The R&D Tax Credit Aspects of Improving Virtual Reality Technology



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Improving-VR
        The term "virtual reality" refers to a computer-generated environment that can be explored and interacted separately from the real world. The emerging and increasing use of virtual reality technologies is a ripening opportunity for the research and development of products, services, and innovations.

        Virtual reality has often been depicted as a science-fiction concept, belonging in the realm of far-out movies like Tron and The Matrix. For decades, many attempts to construct a virtual space that a person can nearly completely immerse themselves into have fallen short of expectations, however it seems that time and technology are ready for meaningful virtual reality technology improvement.


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 Experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On 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 taxes.


The Gamechanger – The Oculus Rift

Aside from advances in mobile computing and products like current generation laptop computers and tablets, the Oculus Rift from Oculus VR, LLC. is one of the key products that has emerged to become the main tool in championing and contributing to virtual reality research.  

The Oculus Rift has faced the same doubts as any other potential VR technology in the last 20 years, but after being acquired by Facebook, Inc. for $2 billion, Oculus VR has gained the strategic and financial resources, positioning, and space to realize its goals.


A New Market Emerges

        There is evidence of expected market growth as MarketsandMarkets issued a press release reporting that the market for dedicated augmented reality and virtual reality systems is expected to reach $1.06 Billion by 2018, growing at an expected 15.18% CAGR from 2013 to 2018.  

        The momentum is building and apparently creating substantial booms in the numbers of more recent forecasts.

        A press release from KZero Worldswide, a consulting firm that works with companies operating in virtual space, places the value of the consumer VR market at $5.2 billion by 2018. Without question, the consumer market, driven by demand in entertainment (games), presents a big opportunity for anyone innovating and creating something the masses will enjoy playing.


Transforming Design and Development

        The Oculus has gained a lot of attention since it was first cobbled together as a prototype in 2011. Since then, the Oculus Rift has found its way into both university research labs and commercial companies, design and research labs.

Ford Motor Company
        One such commercial lab is Ford Motor Company's Immersion Lab, which uses the Oculus Rift to immerse users and monitor how they experience the cars they design. The Rift links through their VR system straight to their AutoCAD system, creating an integrated design and feedback environment. Ford enjoys this system and is looking to create more ‘immersion labs’ like these around the world.

Kumba Iron Ore
        Kumba Iron Ore has a stake in virtual reality technologies for use in simulating and designing its mining operations. Working with University of Pretoria's Department of Mining and Engineering, Kumba hopes to be able to design and simulate a mining operation in great detail in order to improve safety and efficiency throughout the life cycle of the mine.

Commercial Aircraft of China Ltd.
        Virtual reality simulators are particularly useful in training. Commercial Aircraft of China (COMAC) is a Chinese aviation and aerospace company that decided to choose Barco, a global visualization and design company, to design and install a VR system for COMAC's Engineers.  COMAC intends to use the system for engineering operation training.


Advancing Research Frontiers

        Major universities are performing the basic research that will drive the commercial market. The use of virtual development spaces is translating to new forms of product creation and production, as well as manufacturing.

State University of New York, Stony Brook
        In 2012, the State University of New York at Stony Brook first demonstrated its "Reality Deck", a 416-display room with a pixel count of 1.5 billion. Among many possible applications, the Reality Deck seeks to visualize large amounts of data for analysis for different problems in varied scientific fields. Through use of this large and immersive system, Stony Brook hopes to contribute to advances in nanotechnology, climate studies, medical imaging, and weather modeling.

Brown University
        Brown University is proving that virtual reality is also quickly becoming a key tool in creating simulations and lab conditions for large and difficult-to-isolate experimental environments. Brown uses virtual reality and wireless technologies to study the behavior of crowds. Crowds are just one of a world of social situations that present a difficult challenge in simulation and observation settings. By setting up a controlled space to engage a virtual space through an Oculus Rift, a subject can walk through the simulation as well as observe it at any point in time. Through this research, humankind could find better ways of designing public spaces that also create efficiencies in traffic flow.  

University of Minnesota
        The University of Minnesota has its own VR design platform. In 2012 they launched a Virtual Reality Design Lab (VRDL), set up in the Rapson Hall courtyard. Mounted on a truss in the middle of the 5000-square-foot space, the VRDL allows architects, designers, and builders a virtual space to evaluate and design decisions and construction details as they make revisions.

Sanford University
        Stanford University is also making strides in improving virtual reality technologies. Stanford's Virtual Human Interaction Lab (VHIL) is making its own advancements in VR simulation and VR equipment. Its equipment is far more expensive and sophisticated than the Oculus Rift, offering a more immersive experience than the less expensive, more consumer-ready device. Stanford's VHIL projects range from projects to find possible reductions in energy use to gathering insights in behavior and identity. Stanford's range of projects shows there's an entirely new field of research emerging as VR technologies improve.  

University of Montreal
        The University of Montreal has recently unveiled the Hyve-3D system, a system capable of creating a virtual design space for the 3-dimensional sketching and sculpting of collaboratively  designed projects, greatly improving computer aided design. Virtual reality technologies are quickly allowing companies to efficiently and quickly design, produce, and test their products.

New York University – Langone Medical Center
        Virtual reality technologies also present solutions to obstacles of size and sensitivity for medical doctors, scientists, and researchers. New York University’s Langone Medical Center uses a Surgery Rehearsal Platform (SRP) to rehearse sensitive and delicate surgeries using a patient's CT and MRI scans to form a virtual space on which surgeons can practice and simulate. This technology is also advancing towards using a virtual space during surgery in order to monitor and observe things in real time. The Surgical Navigation Advanced Platform (SNAP) succeeds the SRP by operating in real time inside the operating room.

Iowa State University
        Iowa State has a dedicated Virtual Reality Applications Center - its work is focused on developing applications for VR technologies.  The research they conduct reaches to many corners of the possible VR market, including economics, security, optics, 3D design and construction, and human-computer interaction.

University of Washington
        The University of Washington has an interesting take on VR therapy - with origins that date back to the mid 1990's. University of Washington's HITLab has worked to advance techniques in reducing pain during therapy through the development of SnowWorld - a VR world designed for burn patients. SnowWorld is used to engage and distract the patient as they receive treatment in order to reduce the severe pain they'd otherwise have to endure or stabilize via opiates or other pain-killers.  As VR technology advances, virtual reality may be used as a tool to aid many kinds of treatments.


Finally! Fun and Games

        Finally, the most obvious application of virtual reality technologies is in the realm of entertainment. The Oculus Rift's first market is videogames. There are a lot of expectations behind a device like the Oculus Rift, and the end result will be determined mostly by the amount of support it will attract from the developers the users that buy it. The Rift currently has a growing core of developers behind it, with many games being developed with the intention of supporting the Oculus Rift as a primary or secondary feature. The entertainment industry's voracious demand will call developers of systems and software to step up while carving out a piece of the Rift's VR legacy.


Conclusion

    In summary, the emerging products and technologies that are bringing virtual reality out of fantasy and into the real world are going to create a large demand for more architecture, systems, and applications - to put it plainly, products and services that will need to be innovated and made real.  The R&D Tax Credit may provide lucrative incentives to those developing and innovating in the virtual reality industries.

Article Citation List

   


Authors

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

Michael Wilshere is a Tax Analyst with R&D Tax Savers.

Adam Starsiak is a Tax Analyst with R&D Tax Savers.


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