The R&D Tax Credit Aspects of Illinois
Illinois
Research and development
(R&D) plays an essential role in innovation by bringing
ideas to the market, promoting economic growth, creating jobs,
and keeping Illinois competitive.
The present article will discuss the
R&D tax credit opportunity available for innovative
companies in Illinois.
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 Elimination
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.
Illinois’ R&D Credit
In 2011, the Illinois
General Assembly and Governor Quinn approved a five-year
extension of the state Research & Development tax credit
through to 2016. The 2011 extension ensured innovative
businesses are rewarded for initiating new R&D projects
and enabled others to continue budgeting ahead for long-term
R&D projects.
Illinois’ R&D tax credit is a
non-refundable tax credit of 6.5% of qualifying research
expenditures on in-house and contractual R&D performed in
Illinois . Using the the federal definition to determine
qualifying research expenditures, businesses calculate their
credit based on their average expenditure on R&D for the
latest three tax years. The R&D tax credit is an effective
way to support research and development, which plays a
critical role in any innovation ecosystem.
Illinois’ R&D
Investment
In 2012, academic
institutions throughout the state of Illinois invested a total
of $2.36 billion in R&D, as illustrated in the table
below. This total was an increase of $11.2 million, or 0.5
percent, over 2011.
Academic R&D
Illinois is one of the
top 10 states for total academic R&D investment source.
The table below represents the various academic R&D
specializations throughout Illinois and each MSA’s total
expenditures:
As illustrated, the academic
institutions in the Chicago MSA invested $1.67 billion in
R&D in 2012. This kind of spending helps Chicago academic
institutions conduct cutting-edge research as well as attract
top talent in science fields. The second highest spending MSA
in Illinois was Champaign-Urbana with R&D expenditures of
more than $538 million. Champaign-Urbana’s R&D
expenditures increased by $38 million from 2011 to 2012.
Academic Institutions
Math and Computer
Science
In 2012, Illinois academic institutions
excelled in many categories. That year, the state ranked sixth
in the nation by total investment in math and computer science
R&D and graduated the third-highest number of students
with master’s and doctorate degrees in this field. According
to the National Center for Education Statistics, more than
8,000 undergraduate students were enrolled in engineering
fields across the Chicago, Urbana, and Champaign University of
Illinois campuses.
The emergence of several MSAs in
selected categories is responsible for strengthening the
state’s academic network. For example, the Champaign–Urbana
MSA’s R&D expenditures increased by $38 million in just
one year, from 2011 to 2012. Its $97.6 million investment in
math and computer science R&D ranked seventh in the nation
among MSAs. Champaign–Urbana recorded the highest LQ in
math and computer science among the top 100 metros while
Peoria ranked third out of 235 metros. Springfield was the
most specialized in social science R&D investment out of
all 235. Cumulatively, these results indicate that Central
Illinois is becoming a powerhouse for both research and
partnerships with private companies.
University of Illinois Research
Park
The University of Illinois at
Urbana-Champaign (UIUC) is a world leader in research,
teaching, economic development, and public engagement. The
Research Park at the University of Illinois was created by the
University to advance in its economic development mission.
This environment provides technology-based businesses
opportunities to work with faculty and students and,
accordingly, take advantage of opportunities for collaborative
research and commercial endeavors. It also helps discover
talent for immediate and future workforce needs. Many large
corporations have research relationships with the University
that have resulted in sponsored research, curriculum and
teaching contributions, faculty consulting, and partnerships
on federal grants. Such innovations may qualify for the
R&D tax credit.
Caterpillar
Caterpillar’s innovative approach to
its Research Park operation started 15 years ago, when it
pioneered the Research Park student employment model. This is
when “corporations in the Research Park employ students in
their innovation centers to help them creatively address
technical challenges, augment staff through summer and
year-round internships, and create a talent/recruitment
pipeline ”. This model is unique to Illinois as it is not
often implemented this way in other research parks.
As Caterpillar celebrated 15 years of
its Champaign Simulation Center at University of Illinois,
they announced plans to build a new data analytics center in
the University’s Research Park in celebration of this
milestone. Supporting their innovation strategy, they will
engage future science, technology, engineering and mathematics
(STEM) talent through additional research and development
opportunities. The new lab will foster real world innovation
by bringing together university researchers and Caterpillar
analytics professionals from engineering, computer science,
statistics and economics to work on challenges and
opportunities raised by technological and cultural change.
This investment aligns with the company’s strategy to exceed
customer expectations with outstanding products and solutions
.
Abbott Nutrition
Abbott is funding new strengths on
campus through interactions with the Beckman Institute for
Advanced Science and Technology as well as the Institute for
Genomic Biology. As a result, the establishment of the
first-ever multi-disciplinary nutrition and cognition research
center on the UIUC campus, The Center for Nutrition, Learning,
and Memory, was created. Directed and solicited research will
be led on the impact of nutrition on learning and memory in
the human brain . Abbott values positive relationships with
universities and colleges and have expressed that such
relationships are a necessity for innovation to flourish for
the company.
Neustar
Neustar agrees that the Research Park
operations and University relationship is not only a
fundamental part of its innovation strategy, but essential for
the company’s future. Neustar’s tech areas of focus are IT
security and Big Data . They collaborate with the Computer
Science department, the Graduate School Library and
Information Science, the Statistics department, and the NCSA
at the University of Illinois to put forth new and exciting
solutions that will impact the market.
Digital Manufacturing and Design
Innovation (DMDI) Institute
President Obama announced that Illinois
would be home to the new Digital Manufacturing and Design
Innovation (DMDI) Institute. This honor recognized the state’s
vision to establish an advanced manufacturing hub. This
achievement will be advanced by utilizing academic R&D. UI
Labs will host the institute, which received $70 million in
federal funding and an additional $250 million in industry
commitments.
The project represents an important
collaboration between 23 academic institutions, 41
corporations, and 9 nonprofit organizations. The DMDI
Institute will focus on the flow of digital data across
design, engineering, manufacturing, and maintenance systems
and the networked supply chain as a whole.
3D Printing
Many organizations are
attempting to learn more about and potentially improve 3D
printing (also referred to as additive manufacturing)
due to its growing popularity. One group in particular is the
U.S. Department of Commerce’s National Institute of Standards
and Technology (NIST).
NIST announced in
September of 2013 that they were awarding two separate grants
, lasting two years, in order to improve the measurements and
standards for the 3-D printing field. These grants were made
through NIST’s Measurement Science for Advanced Manufacturing
Cooperative Agreement Program. NIST is anticipating that with
these two grants quality parts can be produced, utilized, and
certified for additive manufacturing. Northern Illinois
University received one of the grants in the amount of $2.4
million. This funding will be used by the university to
develop additional tools to be used in tandem with the
technology.
Biomedical Research
Biomedical research is
on the cusp of making transformative discoveries. It can help
lengthen lives and shrink deficits. Medical research is also
where many of the most promising new jobs and industries will
come from.
In March 2014, U.S. Senator Dick Durbin
supported federal investment in academic R&D by
introducing legislation, a bill that will be called The
American Cures Act that would provide $150 billion over the
next decade to fund biomedical research. He urges the U.S. to
keep competitive with other nations such as China and the
United Kingdom, whom are placing a tremendous emphasis on
medical research. The American Cures Act will create a
mandatory fund to provide continual funding for breakthrough
research at our nation’s top four biomedical research
agencies: the National Institutes of Health, the Centers for
Disease Control and Prevention, the Department of Defense
health programs, and the VA’s Medical and Prosthetic Research
Program. The new funding will start at $1.8 billion the first
year and increase gradually each year for 10 years. Overall, a
total of $150 billion will be devoted to the research over the
next decade for innovative medical research.
Food Innovation
Tate and Lyle opened an
110,000 square foot Commercial and Food Innovation Center in
Hoffman Estates near Chicago. In addition being the North
American headquarters of Tate and Lyle’s Specialty Food
Ingredients division, it is also the foundation for the
company’s increasing global network of research, food
application and technical support laboratories. The facility
will serve as the global headquarters of its Innovation and
Commercial Development unit. The center is designed to
facilitate customer collaboration from “idea to plate.” The
center focuses on the increase of their delivery to market
while fostering the development of new food and beverage
products that satisfy consumers’ increasing demand for health,
convenience, value and taste. The new center contains
“advanced food science research and processing laboratories,
applications and technical services laboratories, a culinary
demonstration kitchen, a full suite of consumer insight and
sensory testing facilities, pilot plant and prototype
manufacturing facilities, and extensive global communications
capabilities .” The new center demonstrates their commitment
to create innovative food ingredients and solutions.
Conclusion
R&D and innovation
encourages continual economic growth in Illinois. There are
many R&D tax credit opportunities available for innovative
companies in Illinois. Taxpayers should be aware of Federal
and State tax incentives which are available to them to help
shoulder the costs of innovation.
