The R&D Tax Credit Aspects of Innovation in New Jersey



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        New Jersey consistently ranks among the top states in innovation and Research & Development (R&D). New Jersey firmly integrates innovation as a core component of its yearly economic strategy. It regularly outspends larger states like Pennsylvania, Florida, and North Carolina. Furthermore, New Jersey spends almost as much as NY on yearly R&D. New Jersey firmly integrates innovation as a core component of its yearly economic strategy.

        Its rich history of innovation dates back to Thomas Edison and the industrial revolution; and the state constantly reminds its residents and tourists of its commitment to innovate with its science centers and innovation centered museums. The state's focus on the future includes initiatives like the Innovate NJ project and the commercialization center for innovative technology. The plan to drive innovation involves a collaboration centered initiative in which local businesses like Campbell's soup and leading universities like Princeton and Rutgers share information, working together toward this end. Located in the heart of the Northeast corridor with major air, water, land and railroad transportation networks New Jersey's logistics industry is vital to their overall economic health. Autonomous trucks, robotics in the warehouse, and smarter inventory systems are improving efficiency throughout the industry. Federal and New Jersey tax credits are available to stimulate the efforts and shoulder the costs of R&D for New Jersey powerhouse innovators and smaller entities as well.


The Federal 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. A similar extension is expected for 2014.


The New Jersey State R&D Tax Credit

        The New Jersey R&D tax credit provides a refund of 10% of the excess qualified research expenses over a base amount plus 10% of the basic research payments. Eligible expenditures generally include salaries and wages of engineers working on a project, the cost of supplies, materials, scrap consumed in the R&D work and in many cases even third party contractor fees incurred for the research. The goal is to provide an incentive for businesses to increase their R&D spending each year. Eligible expenses for the New Jersey state credit are defined according to the same federal standards as defined in (section) 41(d) of the Internal Revenue Code.


New Jersey's History of Innovation

        New Jersey has often been referred to as the innovation state. Thomas Edison, the electrical pioneer, inventor of the light bulb, founder of General Electric, and holder of numerous patents and inventions headquartered his career here. Known as the "Wizard of Menlo Park" Edison chose Middlesex County to set up the first industrial research lab ever and developed most of his breakthrough inventions here. Edison's career can be examined by visiting the Thomas Edison National Historic Park in West Orange, the Thomas Edison Center at Menlo Park and Edison Memorial Tower in the town bearing his name - Edison.

        The Liberty Science center in Jersey City was established in 1993 in an effort by state leaders to create more educational resources in order to build a more science and technology-savvy population. This innovative museum hosts numerous exhibitions centered on science and innovation. The Tesla lightning show explores the excitement of electricity with singing Tesla coils, robotic drums and wireless illumination. The Da Vinci Surgical Robot exhibit develops a partnership with Intuitive Surgical and Mimic Technologies in which guests can experience a hands-on stimulated surgery using a prototype robotic surgeon machine. The Energy Quest exhibit addresses issues such as how we will power our futures, how we can balance our ever-growing energy needs with environmental impacts, and how we can harness energy sources to improve energy efficiency. For more information of these topics see R&D Tax Credit Aspects of Medical Robotics and R&D Tax Credit Aspects of the Utility Industry.


Education and Innovation

        InnovateNJ is a community of educators organized by the Department of Education (DOE) working together on ways to improve innovative practices through collaborations and resource sharing among school districts and local private organizations. Program leaders hope that active participation by state residents will help facilitate next-generation instructional practices that will promote and heighten the college and career readiness levels of students. The stimulus initiative is a unique ground-up approach that focuses on children as young as preschool. The Race to the Top-Early Learning Challenge grant recently brought over $44 million to the state to implement a technology based early learning environment in preschool through 3rd grade. The DOE plans to secure a vendor by September 2015 to help integrate technology as a strategy to help ensure children's success in literacy and math skills. The vendor will supply research-based tablet software which is grade appropriate for the students. Universities in the area are focused on similar initiatives as well.


Rutgers University

        Rutgers University located in Newark, New Jersey has more than 20 centers and institutes dedicated to research and development. Some topics that Rutgers Newark is currently engaged in involve neuroscience and how the brain works, and how ribonucleic acid (RNA) viruses copy themselves . Rutgers spends nearly $744 million on annual R&D placing them among the nation's top 30 research institutions. Of the thousands of institutions of higher learning in North America 62 are selected each year as a group of leading research universities recognized for the quality and scope of their research programs. Rutgers is a part of this Association of American Universities, a non-profit organization founded in 1900 to advance the international standing of U.S. research universities. Rutgers Discovery Informatics Institute (RDII) has been collaborating with IBM by housing a $3.3 million supercomputer which has the power of about 8,000 traditional desktop computers and the memory equivalent of about 5,000 desktop computers. The Blue Gene supercomputer which the university calls Excaliber has the ability to carry out the complicated data analysis used in the research process of large pharmaceutical and financial companies. In exchange for a fee these companies can use the 3.3 million dollar supercomputer to research cell behavior or do intricate risk analysis.


Princeton University

        Princeton University divides its research into four general academic areas; engineering and applied science, humanities, natural sciences, and social sciences. Housed under these four academic areas are more than 75 centers and research programs encumbering the 37 academic programs Princeton has to offer. Some research that Princeton has recently performed and is currently working on involve: advancements in ultrasensitive sensor technology, aging rates across primates, urban revitalization and housing externalities, charting green energy resources, treatment of breast cancer, and furthering the field of plasma physics and magnetic fusion energy.

        In addition to working with universities from around the world, Princeton University focuses on collaborating with private corporations, both large and small. Princeton is currently engaged in a collaborative effort with BP and Ford to find solutions for global warming and with the Goldman Sachs Foundation to help educate students from low-income backgrounds. This collaboration is central to New Jersey's strong belief that innovation and collaboration go hand in hand.


University and Industry Collaboration

        The goal is to increase collaboration between institutions and industry researchers so that research findings will be more effective and efficient. Governor Christie said he wanted to increase "the collaboration and innovation between [local] institutions and New Jersey's research based industries". John Ritter director of Princeton's Office of Technology Licensing says "We wanted to look at the benefits that arise from the licensing and commercialization of inventions from university research labs. We found that there are numerous tangible and intangible benefits for universities but also for the public, ranging from new economic opportunities to new products that improve lives." Students at the universities benefit through increased participation in real world research exposure and industries benefit by gaining access to university labs and research centers. The local economy develops through increased licensing revenue, better retention of local talent and new high-skill, high-wage jobs from university start-ups. Paul R. Sandberg, president of the National Academy of Inventors says "In the academic setting, technology transfer is a critical component for facilitating and sparking innovation within universities and helping to connect universities with commercial partners in the community. Technology transfer can be truly transformational to a university and to the community."


Campbell's Soup

        Campbell's Soup headquartered in Camden, NJ makes innovation a core component of their overall business strategy. The company says that innovation is the lifeblood of the consumer packaged goods industry and is focused on bringing innovative products to market in the areas of simple meals, snacks, and healthy beverages. They are looking to collaborate with consumers, inventors, scientists and businesses that can help enhance the company's initiative towards innovation. When Denise Morrison became CEO of the world's largest soup maker in 2010 her first initiative was to travel cross-country to observe a Palo Alto, California based innovation house to develop and execute new ideas. "[B]ig business needs to make sure innovation is the focal point, not a hobby" says Morrison, who believes in having multiple ideas firing at the same time and placing bets on opportunities that are the most viable. The company asks consumers to offer innovative ingredients, products, packaging, process and sustainability ideas that they can help bring to life.


Logistics

        NJ's freight and logistics industry is enormous, employing over a half-million workers. By maintaining or even expanding this industry NJ seeks to enhance its overall competitiveness and generate better opportunities along with more jobs for its residents and local businesses. Located in the heart of the Northeast corridor with air, water, land and railroad transportation networks; New Jersey's logistics industry is vital to their overall economic health. Interstate 95 is the main artery from the South into the New York City market. Maritime terminals along the Delaware River allow ships to move everything from cocoa beans and fresh produce to steel and lumber products. The Newark International Airport provides connections all over the world. Wide acreage and available land allows for continued development on existing logistics facilities and expansion into new undeveloped regions. New Jersey therefore is a premier spot for companies that consider logistics critical to their success. In order to enhance competitiveness in this arena logistics players benefit from the regions commitment to innovation. Innovation in logistics in the near future will involve autonomous vehicles, robotic workers, and sophisticated self-tracking inventory systems.


Autonomous Trucks

        Within the near future transportation companies will be saving money and reducing accident rates with semi and eventually fully-autonomous delivery vehicles. The National Highway Traffic Safety Administration (NHTSA), in their comprehensive policy statement issued in 2013, describes the current technology development as follows: "America is at a historic turning point for automotive travel. Motor vehicles and drivers' relationships with them are likely to change significantly in the next ten to twenty years, perhaps more than they have changed in the last one hundred years." The trucking industry is no exception. Last May (2014) Peloton Tech (French for platoon) demonstrated the technology on a Nevada highway by platooning two trucks, one of them operated by a computer system that can brake faster and maintain a steady distance with more accuracy and precision than a human driver. The truck in the front is operated by a human driver while the truck in the rear follows along within ten meters without a driver. This automated platooning reduces wind drag on both trucks and saves significant fuel and labor costs. The fuel savings are 4.5 percent for the truck in the front and 10 percent for the truck in the rear. This amounts to a combined $100,000 in savings each year not to mention an additional $60,000 - $100,000 saved by not paying a driver. Competing companies could also link up to each other and platoon as well through an established cloud network that would pair drivers. The technology is likely safer than traditional driving as well. The U.S. government estimates the costs of truck collisions at $87 billion a year, with 116,000 people either killed or injured in truck and bus crashes. The U.S. Department of Transportation is so confident in the safety of these vehicles that it has indicated its plans to mandate such systems in the upcoming years in order to improve highway safety. Other sectors in the logistics industry are innovating as well.


Robotics in the Warehouse

        Industrial robots have been at use in factories for the past half-century. Historically, they were expensive robotic arms used in the automotive and manufacturing industry, kept apart from human workers in cages, for safety reasons. Today, industry leaders are creating a workplace where robots can work comfortably alongside human beings at a reasonable price. Long awaited technology advancements are finally gaining momentum and will provide launching platforms into a brave, new, robotics world. These robots will be particularly present in logistics warehouses replacing the conventional role of human workers and inventory accountants. Traditionally, warehouses had two main employee groups on the warehouse floor. Namely, pickers who pick merchandise off the shelf and packers who pack the goods for shipping. Robots such as the Baxter from Rethink Robotics and the KUKA from the German based KUKA Company however will replace much of these workers as packaging tasks are particularly repetitive and therefore ideally suitable for the robots.


Inventory Control Systems

        An inventory control system is a set of hardware and software based tools that automate the process of tracking inventory. Inventory control systems are beneficial in that they work in real-time using wireless technology to transmit information to a central computer system as transactions occur. With these systems manual counters are eliminated and the risk of error is minimized. Quality in inventory management means ease of access for workers, better control of inventory and lower upkeep costs. Innovations in this sector will allow companies to keep distribution and labor costs low thus increasing profits in order to remain competitive. Shipping giants like UPS and FedEx work with online retailers such as Amazon.com to develop systems and technologies that can increase their capacity without compromising warehouse operations. Throughout the country any logistics company, big or small, that wants to remain relevant will need to innovate and markedly improve their logistics processes in order to meet growing demand, especially around holiday seasons. One key innovation involves routing software which helps drivers choose the most efficient delivery routes, plot courses around inclement weather, and coordinate delivery routes most efficiently. UPS's ORION software for instance has saved the company over 3 million gallons of fuel during its testing in period in 2010 - 2012.


Conclusion

        Innovation is a central component to New Jersey's economy. The innovation state has a long history of commitment towards this end. The plan to drive innovation in the state centers around collaboration among local universities and businesses. The logistics industry is a core component of the local economy. This sector is no exception to the state's innovation initiative. Automated trucks, robotics in the warehouses and automated inventory control systems are being constantly advanced in order to cut operating costs. Federal and New Jersey State tax credits are available to stimulate efforts of innovation and shoulder the costs of R&D.

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