to them to help shoulder the costs of innovation.


Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Jennifer Reardon is a Project Coordinator with R&D Tax Savers.

Daniel Audette is a Senior Tax Analyst with R&D Tax Savers.


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