The R&D Tax Credit Aspects of Kansas Innovation
Kansas-Innovation
Tax incentives in Kansas present
significant opportunities for innovative local businesses of
all sizes. Traditionally, Kansas has been a state driven by
agriculture and manufacturing, however recently, a
diverse mix of innovative industries has been growing.
Advanced manufacturing, aerospace, and bioscience are now
common industries in the state and to a large extent, are
driven by innovations made at corporate facilities and local
universities.
The state is one of the nation’s fastest growing bioscience
hubs thanks to the under construction National Bio and
Agro-Defense Facility and the Kansas City Animal Health
Corridor, a region that houses the world’s largest
concentration of animal health interests. Kansas has also
emerged as a leader in wind energy and other forms of
renewable energy, food processing, and distribution.
The state has a significant small business presence as well,
as more than forty percent of working Kansas residents are
employed by small businesses. The growth of small businesses
in Kansas is at an annual rate of six percent – higher than
the national average and higher than the growth in any
neighboring states. In the 2013 tax year, more than
8,600 first time, small business filers invigorated the
state’s economy with more than $486 million in new income.
Many of these businesses, both large and small perform
significant research and development activities, which
contrary to conventional intuition, involves much more than
just white lab coat activity.
The Federal R&D
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 up to $250,000 per year in payroll taxes.
Kansas R&D Tax
Credit
Enacted in 1987, Kansas offers a credit
equal to 6.5 percent of the difference between the actual
qualified research and development expenses for the year and
the average of the actual expenditures made during the year
and the two previous tax years. Eligible expenditures made for
research and development parallel that of the Federal R&D
tax credit.
Kansas Industry and
Innovation
Key industries in Kansas include advanced
manufacturing, bioscience, professional services, renewable
fuels and bioenergy, and wind energy. These industries
are discussed as presented by the Kansas Department of
Commerce on their website .
Advanced Manufacturing
Advanced manufacturing, including aviation and aerospace, is
an important driver in the Kansas economy. Wichita, the
“aviation capital of the world” produces more than thirty
percent of the world’s general aircraft. An estimated
fifty-three percent of Wichita’s manufacturing jobs are in the
aviation and aerospace industry. Kansas is home to many large
aviation companies, including Spirit AeroSystems, Cessna,
Beechcraft, and Bombardier Learjet.
General Motors and its suppliers also have a significant
presence in Kansas City, where GM manufactures its Chevrolet
and Buick products. Kansas is also a leader in the composites
and advanced materials sector and the state is already seeing
significant development in Wichita and Kansas City.
Bioscience
Bioscience is also one of Kansas’ top target industries. The
state currently employs more than 16,000 people in the
bioscience industry and has implemented a strategy to build on
established and emerging strengths. Animal health is one of
the state's leading bioscience areas and the Kansas City
Animal Health Corridor is convenient to the city’s
metropolitan area. This corridor is home to the world’s
largest concentration of animal health interests and accounts
for a significant portion of total sales in the global animal
health market.
Kansas is also investing resources in an effort to become a
national leader in biosciences by funding research,
development and commercialization. This effort is aimed at
helping build a dynamic bioscience industry to stimulate job
growth, attract venture capital, and increase research and
business investment.
Professional Services
Kansas is also as a leader for professional service companies,
including finance, accounting, IT, and architectural design.
In recent years, Kansas has seen unprecedented success in
recruiting new service related companies such as J.P. Morgan,
U.S. Bank, Cerner Healthcare, Fishnet Security and Netsmart
Technologies. These companies all have new facilities in
Kansas and many of them perform research and development which
is becoming increasingly common in the financial services
sector.
Renewable Fuels and Bioenergy
Kansas is traditionally strong in agricultural and abundant in
natural resources, positioning the state to be a leader in
renewable energy production. Kansas ranks high in biomass
production, allowing companies to benefit from economical
access to feedstock for bio-based fuels and proximity to feed
used for animals which results from biofuel byproducts. With
three million cattle in southwest Kansas, biofuel plants can
benefit from the cost savings of sending wet grain byproducts
to nearby feedlots.
Wind Energy
Kansas is the second most potential state for wind energy and
is one of the top ten states for wind farms. Thousands of
megawatts of additional wind energy are currently under
development across the state. Wind energy in Kansas is very
attractive due to the cost effectiveness and high productivity
factors. Because of the state’s advantages, over 40% of the
wind energy produced in Kansas has been purchased by out of
state utilities. According to a 2013 Annual Wind Market
Report, Kansas ranks one of top ten in the following
categories:
- #8 in wind power capacity
installations (2967 MW)
- #2 in wind power capacity
additions during 2013 (254 MW)
- #3 in wind energy as percent of
total state generation (19.4%)
- #7 in fastest growing states for
wind generation (82% annual growth)
- #6 in total generation from wind
power (9.43 million Mwh).
Situated in the nation’s wind corridor, Kansas is an ideal
location for wind turbine manufacturing. Its central location
and transportation infrastructure make the greatest wind
energy region even more convenient.
Kansas State
University
Kansas State University (KSU) is a major
innovator in the state. In 2014, KSU had over $180 million
research expenditures and over 200 active patents.
Examples of companies launched out of Kansas State University
incubators and accelerators include:
- MeltPoint Environmental
- Caldwell, KS, Provides a hospital waste management
service to reduce surgical bluewrap waste.
- NMotion UAS -
Hesston, KS, Creates UAV drones for emergency first
responders and public services to gain situational
awareness on the job.
- Radiation Detection
Technologies Inc. - Manhattan, KS, Creates new
radiation detection equipment.
- Tikitum Sensory Learning Lab
- Mirriam, KS, Creating new learning and socializing
experiences by integrating all five senses into the
learning experience.
- VeriQuik Consulting and
Services - Shawnee, KS, Provides a proactive
platform where users can quickly establish, authentic,
validate, and verify their identity; or send a request to
someone else so they can verify themselves prior to
meeting for the first time.
Kansas State Olathe
Innovation Accelerator
Kansas State University operates the Olathe
Innovation Accelerator - a university center designed to
support industry by overcoming resource limitations within
companies. Operating on its own campus, it seeks to provide
technical or business expertise, capital or human resources.
The accelerator helps members meet to understand their
businesses and products and the various hurdles to overcome in
bringing them to market and succeed. The ultimate goal is to
rapidly solve industry challenges and expand economic
development.
Kansas Local
Accelerators and Incubators
Kansas has several technology and business
incubators, including:
- ThinkBig Partners -
Kansas City, MO, Providing support services for startups,
including advisement, funding, professional services,
networking, and continuing innovation support.
- BetaBlox - Kansas
City, MO, Provides hands-on mentorship, classes, access to
investor networks, and legal education.
- SparkLabKC - Kansas
City, MO, A mentor-driven accelerator program that assists
and educates startups in business and product strategy,
prototype development, demonstration, and networking with
investors.
- Kaufmann Labs -
Kansas City, MO, Sponsors multiple programs in
entrepreneurship education and conducts research to
develop in-depth understanding of innovation drivers and
improving academic achievement.
Each of these programs provides some kind of assistance or
networking for entrepreneurs with the aim to develop their
businesses and products. Some programs are intense and
temporary but offer strong and rewarding services once
companies are selected.
Conclusion
The Kansas State economy is home to many
technical and innovative businesses. Companies of all
sizes are heavily investing in research and development
activities, making both the Federal and Kansas R&D credits
lucrative to pursue. Companies in technological industries
creating highly innovative products and processes should be
working closely with their tax professionals to build in
documentation processes to their current R&D activities.
