How Salesmen Can Use R&D Tax Credits to Sell Today's Software Products Engagements



By , , and


        In a recent Economic Times article, IBM stated that in today's market their sales teams and scientists are working with the clients' R&D staff and new product specialists to develop relevant new software applications. IBM has also indicated that the underlying business models for selling software have changed. Likewise, Oracle has recently invested $10 billion in a new master data processing model that can be relevant for R&D projects. New R&D based software selling methodologies creates new opportunities for R&D tax credits.



The Research & Development Tax Credit

        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 the 2012 and 2013 tax years. With this new R&D based software sales model, R&D tax credits may be available to support the sale.

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% 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



IBM's Changing Business Model

        Zachary Leminos, Vice President for research strategy at IBM, said that thirty years ago their customers had research labs to define technology but little engagement with actual new product development. He went on to say "that wasn't profitable and doesn't exist today in scale".

        The referenced Economic Times says that "Earlier this year, IBM announced it will invest over $1 billion in setting up a separate group for its super computer; Watson...The new group that will look at bringing big data analytics and cognitive computing, by deploying the Softlayer cloud computing platform of IBM, will include over 2,000 employees from IBM's research labs worldwide."

        IBM's Softlayer platform allows IBM to really expand their existing cloud base to a much larger client base, creating additional software sales with their new and improved product offering. Specifically related to big data analytics software, IBM has already invested $24 billion in the development of new technologies.

        IBM also has created the Accelerated Discovery Lab, which is intended to help clients deal with large data sets. This expansion into big data is key for the company in an ever changing world where data sets become larger and reach the realm of unmanageable by traditional means. This has applications in drug development, social analytics, predictive maintenance, and many more fields.

        Overall, IBM is focused on cognitive computing, industries, and computing as a service.



The Oracle Master Data Processing Model and R&D Projects


        Since 2009, Oracle has spent over $10 billion on companies that enable cloud computing to operate a business. The following are a list of Oracle's recent acquisitions:

Oracle
            Spending Table

Source: Benoit Chaffinjon, Oracle June 26, 2014 Private Cloud Event


        When the Oracle solution is used in an R&D function, the usage fees paid to Oracle are equivalent to paying a utility for electricity. Furthermore, when the products are used in an R&D function, the usage fees paid are supplies eligible for R&D tax credits.



Cx Labs Launched by IBM

        In March of 2013 IBM launched Cx (Customer Experience) labs where IBM scientists work with IBM sales teams and customers to develop products.  This allows for a more customized product developed by IBM for the customer directly. IBM must now develop software in a new manner, which creates the potential for increased in R&D eligible expenses by the client as well as IBM. This, in turn, can greatly assist in the sales process.

Examples provided of IBM/Customer co developed products include:

  • Cloud software projects
  • Data in Motion
  • Individual Purchase/Usage Behavior
  • Social learning platforms



All Software Companies Can Use the R&D Tax Credit Sale Model

        This article describes the IBM R&D based approach because IBM has explicitly made customer R&D and new products the focus point. With the Oracle Master Data Processing pay for usage model, Oracle products are R&D tax credit supplies when used for a R&D project. Note, however, that all software sellers have the opportunity to use the R&D tax credit model with new product customization.

The top software companies in the United States are:

Company
Sales (in Billions)
Microsoft
$83.3
Oracle
$37.9
Symantec
$6.8
VMWare
Fiserv
$5.2
$4.8

Source: Forbes


        End user software projects often external and internal R&D expenditures. The recent favorable settlement of the FedEx R&D tax credit claim bodes well for large software projects. Figure 1 demonstrates the growth in R&D spending in various industries.



Software is the Highest R&D Growth Industry

As it can be seen from the figure, there has been tremendous growth in R&D spending in the Software and Internet area.

Software
            Industry R&D Spend

Source: Change in R&D Spending by Industry, 2012-2013. From Booz & Company, 2013.



Software Salesman's Process for R&D Tax Credit Supported Software Sales

  1. Identify major customer opportunities for customers who need innovative software in their own product development.

  2. Apply an existing R&D tax credit user data base to see if the targeted customer software purchaser already incorporates utilizes R&D tax credits into their business investment decision making. If the targeted customer uses R&D tax credits, expand the customer team involved to include tax and finance managers.
    Note: Software end users who already take R&D tax credits will more quickly understand an R&D tax supported software development project. Our firm, R&D Tax Savers, has this database available for publicly traded companies.

  3. For customers who do not have a R&D tax credit program the software sales person should include a software R&D tax credit consultant on the software sellers' sales team. The optimal customers for this strategy will be ones that have current tax capacity or expect to have tax capacity in the near term.

        Note: The software R&D consultant services may be available on a complimentary basis during the feasibility stage.



Conclusion

        With today's powerful software offerings the software sales process is quickly changing. Savvy software sales people will evolve from a traditional more narrow features and functions sales approach to a broader business solution approach which reflects the customers new product opportunities and is supported by customer eligible R&D tax credits.

Article Citation List

   


Authors

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

Gary Savell is a Systems Engineer with R&D Tax Savers.

Charles G Goulding is the Manager of R&D Tax Savers.


Similar Articles
The R&D Tax Credit Aspects of Blockchain for Supply Chains
The R&D Tax Credit Aspects of Physical Security Technology
The R&D Tax Credit Aspects of Driverless Cars
The R&D Tax Credit Aspects of SaaS Start-Ups
The R&D Tax Credit Aspects of Emotion-Recognition Technology
The R&D Tax Credit Aspects of AI in the Insurance Industry
The R&D Tax Credit Aspects of Emerging AV Trends
Enhanced R&D Tax Credits for Specialized Co-Shared Spaces
Ethereum's Impact on Digital Contracting Creates R&D Tax Credit Opportunities
The R&D Tax Credit Aspects of Geofencing
The R&D Tax Credit Aspects of Distribution Center Automation
The R&D Tax Credit Aspects of Law Firm Artificial Intelligence
The R&D Tax Credit Aspects of Avionics
The R&D Tax Credit Aspects of Telemedicine
State & Local Tax Jurisdictions Address Media Streaming and Cloud Services
Federal Government Provides Faster Approvals and Tax Credits for Consumer FinTech Products
The R&D Tax Credit Aspects of Voice-Activated Software
The R&D Tax Credit Aspects of Artificially Intelligent Hedge Funds
The R&D Tax Credit Aspects of LiDAR
The R&D Tax Credit Aspects of Educational Technology (EdTech)
The R&D Tax Credit Aspects of Cyber Security Start-Ups
The R&D Tax Credit Aspects of Construction Industry IoT
R&D Tax Credits Provide New Opportunities for Artificial Intelligence Start-Ups
The R&D Tax Credit Aspects of NYC Start-Ups
The R&D Tax Credit Aspects of Virtual Reality Technology
The R&D Tax Credit Aspects of Water Analytics
The R&D Tax Aspects of Artificial Intelligence Robo-Advisors
The R&D Tax Credit Aspects of Natural Language Processing (NLP) Innovation
The R&D Tax Credit Aspects of Video Compression Technology
The R&D Tax Credit Aspects of Automated Coding
The R&D Tax Credit Aspects of Payment Technology
The R&D Tax Credit Aspects of Restaurant Technology
R&D Tax Credits and the Second Wave of Cloud Adoption
The R&D Tax Aspects of Data Storage Startups
The R&D Tax Credit Aspects of Cyber Security
The R&D Tax Credit Aspects of Mobile Applications
R&D Tax Credits for the Modern Insurance Industry
The+R%26D+Tax+Credit+Aspects+of+the+Internet+of+DNA
The R&D Tax Credit Aspects of Modern Dental Labs
The R&D Tax Credit Aspects of IoT Communication
The R&D Tax Credit Aspects of Bitcoin and Blockchain Technology
The R&D Tax Aspects of Near Field Communication
The R&D Tax Aspects of the New FDA Mobile Apps Requirements
Tapping the Power of Big Data and R&D Tax Credits for Utility Companies
The R&D Tax Credit Aspects of the Medical Software Industry
The R&D Tax Aspects of Computer Enabled Human Identification
The R&D Tax Credit Aspects of New York City's Engineering Education and Googlization
The R&D Tax Credit Aspects of Software Modeling Analytics
The R&D Tax Credit Aspects of Logistics Software and Process Innovation
The R&D Tax Aspects of Cameras of the 21st Century
The R&D Tax Credit Aspects of Network Security
R&D Tax Aspects of DNA Identification
R&D Tax Credit Aspects of Cyber Security and Homeland Protection
Financial Product Trading Platform Artificial Intelligence R&D Tax Credits
Gig City Startups and R&D Tax Credits
The Internet of Things Creates R&D Tax Credit Opportunity
The R&D Tax Credit Aspects of Mobile Banking Applications
The R&D Tax Credit Aspects of In-Image Advertising
R&D Tax Credits for Hybrid Call Centers - Airline, Hotel, and Car Rental Industries
The R&D Tax Aspects of Advertising Science
The R&D Tax Aspects of Data Science
R&D Tax Aspects of Radio Frequency Identification
The R&D Tax Aspects of Advanced Driver Assist Systems
The R&D Tax Aspects of the Internet of Residential Things
The R&D Tax Aspects of Web Television
R&D Tax Credit Aspects of Medical Robotics
R&D Tax Credit Aspects of Industrial Robotics
R&D Tax Credit Aspects of Service Robotics
Yes Alice, Patents and R&D Tax Credits Remain Available for the Internet of Things!
The R&D Tax Aspects of Cloud Computing
The R&D Tax Credit Aspects of Hybrid Call Centers for Health Insurers
Now Every Business is a Software Business
The R&D Tax Aspects of Robot Software
The R&D Tax Aspects of Machine-to-Machine (M2M) Innovation
The R&D Tax Aspects of Financial Technology Services
Beacons Create R&D Tax Credit Opportunity
Fast Growth of Sharing Economy Impacts Tax Reporting
The R&D Tax Credit Aspects of Retail Technology
The R&D Tax Credit Aspects of Improving Virtual Reality Technology
The R&D Tax Credit Opportunities for Mobile Devices
The R&D Tax Credit Aspects of Wearable Technology
The R&D Tax Aspects of Big Data
R&D Tax Credit Fundamentals
Los Angeles Tech Boom Creates Large R&D Tax Incentive Opportunities
The R&D Tax Aspects of Software Development