The R&D Tax Aspects of Rhode Island Innovation



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Rhode-Island-Innovation

        Rhode Island’s tax policies, geographic location, and world class academic institutions like Brown and the University of Rhode Island all contribute to spurring innovation and in turn, to the overall broader economy.  The presence of a large, skilled workforce and its proximity to Boston make it a practical business location.  Many innovative companies are developing technology in a broad range of industries in the state of Rhode Island. 

        Digital marketing firm, Tribal Vision in Warwick, uses lean and creative mass media strategies to reach consumers which ultimately results in effective marketing at competitive prices.
 
        Automated Business Solutions, also in Warwick, creates innovative, automated business solutions for a wide array of industries.
 
        Rhode Island food companies are also innovating.  Blount Fine Food in Warren not only develops innovative strategies to enhance food quality and nutritional content, but also implements cutting edge production processes in order to deliver those ideas.   

        Innovative activities such as these are likely eligible for R&D tax credits.


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 December 19, 2014, President Obama signed the bill extending the R&D Tax Credit for the 2014 tax year.


Rhode Island R&D Credit

      Similar to the federal credit, the Rhode Island state R&D tax credit, however amounts to 22.5% of eligible R&D expenditures up to $111,111 and 16.9% for remaining eligible R&D expenditures over that amount.  The credit is capped at 50% of a company’s state tax liability.  

Additional Rhode Island R&D tax incentives include:

  1. The R&D Property Credit
  2. The Elective Deduction for R&D Facilities
  3. The R&D Sales Tax Exemptions
  4. The Innovation Tax Credit 
 
        The Research and Development Property Credit provides a credit of 10% of the cost of tangible, depreciable property that is purchased for the purpose of research and development.

        The Elective Deduction for Research and Development Facilities allows the taxpayer to deduct from its entire net income the cost of research and development facilities in lieu of depreciation.  That incentive can ultimately result in huge savings from the time value of money.
 
        The Research and Development Sales Tax Exemption is also significant.  That policy allows the taxpayer to avoid paying sales tax on certain property used for qualified research.

        Rhode Island also has an Innovation Tax Credit. This incentive is meant to encourage investment in high-growth innovation industries. It allows investors a 50% credit on eligible investments with a maximum credit of $100,000.


Rhode Island and the Culture of Design

        Rhode Island encourages a "Culture of Design" - working with local schools and universities to brand the state as strategically positioned to nurture and supply talent and ideas in design and development. It accomplishes this through the power of its economic policy and its local universities.


Favorable Economic and Financial Environment

        Rhode Island's economic policy has delivered results within the state that promote innovation. It has the lowest corporate tax rate in the northeast at 7% (as of 2015).  Rhode Island’s academic policies also encourage startups and economic vitalization through local technological innovations.  The Providence Startup Map illustrates the location of Providence, Rhode Island startups and their proximity to universities.

        Rhode Island is ranked 3rd among non-industry investment in research and development funding.  The state also ranks 2nd in academic R&D dollars per capita as well as 1st for total R&D expenditures per square foot of research space at academic institutions.  A 2012 government study also found that it ranks 3rd in not-for-profit R&D performance in R&D and 7th in academic R&D performance.

        In 2008 Rhode Island had 2.5% of total R&D spending as a percent of its Gross State Product, a number recovering from a sharp drop in 2006-2007.  Pre-Recession levels were around 4.3%, closely matching the New England region.  Trends indicate an increasing share of expenses for R&D as a percent of GSP.  Industry R&D spending as a percent of GSP in 2009 was 1%.

        Rhode Island's R&D Tax credit is the highest in the Northeastern United States and has seen tremendous growth, 1427% in its 5-year percentage change in U.S. venture capital dollars by state.


Universities and Institutes

Brown University

        Brown is a leading university and considered both a local and national research powerhouse with an endowment of 3.2 billion dollars. Located in Providence, Rhode Island - Brown totaled over $170 million in research expenditures in 2013 and is one of the state's largest employers.

        Brown has ranked 3rd in non-industry investment in research and development funding and 2nd in academic R&D dollars per capita.   The university has also ranked 1st in total R&D expenditures per square foot of research space at academic institutions.

        The Brown Entrepreneurship Program (BrownEP) serves as an incubator and entrepreneurship education center for the Brown and the Rhode Island School of Design. Brown is also a contributor to the Founders League as well as The Rhode Island Center for Innovation and Entrepreneurship, both of which provide space for local startups.

Examples of startups incubated through The Rhode Island Center for Innovation and Entrepreneurship include:

•    Microtissues, Inc. - Providence, RI - specializing in 3D-cell culture products for research labs.
•    Advanced Image Enhancement, Inc. - Providence, RI - Specializing in image processing techniques for
      cancer analysis and treatments.
•    NuLabel Technologies - East Providence, RI - Uses activatable chemistries to create innovative labels for
      new and existing production lines to cut waste and costs while being appealing to customers.


Rhode Island School of Design

        The Rhode Island School of Design (RISD) is located in Providence and is a strong companion to Brown in Rhode Island's academic environment. RISD sees innovation with Arts and Design included within Science, Technology, Engineering and Mathematics (STEM) related fields. Including an Arts component, STEM moves "STEM" to "STEAM", creating a strong bond between RISDs Arts and Design elements and Brown University's Engineering and Science process.

        RISD works strongly with Brown to allow students to obtain joint degrees from both schools through the 5-year Brown/RISD Dual Degree Program. Students can also cross-register for both schools.


        RISD keeps itself on the forefront of design - for example - making increasing use of cutting edge 3D-printers to implement rapid prototyping and production of parts and designs. As 3D printing becomes more prevalent in design and production pipelines, RISD will be continuing to push forward in innovating on an Arts and Design level.  


University of Rhode Island

        Located in Kingston, Rhode Island, The University of Rhode Island has an endowment of $122 million and obtained $80.8 million in sponsored program awards in 2013, $65.4 of which are from federal sources.  The University of Rhode Island estimated to bring its local economy about $154.1 million in output for the fiscal year 2011, or $1.63 for every $1 spent.


Rhode Island Science and Technology Advisory Council (RISTAC)


        RISTAC created its Rhode Island Research Alliance (RIRA) in 2006 to promote collaboration across state research organizations. It is sustained by legislative statue since 2006 to make innovation important to the state's leadership agenda. RISTAC seeks to assist state leadership in increasing R&D capacity, encouraging entrepreneurship, and fostering innovation among organizations.

        RIRA's goals include fostered collaboration between researchers, improved science and technology infrastructure in the state, and the facilitation of an R&D pipeline so innovation can be turned into business.

        RIRA has a Collaborative Research Award Program among other grants for research proposals. RISTAC itself has a Innovate Rhode Island Small Business Fund to assist eligible small businesses in the life sciences and engineering sectors.

        From 2007 through 2014, the program awarded approximately $9.8 million to 65 teams throughout Rhode Island. The funding has supported a diverse range of projects including high-tech toy design for children with cerebral palsy, the study of algae blooms, the development of new nanotechnologies and improving the design of prosthetic limbs.


Conclusion

        Rhode Island's location, strategic positioning, economic policy and academic strength all contribute to a unique opportunity for innovation and R&D in Rhode Island.  By leveraging Rhode Island's academic partnerships and taking advantage of statewide R&D tax incentives companies in Rhode Island have unique opportunities for funding innovation.


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