The R&D Tax Credit Aspects of Innovation in Maryland



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        Maryland consistently ranks among the top states in the nation in Entrepreneurship and Innovation.  In Maryland, the second most research-oriented state, about $6.30 is spent on research for every $100 in GDP annually.  Innovative organizations in Maryland include the VA Maryland Research and Development Program, the Department of Defense Aberdeen test center, Johns Hopkins University, the University of Maryland, and the NASA Goddard Space Flight Center.

        A cluster of private companies, such as Juxtopia LLC, also benefit from their proximity to the federally funded entities and universities, some of which spend billions of dollars on research and development.  Federal and Maryland State R&D tax credits are available to help shoulder the costs related to R&D activities. 


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 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 $250,000 per year in payroll taxes.


Maryland R&D Tax Credit

        The Maryland R&D Tax Credit awards a refund of 10% of eligible R&D expenses in excess of the firm's average R&D expenses over the last four years.  The goal is to provide an incentive for businesses to increase their R&D spending each year.  However, expenses which have not increased above the previous year's average are still eligible for a smaller refund of 3%.

        Eligible expenses for the Maryland credit are defined according to the same federal standard as defined in Section 41(d) of the Internal Revenue Code. The tax credit remains in effect until January 1, 2020, subject to extension by the General Assembly.   
 

VA Maryland Research & Development Program

        The U.S. Department of Veterans Affairs (VA) Maryland is one of the largest research and development programs in the VA system. The objective of the lab is to provide the medical center with state-of-the-art medical treatment abilities for Maryland's veterans.  For example, the VA Robotics Center of Excellence is developing and testing new rehabilitation therapies involving robotics.  One project, ReWalk, enables paraplegics to walk again through the use of a now FDA-approved robotic exoskeleton. ReWalk contains an on-board computer backpack and motion sensors that adjust for movement.  The backpack performs much of the leg and arm movements, however the limbs are still benefitting from the range of motion which increases muscle strength and provides psychological benefits.    


Johns Hopkins University

        Johns Hopkins researchers explore topics ranging from the origin and fate of the universe to developing cures for brain cancer.  The university holds an honored place among the world's greatest institutions of higher learning.   Johns Hopkins Baltimore has been leading university R&D spending every year since 1979.  In 2012, the university spent $2.1 billion on R&D, nearly $1 billion more than second place, University of Michigan who spent $1.3 billion.   In 2011, roughly $40 billion in government R&D funding went to universities.  The universities rely heavily on this funding as it accounts for over 60% of R&D budgets.  The chart below shows the top 5 in university R&D spend. 


R&D Expenses for Leading Universities

University Year
Rank
Total R&D Spend (Thousands)
Johns Hopkins 2012
1
$2,106,185
University of Michigan 2012
2
$1,322,711
University of Wisconsin 2012
3
$1,169,779
University of Washington 2012
4
$1,109,008
University of California- San Diego 2012
5
$1,073,864



Maryland Stem Cell Research Fund

        The Maryland Stem Cell Research Fund (MSCRF) was established by the state of Maryland under the Maryland Stem Cell Research Act of 2006 to promote state-funded stem cell research through grants and loans.  Since its founding, over $112 million in research grants have been committed; and the program's 2015 budget is $10.4 million. 

        The MSCRF was proud to recently announce the stories of two Johns Hopkins Hospital patients who were cured of sickle cell disease, lupus, and bone marrow failure from research funded by the MSCRF.   These are just a few of the many diseases that doctors expect to be cured in the near future with recent advances in stem cell research and cell therapy.

        Research supported and funded by grants from the MSCRF include a Johns Hopkins human stem cell  project to create a miniature human retina in a dish.  To create the retina, scientists used a technique which involves tricking an ordinary cell into reverting back to embryonic mode and then activating genes to direct the cell into forming the desired cell type, in this case a retina cell.  The lab retina is not yet capable of producing a visual signal that the brain can interpret, however the retina can actually sense light.  They are hoping the experiment will lead to technologies that can restore vision in people with retina disease.


University of Maryland

        Similar to Johns Hopkins University, the University of Maryland engages in a broad range of research activities. One area of developing research involves innovative solutions to help protect our citizens and national infrastructure from emerging cyber threats.  These cyber threats are particularly pervasive in the electrical utilities industry since electric power is the hub around which all other critical infrastructure evolves.  Terrorists therefore see this area as an ideal target. A report from the Department of Homeland Security revealed that the energy industry faced more cyber attacks between 2012 and 2013 than any other sector.

        The University of Maryland's Energy Research Center (UMERC) is an initiative dedicated to advancing energy science and technology research, with a special focus on alternative energy generation and storage.  UMERC missions include the following: 

  • Develop energy efficient and environmentally sustainable technologies
  • Educate the public about energy and environmental technologies
  • Inform the larger policy debate on urgent, global issues of sustainable energy and environment
  • Improve U.S. energy security by developing indigenous and environmentally sustainable energy resources.


        These initiatives are consistent with recent pressures on the utility industry to adapt a smarter more efficient electrical grid  nationwide. 


NASA Maryland

        The Goddard Space Flight Center, located about 6 miles from Washington, D.C.  is a major U.S. laboratory for developing and operating unmanned spacecraft.  The center manages many of NASA's Earth Observation, Astronomy, and Space Physics missions.  NASA's Lunar Reconnaissance Orbiter is a robotic mission that set out to map the moon's surface.  Launched in 2009, it spent its first three years collecting information about the moon and its environment.  The satellite is equipped with seven powerful instruments used to collect data, making an invaluable contribution to our knowledge about the moon. 

        NASA's New Horizons satellite recently completed a 4 billion mile journey across the solar system. With speeds ranging from 30,000 to 50,000 mph, it took approximately a decade for it to arrive to its destination of Pluto, on July 14, 2015.  "The exploration of Pluto and its moons by New Horizons represents the capstone event to 50 years of planetary exploration by NASA and the United States," said NASA Administrator Charles Bolden.  The U.S. has now become the only country in the world to have visited each planet of the classical solar system. The images and data collected by New Horizons will take years for scientists to properly analyze to understand significant details about Pluto.

        NASA recently awarded a $145 million contract extension to Stinger Ghaffarian Technologies for continued engineering work on hardware and software for spaceflights and ground systems. The contract extension includes $110 million in base funds and a $35 million option that covers four months of work.  The company will perform the contract research work at the Goddard Space Flight Center.


Department of Defense (DOD)

        The DOD's nationwide yearly R&D budget exceeds $63 billion     Aberdeen Maryland is home to DOD's Aberdeen Test Center, Edgewood Chemical Biological Center, Army Medical Research Institute of Chemical Defense, Army Material Systems Analysis Activity, and a unit of the Army Research Laboratory. 


Aberdeen Test Center: Federal funding at this center goes towards testing and developing military weapons such as guns, ammunition, night-vision devices, armored vehicles, and underwater marine systems.


Edgewood Chemical Biological Center: As the Army's main R&D center for chemical and biological defense technology, funding at this unit goes towards smoke/obscurant equipment and applications in toxicology, biosciences, biotechnology, respiratory design, and related life sciences.


Army Medical Research Institute of Chemical Defense: The institute specializes in medical countermeasures for use against chemical warfare. 


U.S. Army Materiel Systems Analysis Activity: Research at this center involves predicting and developing weapon accuracy, target acquisition, rate of fire, probability of inflicting catastrophic damage, and system reliability. 


The Aberdeen Proving Ground: A unit of the Army research laboratory, research at the facility involves ballistics of projectiles, guns, and missiles, armor protection, munitions survivability, munitions lethality, soldier/machine interface, human interaction with military systems, networking and telecommunications, scientific visualization and high performance computing.


        Maryland regularly leads the way in research and innovation with these major DOD research clusters, NASA, the VA, and a slew of major research universities in the area.  This allows the private sector to piggy-back off of innovative discoveries by large, federally funded organizations, making local private sector businesses just as innovative.



Juxtopia LLC.

        Based in Baltimore, Juxtopia specializes in developing innovative products and services ranging from wearable body monitors and digital displays to supporting IT infrastructures which improve human performance.  The company is known for their CAARS (Context-Aware Augmented Reality System) technology, an eyewear technology that provides the user with visual and audio task based instructions projected onto the real world image. 

        For example, if a person needed instructions on how to change a flat tire, the eyewear could point to the nuts and bolts on the rim and provide visual instructions on how to dismantle the tire.  Developers hope to use this software to provide medics with instructions on how to rapidly apply quick surgical procedures on the battlefield.

        Jayfus Doswell, founder of Juxtopia, envisions a day where users could simply put on their goggles for step by step, live assistance.  Doswell, born and raised in Baltimore states: "Maryland provides the best university research space," adding "we get a lot of things done faster just by being in this local area."  Doswell supports that Maryland is home to a network of universities which provide opportunities for collaboration and attract eager and bright talent to the area. 

        The video demonstrates how Juxtopia's CAARS software provides on-demand assistance and situational awareness to help complete critical workforce tasks in various industries ranging from automotive, manufacturing/maintenance, emergency response to surgery, and construction


Conclusion   

        Federal R&D spending has been an important component of Maryland's economy for many years and enables Maryland to be one of the most innovative states in the nation. Universities, government, and private companies alike are spearheading R&D to maintain this status. 

        Private sector businesses and operations in the state are benefitting from their proximity to large research hubs and advancing their discoveries through R&D.  Both Maryland state and federal tax credits are available to stimulate and help shoulder the costs of this innovation.

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