The R&D Tax Credit Aspects of RAPID Institute



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RAPID-Institute
        Formally established in 2014, the National Network for Manufacturing Innovation aims to secure the future of U.S. manufacturing through innovation, collaboration, and education. Also known as Manufacturing USA, the program was designed to enhance competitiveness of U.S. manufacturers and restore U.S. leadership in advanced manufacturing. Its main goal is to create a robust and sustainable R&D infrastructure for the development and implementation of game-changing technologies.

        Manufacturing USA connects industry, academia, and federal partners in a network of 14 advanced manufacturing institutes specializing in different technology sectors. Collectively, the institutes gather 1,300 partners, including two-thirds of Fortune 50 U.S. manufacturers as well as over 360 small manufacturers and eight of the 10 top-ranked research and engineering universities in the country.

        The institutes are funded by private-public partnership, with federal funding level typically between $70-110 million, matched or exceeded by private industry and non-federal partners.  Each of them carries out regular funding competitions designed to support projects that prototype technologies and make sure innovations become commercially applicable across industries.

        Launched in 2017, the Rapid Advancement in Process Intensification Deployment (RAPID) Institute is the 10th Manufacturing USA Institute. It aims to enable the development of breakthrough technologies to boost energy productivity and energy efficiency of manufacturing processes, especially in energy-intensive industries, such as oil and gas, pulp and paper, as well as various chemical manufacturers.

        RAPID focuses on overcoming process barriers and supports initiatives designed to make manufacturing companies leaner, cleaner, and greener as well as more compact, modular, and productive. According to its 2017 annual report, the institute welcomed 56 members in its first year of operations.


Manufacturing USA Institutes – Regional Hubs with National Impact


MCPI for Enhanced Competitiveness

        One of RAPID’s main goals is to advance modular chemical process intensification (MCPI) as a strategy to support energy productivity. MCPI strategies include combining multiple process steps into single, more complex and intensified processes. In addition to potentially reducing capital costs, these efforts can also significantly improve energy and process efficiencies. RAPID’s Roadmap Overview refers to four guiding principles of process intensification, according to Van Gerven and Stankiewicz (2009):

I.    Maximize effectiveness of intramolecular and intermolecular events;
II.    Provide all molecules the same process experience;
III.    Optimize driving forces at all scales and maximize the specific surface areas to which they apply;
IV.    Maximize synergistic effects from partial processes.

        RAPID argues that both advances in hardware and control strategies as well as the application of enhanced chemical and physical driving forces are important concrete approaches to implementing the principles above. Examples include enhanced mass and heat transfer, combinations of different unit operations in single-process equipment, use of non-traditional energy sources, as well as the application of external force fields.

        Despite major potential in enhancing competitiveness of energy-intensive industries. MCPI strategies may not be easy to implement. As pointed out in RAPID Institute’s website, there are numerous challenges to the deployment of MCPI in energy-intensive industries, namely:

  • Capital costs and RAM (reliability/availability/maintenance) risk involved in committing to new processes;
  • High complexity of an intensified, modular system, without simplifying standardization techniques;
  • Insufficient software and design tools and data to develop intensified processes;
  • Technical and economic challenges involved in developing standardized design and manufacturing protocols for a complex new technology space at an early point in its technical and commercial development;
  • Limited understanding of design and operation of MCPI technologies across a broad range of key industry participants.


RAPID Focus Areas

        Aiming to overcome these challenges, RAPID’s R&D activities focus on the following areas:

  • Chemical & Commodity Processing
  • Natural Gas Upgrading
  • Renewable Bioproducts
  • Modeling and Simulation
  • Intensified Process Fundamentals
  • Module Manufacturing

        Innovation has long been considered a cornerstone of growth and profitability for chemical companies and a prerequisite for long-term performance.  The Department of Energy’s latest Quadrennial Technology Review points out certain focus areas for process intensification (PI) R&D within the chemical industry, namely:

        PI Equipment: involving improved physical hardware and optimized operating parameters for improved chemicals processing environments and profiles, such as novel mixing, heat-transfer, and mass-transfer technologies;

        PI Methods: including improved or novel chemical processes (e.g., new or hybrid separations, integration of reaction and separation steps, improved heat exchange) or phase transition (multifunctional reactors), the use of a variety of energy sources (light, ultrasound, magnetic fields), and new process-control methods (intentional non-equilibrium-state operation);

        PI Supporting Practices: such as improved manufacturing processes for new equipment and improved systems integration, common standards and interoperability, modular systems design and integration, supply chain development and flexibility, workforce training, and financing.


3D Printing

        Yet another important area for PI R&D is additive manufacturing. As technology advances, 3D printing solutions boast considerably lower costs, improved speeds, as well as the ability to process a growing range of materials. 3D printing can be an innovative alternative to overcome challenges involved in the large-scale manufacture of PI technologies.   For instance, in 2017, the European Federation of Chemical Engineering (EFCE) Process Intensification Award for Industrial Innovation was given to French company Air Liquide, creator of a 3D-printed, milli-structured heat exchanger reactor was designed to improve the efficiency of producing hydrogen by steam reforming natural gas. Compared with existing technologies, the innovative 3D-printed solution reduces operation costs by 20% and CO2 emissions by 12%.

        Members of the RAPID Institute may take advantage of R&D tax credits to support their process-intensification efforts, particularly as they strive to improve productivity and efficiency, cut operating costs, and reduce waste. The following sections explain how innovative companies working to overcome existing obstacles to MCPI strategies can benefit from R&D tax incentives.


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.


The Patent Safe Harbor

        Due to the cutting-edge nature of research conducted within RAPID’s scope, there is a considerable probability that patents will be pursued. The IRS considers the issuance of a patent as “conclusive evidence that a taxpayer has discovered information that is technological in nature that is intended to eliminate uncertainty concerning the development or improvement of a business component.”   This is known as the “patent safe-harbor”.  

        Although the R&D tax credit is available for an assortment of expenses that are unrelated to patents (i.e. improving or modifying an existing product or improving a manufacturing process, making a product cleaner, quicker, greener, less expensive, etc.), companies that seek patents are usually very strong candidates for the credit. In other words, patents are excellent indicators of R&D tax credit eligibility. Additionally, certain expenses in connection with the production or perfection of a patent can themselves count towards the tax credit.


State Research & Development Tax Credits

        In addition to the federal R&D Tax Credit, many states have their own supplemental R&D Tax Credits for work performed in their state, which can match or exceed the federal R&D Tax Credit. The details of the credit vary by state, either in the amount of the credit, the calculation method, or whether it is refundable or nonrefundable. Some states base it either on employee quantity or expenses, some have limitations for certain types of corporations, and some require an application process before taking the credit.

        Delaware and Virginia both have lucrative R&D Tax Credits that were recently updated and made more beneficial to companies. The Delaware credit has the same criteria as the federal credit, and awards a state tax credit for 50% (100% for small businesses with less than $20 million in annual gross receipts) of the qualifying federal credit for any R&D activities conducted in Delaware. Effective in 2017, companies qualifying for the Delaware R&D Tax Credit can now receive a refund for any credits generated in excess of their tax liability.  In 2016, Virginia increased their state R&D Tax Credit to equal 15% of the first $300,000 (up from $234,000) of eligible R&D expenses performed in the state by 12/31/2021, a maximum of $45,000 per company.


RAPID 2018 Projects

        RAPID recently announced its 2018 project selection. The eight newly selected initiatives will add to their current portfolio of 25 projects, which will collectively receive over $30 million in funding.  Awarded organizations are listed below.

Academic Institutions:
  • Auburn University
  • University of Connecticut
  • University of Illinois at Urbana-Champaign
  • Carnegie Mellon University
  • University of Pittsburgh
  • Texas Tech University
  • University of Arkansas
  • Texas A&M University
  • University of Pittsburgh
  • University of Texas at Austin
  • Oregon State University
  • University of Arizona
  • University of Texas at Austin
  • Iowa State University
  • Georgia Institute of Technology

Companies:
  • IntraMicron
  • Scientific Design
  • Mattershift
  • Archer Daniels Midland
  • Flint Hills Resources
  • Siemens
  • Lubrizol
  • Apache
  • W.L. Gore
  • U.S. Clean Water Technology
  • Chemstations, Inc.
  • Dow Chemical Company
  • Easy Energy
  • Praxair

Non-profit and National Laboratories:
  • MATRIC
  • Fraunhofer USA  
  • Pacific Northwest National Lab

        2018 projects include using a carbon nanotube (CNT) membrane to selectively extract biofuel from a broth stream; developing, testing, and demonstrating a continuous-flow, scalable, nonthermal, nonequilibrium liquid separation for the test case of ethanol + water that uses ultrasound, and avoids the heat transfer losses and azeotropic bottleneck of distillation; and demonstrating demand separation of multicomponent and multiphase water oil mixtures using 3D-printed membranes.


Conclusion

        There are many potential benefits to process intensification, ranging from a smaller footprint to energy and cost savings along with higher product quality. However, energy-intensive companies face numerous challenges in implementing MCPI strategies. Thankfully, both the RAPID Institute and R&D tax credits are available to support innovative efforts that enhance competitiveness through intensified processes.

Article Citation List

   


Authors

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

Jacob Goldman is the VP of Operations at R&D Tax Savers.

Andressa Bonafé is a Tax Analyst with R&D Tax Savers.