Manufacturing in North Carolina has long
been a central anchor to the local economy. In 2013,
over forty new manufacturing facilities were announced in the
State including innovators such as GE and Gildan Active
Wear. With manufacturing, research and development is
key to driving growth. The Federal and State governments
provide substantial incentives aimed toward driving this
effort.
The present article will discuss North Carolina’s most
innovative industries and present the federal and state tax
credits available to support ongoing R&D efforts.
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.
State R&D Credit
Businesses with qualified North Carolina
research expenses are allowed a tax credit equal to a
percentage of those expenses. The allowable credits are
determined by:
Small Business Status (annual
receipts less than $1 million): Qualified businesses on
the last day of the taxable year are allowed a credit of 3.25%
of R&D expenses. County Tier: Certain tax
programs in North Carolina are indexed to a county ranking
system. For expenses for research performed in a Tier 1
county, a business is permitted a credit of 3.25%. Other research: For expenses
not covered above, refer to the table below for qualified
research expenses during a taxable year:
Qualified
Expenses
Rate
$0-$50
million
1.25%
$50-$200
million
2.25%
More
than $200 million
3.25%
Manufacturing
In North Carolina, encouraging signs are
beginning to emerge as manufacturing employment begins to rise
after over a decade of declines year-over-year every month
from 1998 to 2010. Equally encouraging is the recent
announcements of several major production plants in the
state. Over 40 new manufacturing facilities were
announced in 2013, including a 170,000 foot GE Aviation plant
near Ashville. GE recently broke ground there in its
attempt to be the first to create jet engine components made
from advanced ceramic matrix composite materials. As the
“first in flight” state, aerospace continues to be a large
driver of manufacturing. More than 180 aerospace
companies are engaged in manufacturing in N.C. alone,
employing over 9,500 people. While not as
much of a contributor to Gross State Product as it used to be,
textile productions are still significant in North Carolina as
well. Gildan Activewear recently announced plans to
expand two yarn spinning facilities in Rowan County and
construct a separate, new plant in nearby Davie County, for a
total investment of over $250 million dollars.
GE Aviation Plant
GE Aviation, a global leader in jet engine
and aerospace production recently hosted a grand opening
ceremony of its $125 million dollar facility near Ashville,
which will employ over 340 people to produce jet engine
components made of advanced ceramic matrix composite materials
(CMC’S).
CMC’s are made of silicon carbide ceramic fibers and ceramic
resin, manufactured through a highly sophisticated process and
further enhanced with proprietary coatings. The
introduction of CMC components into the hot section of GE jet
engines represents a significant technology breakthrough for
GE and the jet propulsion industry.
The specific CMC component to be built in the new Asheville
facility is a high-pressure turbine shroud. Perhaps more
importantly, this CMC component will be on the best-selling
LEAP jet engine, being developed by CFM International, a joint
company of GE and Snecma (SAFRAN) of France and will mark the
first time CMCs are used for a commercial application. The
LEAP engine, which will enter airline service in 2016 will
power the new Airbus A320neo, Boeing 737 MAX and COMAC (China)
C919 aircraft.
Remarkably, CFM to date has logged total orders and
commitments for more than 7,700 LEAP engines. There will
be 18 CMC turbine shrouds in every LEAP engine produced, thus
setting the stage for high, long-term production volume at the
Asheville plant.
Governor Pat McCrory had this to say about the plant -- "The
aviation sector is very important to North Carolina and we
thank GE Aviation for its impressive investment in Asheville
along with the hundreds of jobs it will provide.
Companies like GE Aviation will continue to put North Carolina
on a national and international stage when it comes to the
aviation industry - something we care deeply about - and we
look forward to partnering with them in the future."
Gildan
Gildan Activewear Inc. is a leading
supplier of basic everyday apparel including T-shirts, sport
shirts, socks and underwear. The company distributes its
products in print wear markets throughout the U.S. and Canada;
and is currently increasing its penetration throughout the
international print wear markets. Gildan is also one of
the largest suppliers of branded athletic, casual and dress
socks for a broad spectrum of retailers in the U.S., and is
developing Gildan® as a consumer brand for underwear and
active wear. Gildan has over 33,000 employees worldwide.
In the Carolina’s, the company recently announced that it will
invest in excess of $250 million to build a yarn spinning
facility behind its Salisbury location, which is currently
under construction, and another one in Mocksville, as well as
to expand and renovate its Clarkton location. With these
projects, Gildan expects to create more than 500 new jobs in
North Carolina by the end of 2016. Governor McCroy had
this to say about the project, -- “Apparel manufacturers like
Gildan are further investing in North American operations and
North Carolina is just the place for their company to succeed
with that.
The additional skilled manufacturing jobs that they’ll create
will strengthen the economy of these counties and demonstrates
the strong talent pool and attractive quality of life that
characterizes this region of the state.” For more
information on Textiles and Apparel as it relates to Research
and Development see “The R&D Tax Aspects of the U.S.
Textile and Apparel Industry.”
Manufacturing companies engaged in any
of the following activities are likely to be eligible for
R&D tax credits:
• New or
improved products, designs, equipment, and manufacturing
processes.
• Creation of second
generation products.
• Development of
prototypes.
• Cellular
manufacturing.
• Design and evaluation
of alternative processes aimed at enhancing
cost-effectiveness and product performance.
• Biomimicry, in other
words, drawing manufacturing inspiration from nature.
• Three-dimensional or
Tri-Gate transistors.
• Hyper-carbide cutting
tools.
• Synthetic body parts.
• Robotic and automated
processes with high precision levels and vision
capabilities.
• Development of
sustainable products and processes, such as green steel
technology using rubber tires.
• Highly efficient
batch processing using multivariate-based predictive models.
• Use of predictive
header pressure controllers.
Research Triangle Park
The Research Triangle Park (RTP) in Durham,
North Carolina is one of the country’s largest clusters of
innovative businesses and organizations. In1960, RTP
attracted its first company – Chemstrand – the inventor of
AstroTurf. Shortly thereafter, IBM came to the area with
a 600,000 square foot research facility. Today, RTP is
home to more than 190 companies and over 50,000 people with
expertise in various fields some of which are discussed below
including as micro-electronics, telecommunications,
biotechnology, chemicals, pharmaceuticals, and defense
technologies. The research cluster also collaborates
with nearby research intensive universities such as the
University of North Carolina and Duke which are crucial to the
effort. Industries invest more than $296 million in
R&D at the region’s universities each year – more than
double the average R&D investment for major innovation
clusters elsewhere in the nation.
Microelectronics
As the name suggests, microelectronics
relates to the study and production of very small electronic
components. The use of integrated circuits (very complex
circuits consisting of thousands of transistors formed on the
surface of a tiny 1/4 inch chip) is a development of only the
last 20 years. The first integrated circuits consisted
of only a few connected transistors (replacing the familiar
vacuum tubes). Today’s “chips” contain more than 10,000
transistors and the technology is moving rapidly toward
100,000 on a chip. These integrated circuits are the
brains of pocket calculators, digital watches,
microprocessors, and new automotive engine
controls.
General Microcircuits
General Microcircuits Inc. (GMI), located just 20 miles north
of Charlotte, provides simple solutions for electronic circuit
board manufacturing. They design new products and
improve existing ones, supporting the entire process from the
conceptual through production phases of the operation and
conducting R&D all along the way. For instance,
engineers continuously provide input to customers to insure
that individual designs are utilizing the best possible
manufacturing practices in order to keep costs down with the
least amount of risk and waste. During this process GMI
develops extensive testing methods to examine the
effectiveness of new products. A complete assessment is
developed and a plan of action is established.
Generally, it is this type of activity for which the
government provides R&D incentives.
Biotechnology and
Pharmaceuticals
Research Triangle Park is home to a number
of biotechnology and Pharmaceutical companies.
Biotechnology is a broad discipline in which biological
processes, organisms, cells or cellular components are
exploited to develop new technologies. This
technology is used in a broad array of applications.
Most commonly farmers use it to efficiently grow crops,
pharmaceutical companies use it to create medicines and
vaccines; and energy producers use it to develop alternatives
to fossil fuels.
Grifols
Grifols (Durham, North Carolina) is a global healthcare
company with significant operations in Durham whose mission is
to improve the health and well being of people around the
world. Their research projects aim to increase the level
of innovation of products and services that help to improve
patient healthcare and quality of life. For example, in
the bio-sciences division recent R&D projects include
developing new therapeutic applications for plasma-derived
proteins and industrial developments that improve production
methods or achieve new ones to increase efficiency of the
plasma derivatives.
Biomedics Inc.
Biomedics is a Delaware corporation located in Research
Triangle Park which specializes in biology, biomedical
engineering, and biochemistry. Some research projects at
Biomedics include developing advanced highly sensitive and
quantitative rapid point-of-care (POC) diagnostic platforms
and novel disease specific diagnostic tests for the $16
billion POC diagnostic market. The company’s goal is to
make POC testing widely accessible with the same level of
sensitivity and quantification as complex and expensive
central lab tests. Their test development expertise lies
in immunologically based POC tests focused on drugs of
abuse/overdose and hemoglobinopathies.
Biogen
Biogen (Research Triangle Park) is one of the world’s leading
biotechnology companies. Their research efforts are
built on understanding the underlying biology of complex
diseases with a focus on developing therapies for patients
with serious illnesses that currently have few, if any,
treatment options. Their AVONEX product, for example, is
a leading therapeutic for relapsing forms of MS.
Basically, it is used to slow the progression of disability
and reduce relapses. Some other products which are
making their way through the continuous Research and
Development process include ANTI-LINGO, which is being
investigated for its use in Multiple Sclerosis and BAN2401
which is an antibody being developed as a potential treatment
for Alzheimer’s disease.
Biotechnology companies engaged in any
of the following activities are likely to be eligible for
R&D tax credits:
•
Biodegradable Packaging Materials.
• Disease Resistant
Crops.
• Biofuels from Plant
Waste.
• Bioremediation.
• Fuel and Feed from
Plant Biomass.
• Aerobic Granulation
and other waste-water treatment technologies.
• Biofilm Control.
• Odor Control
Techniques.
• Integrated Biosystems
(such as integrated aquaculture production).
• Organic Solids
Stabilization.
• New or improved drugs
or drug production processes (such as highly efficient drug
pipelines).
• Innovative techniques
to test drugs (particularly on human cells).
• Multi-application
approach to synthetic microbes.
• Research on
treatments and vaccines for incurable or recurrent diseases
(such such as cancer, malaria, osteoporosis, FLU).
Pharmaceuticals
North Carolina is home to a number of
pharmaceutical companies, including Baxter, GlaxoSmithKline,
Merk and Novo Nordisk, all of which have major manufacturing
facilities in the state. The Research Triangle Region is
the home to most of the Research and Development efforts in
this sector. Here local universities, medical schools
and nonprofits produce research discoveries that are
transferred to industry leaders who further develop the drugs
and move them to market. The raw critical mass of
research facilities and experts in the region provide the
competitive edge that the region has to offer for these types
of organizations.
Nanoscale Technologies
Nanotechnology involves the manipulation of very small
particles, (perhaps 1/100,00th of the width of a human hair)
to create new materials and devices with applications in
medicine, electronics, biomaterials and energy
production. Particularly, this technology is very
important in the research and development process associated
with pharmaceuticals. The Research Triangle Region
is home to more than 50 companies that utilize this
technology. For more information on nanotechnology as it
relates to R&D see “The
R&D Tax Credit Aspects of Nanotechnology".
Biological Drugs
Generally speaking, a biological drug is any medicinal product
manufactured or extracted from a biological source.
After a decade of glooming perspectives, the pharmaceutical
industry is making a strategic shift towards biologics.
The North Carolina regional industry is no exception.
Many companies there develop biological drugs which are not
only a source of targeted and personalized treatments but also
a promising field for innovation. For more on biological
drugs see “The
R&D Tax Credit Aspects of Biological Drugs”.
Argos Therapeutics
Just this month, Argos, a bio-pharmaceutical company in the
Triangle Research Park announced its plans for a $9.5 million
dollar state-of-the-art facility designed for the automated
production of personalized immunotherapies used in the
treatment of cancer and infectious diseases. In support
of the development and implementation of the nearly 100,000
square foot facility, Argos will receive approximately $9.5
million in incentives as well as logistical and planning
support from the State of North Carolina, Durham County, the
City of Durham, and the North Carolina Biotechnology
Center. Argos was founded based on groundbreaking
research conducted at Duke University over a decade ago and
has experienced consistent growth ever since. This
process of industry collaboration with academic research is
part of a broad philosophy and current trend to foster more
integration between the two. For more on this topic see
“The
R&D Tax Credit Aspects of Innovation in New Jersey”.
There aren’t many if any places in the world with such an
abundance of pharmaceutical and research and development
facilities concentrated in one region as Triangle Research
Park. With the aging baby boomers and the public’s desire for
quality medicine, the expanding trend in new developments is
likely to continue feeding the region as well as the larger
North and South Carolina areas solid opportunities to further
research and development in pharmaceuticals.
Pharmaceutical companies engaged in any
of the following activities are likely to be eligible for
R&D tax credits:
• Development of new
or improved products.
• Materials science (innovative use
of existing chemicals).
• Improvements in product design
(new formulas, enhanced product yield and shelf-life, are a
few examples).
• Innovative strategies to lower
drug attrition rates.
• Enhancements in process design,
optimization, automation, and control.
• Innovations that lead to better
compliance to regulatory standards.
• Development of personalized
treatments, as opposed to single-disease technologies.
• Creation of tools that can help
people better understand and manage their condition.
• Innovative streamlining efforts
that lead to higher efficiency and minimize costs (of
testing methods and manufacturing processes, for instance).
• Collaborative development
agreements and partnering initiatives for R&D
Defense Technologies
With seven military installations and
fourteen U.S. Coast Guard facilities, North Carolina boasts
the fourth largest military presence in the nation. Fort
Brag is the largest military post in the United States and is
home to more general officers than anyplace outside the
Pentagon. The military continuously prefers to utilize
developments from the Research Triangle Center that occur in
connection with various technology fields from clean
technology to interactive gaming.
These innovations are often adapted by the military and
tweaked for combating terrorism and securing the nation from
21st century threats. Some of these innovations include
advanced camouflage products to protect troops and equipment
from detection, submarine periscopes, and computer simulations
to assist in planning of battlefield management.
Aerospace and Defense companies engaged
in any of the following activities are likely to be eligible
for R&D tax credits:
• Efforts
to enhance competitiveness through design or process
evolution that allow for superior
performance attributes and/or reduced
costs of production.
• Efficiency
improvements (such as improved manufacturing machinery and
design processes that lower
raw material needs,
streamlined manufacturing methods that decrease steps in
production and waste,
and reduce the cost of iterating the
product for ever more narrow segments).
• Innovative designs
that increase adequacy to distinct customer requirements.
• Improvements and
innovation in communications and systems integration.
• Innovative products
and methods that respond to increased regulation and
cost-cutting measures.
• Design and production
of small ships.
• Design and production
of unmanned aerial vehicles.
• Use of automated
processes and robotics
Logistics
With economic activity on the rise, hiring
in transportation, warehousing and wholesale trade have all
reported significant gains in NC over the past year.
Freight shipments have increased while ongoing infrastructure
projects continue to flourish including the construction of
port facilities, railroads, highways and airports. Take
for example, the new facility opened by Norfolk Southern last
year between two runways at the Charlotte-Douglas International Airport.
Norfolk
Southern The new
rail yard at the airport features a 200-acre cargo transfer
facility that many stakeholders hope will lead to a building
boom and lure new manufacturers to land around the
airport. The shipping yard will move containers from
trucks to trains and vice versa. Logistics and
manufacturing go hand and hand because producers need access
to lines of transportation in order to move their
products. Access to rail lines is crucial because the
cost of shipping by truck is significantly higher than by
rail. Designed to move 200,000 containers per year and
with parking for 1,331 trucks, the facility aims towards
increasing manufacturing capacity in the region. With
the airport bordering the facility and with 5,000 acres of
largely undeveloped land just west of that, the area is poised
to attract manufacturers. The airport’s plan for making
itself a logistics center dates back more than a decade. A
1997 report by consultant Michael Gallis sums up the
long-range idea: “Build Charlotte into the fourth major
logistics hub on the East Coast of North America to compete
with New York, Atlanta and Miami.”
FedEx
FedEx Ground Package System Inc. is
building a new 254,000-square-foot distribution center on a
59-acre plot in Spartanburg County, S.C. This facility
represents a $40 million investment and is expected to create
at least 22 full-time and 219 part-time
jobs.
Research and Development touches nearly every industry and
logistics is no exception. In recent years, FedEx has
found improvements in deliveries, training and planning as a
result of the ROADS delivery optimization system. The
system is constantly working to provide FedEx planners with
fewer routes while allowing for drivers to drive less.
The software is also especially useful in phasing around
disruptive weather that can reduce the reliability of FedEx’s
delivery methods.
Although the system is very advanced, constant updates and new
developments are needed to keep up with the growing demand for
package deliveries. As the online shopping increase for
the 2013 holiday season proved, FedEx will need to continue to
invest in these systems while they seek even more innovative
solutions to meet a larger future demand. As the
packaging and delivery industry involves stiff price
competition, industry leaders like FedEx will continue to
benefit from cutting-edge logistics software. For
more on logistics as it relates to R&D see “The
R&D Tax Credit Aspects of Logistics Software and
Products Innovation.”
Duke Energy
Duke Energy, a utility company
headquartered in Charlotte, N.C. is a major player in the
national utilities sector and particularly the local North and
South Carolina economies. The company supplies 35,000
megawatts of power to consumers in the Southeast and Midwest
and employs over 17,000 people many of them in
North Carolina.
However, a large amount of the utility production is created
through coal burning, making the company one of the largest
carbon emitters in the country. This is a concern
because the utility industry is going through a fundamental
transition as it moves from the 20th century goal of providing
universal access to electricity to the 21st century goal of
creating a smart grid that is both energy efficient and
environmentally friendly. North Carolina and Duke Energy
are no exceptions to trend.
North Carolina ranks third in the nation for the amount of
solar power on the state’s electric grid and Duke Energy has
seen residential rooftop solar adaption for its customers
increase by almost 33 percent each year since 2011. Perhaps
more significant is Duke’s commitment to provide smart grid
communication nodes to every smart grid metering project it
rolls out, something that it has accomplished so far to
date. Below is a visual of the smart grid which is a
large part of Duke Energy’s focus moving forward as well that
of most other National utility outlets:
Motorsports is a $6 billion dollar industry
in North Carolina and Charlotte USA is at its heart.
Housing multiple offices of NASCAR and the NASCAR Hall of
Fame, seventy-five percent of NASCAR industry employees and
drivers are based nearby. The large presence of the
racing technology industry along with the newly built NHRA
drag strip, zMAX Dragway at Concord, is influencing other top
professional drag racers to move their shops to Charlotte as
well. Already, 90 percent of all NASCAR teams are
headquartered within 50 miles of Charlotte.
With this, the local economy benefits from more than $5
billion in annual economic impact. Innovation is
widespread in the race car industry. Not only the
constant upgrades on the cars but also everything from the
track to the rulebook involves continuous R&D. For
instance, one industry objective involves using technology to
provide more interaction and engagement with the fans.
Eventually, technology will allow fans to receive more
real-time data from the inside of the cars, the pit, and the
road which will be made available at the touch of a
screen. Steve O’Donnell, senior vice president of racing
operations, had this to say at the NASCAR Research and
Development Center -- “… our goal is really to take a lot of
the assets available to us, and really reinvest, and put even
more money back into our R&D efforts. What that will
allow us to do is get ahead of things in a much more advanced
way.”
Education
North Carolina’s university system produces
8,500 graduates each year, many of them with specialized
training useful in new technology applications. Of the
912 institutions surveyed by the National Science Foundation,
Duke ranked fifth in total R&D expenditures for 2011(the
latest reported year) beating out other research intensive
schools such as Columbia and Stanford. Also, atop the
list was U. N.C. Chapel Hill, placing 17th with $767 million
in total R&D expenses. Three major
universities (Duke, N.C. State and The University of North
Carolina at Chapel Hill) provide the anchor to Research
Triangle Park which is home to more than 100 research and
development organizations, employing nearly 40,000 people.
Duke University
Duke is among the world's leading research universities, as
measured by research funding, rankings, academic citations and
other indicators of impact. Its faculty experts work
with graduate students, undergraduates and others to expand
the frontiers of knowledge in diverse fields ranging from the
natural sciences to the social sciences. Duke also works
actively to translate discoveries into new products,
industries and jobs, and to share insights with legislators
and others involved in public policy. Many of the
exiting innovations at Duke are happening at the School of
Medicine where industry partners from Triangle Park
collaborate with researchers to gain the competitive edge in
the health care industry. In one study, Duke University
researchers have uncovered the genes that are normally
activated during recovery from bacterial infection. The
finding could lead to ways to jumpstart the recovery process
and possibly fend off autoimmune diseases and chronic
inflammatory disorders that can result from the body staying
in attack mode for too long.
University of North Carolina
The University of North Carolina consistently ranks among the
top funded research institutions in the nation. For the
2014 year, the Institution received over $792 million in
research funds. Most of this funding goes toward the
school of medicine which received a whopping $431
million. Other heavily funded areas involved the College
of Arts & Sciences with $76million, the school of Pharmacy
with $19million and the School of Dentistry with
$11million. Some research projects at the institution
involve advancing the understanding of the causes and course
of cancer, devising new treatment methods, and improving
cancer care, screening and prevention. Outside the
school of medicine, other
research projects involve improving generation of electricity
from sunlight and solving the most critical issues in water
health and development.
Wake Forest
Wake Forest has several different research facilities
specializing in areas ranging from biology to nanotechnology
to physics. Their laboratories are featured in state of
the art buildings such as the physics laboratory which is
featured on the right. Research here covers broad topics
ranging from cutting-edge laser technologies to atomic force
microscopes.
Conclusion
Given the intensive manufacturing nature of
the North Carolina economy, research and development is
especially central to its growth. Developers realized
this in 1960’s when they envisioned the Research Triangle Park
which has since grown to be perhaps the largest research
center in the world. Here and throughout the larger
North Carolina economy collaboration between industry and
academia has been driving R&D and in turn the local state
economy. Federal and state research and development credits
are available to stimulate the efforts.
Some research projects at the institution
involve advancing the understanding of the causes and course
of cancer, devising new treatment methods, and improving
cancer care, screening and prevention. Outside the
school of medicine, other
research projects involve improving generation of electricity
from sunlight and solving the most critical issues in water
health and development.
