The R&D Tax Credit Aspects of the Gun Manufacturing Industry
The origins of America's prowess as a world
manufacturer began with gun manufacturing where there was a
need for large volumes of high quality, small component parts
that were interchangeable. The U.S. gun manufacturing industry
continues as a large domestic industry. It is a highly
regulated industry in which the entire supply chain continues
to engage in product and process improvements. Many of the
industry's ongoing product and process improvements are
eligible for Federal and State R&D tax credits.
The Research &
Development Tax Credit
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
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.
Current R & D Spending at Major American Gun Companies:
Process Redesign &
Optimization
As a result of the Newtown, CT tragedy and
subsequent law changes or proposed changes, several gun
manufacturing companies have moved or are considering moves to
states eager to embrace the gun industry. In the process of a
move and/or expansion, there are many opportunities to
redesign and optimize production processes; much of this work
is eligible for R&D tax credits. Table 2 below is a
summary of six such companies. Most are in the ideal phase of
their move/expansion to take advantage of these R&D
opportunities.
Table 2:
Technology
Improvements
According to the U.S. Patent and
Trademark Office, almost 1,000 patents have been issued under
the broad classification of "firearms" since the beginning of
2008. In the continuing quest for higher shooting accuracy,
faster loading, a higher degree of accuracy of ammunition,
shooter safety, and ease of use all at the most economical
cost, many opportunities for R&D continue to exist among
gun companies and their suppliers.
In addition to the
development of sophisticated new gun and ammunition
technology, new machining processes and facility improvements,
by the primary manufacturers to meet the increased quality and
reduced cost objectives, may qualify for research and
development. Suppliers, including precision machine shops,
engaged in continuous innovation may be eligible for R&D
tax credits as well.
Some examples of new gun
technology include the TrackingPoint Precision Guided Firearm
which has recently made news headlines. This gun integrates
precision hardware, digital optics, and tracking technology to
improve shooting accuracy. New technology is also highlighted
in the "Top 10 Inventions of the Year" - published by the U.S.
Army. Another relatively new, but hotly debated technology is
microstamping; where the gun imprints a microscopic code on
any ammunition fired from it. Proponents of the technology
argue that microstamping increases the likelihood that a gun
owner involved in a crime can be identified. Opponents point
out that this is still an expensive technology that hasn't
performed consistently in testing and can be easily
circumvented by criminals.
While many U.S. gun
companies continue research and development in these
innovation objectives, perhaps the most public of gun
technology improvements has been in the area of gun safety. In
light of recent events, gun safety has received newly focused
attention. Several commercial companies as well as some
universities continue to be engaged in gun safety research
using a variety of technologies.
Federal funding for
research related to gun safety and gun violence has been
restricted since the mid 1990s, but in light of recent events,
a change may be imminent. In early 2013, the National
Institute of Justice issued a solicitation for comments on
current gun safety technologies by interested stakeholders and
issued a report summarizing their findings.
As a result of this
solicitation, a comprehensive report describing technologies
currently being explored was created. Some of them are at a
technological maturity level where they may be incorporated
into production items; others are still being developed and
may be eligible for federal R&D tax credits.
The list of explored
technologies includes:
Token-Based
Technologies - requires the use of an additional
physical item such as a ring, watch, card, or bracelet to
allow for the operation of the system.
Radio Frequency
Identification (RFID) Technologies - the wireless use
of radio frequency electromagnetic fields to transfer data
for the purposes of automatically identifying and tracking
tags attached to objects.
Biometric Technologies -
utilize unique features of individuals as the “key” to
identify authorized users. Some examples of biometric
technologies include fingerprint, palm print, voice, face,
and vein pattern, although not all of these are used for
firearm authorization.
Dynamic Grip Technologies (DGR) - an
emerging biometric authentication method based on the human
grasping behavior. A dynamic biometric is a combination of
physical and behavioral characteristics that are measured
over a duration of time versus a point in time.
Optical
Technologies - authorization techniques that utilize
optical methods for identification may rely on spectroscopic
data such as slight variances in skin color, or image data
such as vein pattern recognition in the palm of the hand.
New Jersey Institute
of Technology Smart Gun Project
One specific example of a project that
could be eligible for federal R&D tax credits is the
further development of the Smart Gun. Since 2000, New Jersey
Institute of Technology (NJIT) has spearheaded efforts to
develop a personalized handgun that can instantly and reliably
recognize one or more pre-programmed authorized users. This
would be incorporated into child-safe handguns and prevent
guns from falling into the wrong hands in other situations as
well. This gun's safety features are based upon Dynamic Grip
Recognition; a technology invented by NJIT professor, Michael
Recce.
Researchers have
evaluated the system using law enforcement professionals as
test subjects to demonstrate that the technology works with a
wide range of users and firing postures, under stressful
conditions and even while wearing gloves.
The next step is to use
the authentication signal from the biometrics to enable or
disable the firing mechanism. While this was not part of the
original NJIT research plan, it is deemed to be a necessary
step to secure private sector investment and commercialization
of the technology.
NJIT has spent nine
years and $4 million in grants to develop this technology and
they say it works 99 percent of the time. But they know that's
not good enough. Getting it to work all the time, they say,
could take years and substantially more funding than the
university now gets. "It's still very crude," said Donald H.
Sebastian, senior vice president for research and development
at NJIT. He said it would take "about two years of steady
effort with proper funding" to develop a working smart gun
prototype.
In summary, many
opportunities exist for R&D credits in the gun industry
and this should be kept in mind as companies and suppliers
increase their sophistication and/or redesign/relocate their
manufacturing facilities.
