The R&D Tax Aspects of Kentucky Innovation
Kentucky-Innovation
Kentucky is a diversified economy and a
great place for innovators to build their businesses.
Like any healthy economy, innovation is at the heart of
driving growth in the state. Recognizing this, many
businesses of all sizes have made Kentucky their headquarters
for operations. Toyota, Ford, and General Motors have
significant operations in the state; and these innovators
along with others have made Kentucky an automotive
manufacturing powerhouse. Other innovative industries in
the state range from advanced manufacturing to bourbon whiskey
brewing to thoroughbred horse racing. Federal R&D
tax credits are available to stimulate continuing innovation.
This article discusses some innovative industries in the
Kentucky economy.
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 18, 2014 President
Obama signed the bill extending the R&D Tax Credit for the
2014 tax years.
Transportation
Innovation
Auto manufacturing is a top industry in
Kentucky, supporting more than 65,000 jobs. More than 400
automotive-related facilities are located in Kentucky,
including major auto assembly plants for Toyota, Ford, and
General Motors which makes the Corvette in Bowling
Green. Kentucky Gov. Steve Beshear recognized early in
his first term that the state, as the nation’s third-leading
manufacturer of light-duty vehicles, “must become the
epicenter for the advanced manufacturing technology that will
produce the vehicles of tomorrow .”
His vision led to the creation of the Kentucky Argonne Battery
Manufacturing Research and Development Center in 2009, an
effort to position Kentucky and the United States as a leader
in the advanced battery technologies market which helps
support the state’s vibrant automobile manufacturing
industries and create jobs.
The center is a partnership between the University of
Louisville, the University of Kentucky, and Argonne National
Laboratory, which is based outside of Chicago.
The University of Louisville and the University of Kentucky
have strong programs in material development for advanced
battery technologies for a range of applications, including
vehicles and storage for grid-scale renewable energy such as
wind and solar. Argonne is the federal government’s lead
laboratory for applied advanced battery research and
development. A growing team of researchers at the center are
testing different types of batteries to determine which
mixtures of metals can produce the most power at the cheapest
cost.
For nGimat, a Lexington, KY manufacturer, Kentucky-Argonne
provided an excellent chance to test one of its new
nanotechnologies: a highly conductive lithium-ion
powder. Andrew Hunt, nGimat’s CEO and chief technology
officer, says the company plans to infuse existing batteries
with thin layers of “electrochemical materials that are
exponentially better than other materials.”
The idea is to create superconductive pathways through which
electricity can move quickly, allowing power to flow in faster
for charging and flow out faster for power. Imagine an
electric vehicle that could accelerate like a Corvette and
recharge in minutes instead of hours. For more on advanced
batteries see “R&D
Tax Credits for the High-Risk Battery Business”.
KY-Argonne’s New
Research Center
The KY-Argonne Battery Manufacturing
Research Center’s brand-new research and development
laboratory features a state-of-the-art assembly system that
will be used to evaluate new cathode, anode, and electrolyte
materials used in lithium-ion (Li-ion) and other advanced
batteries.
The facility features a dry laboratory, clean rooms, wet
laboratories, a furnace laboratory, a cycle testing lab, and a
materials analysis lab.
Other innovations in the automotive sector can be found across
Kentucky. Hitachi Automotive Products (USA) Inc., a fixture in
the state since 1986, is adding an advanced fuel system
production line at its 400,000-square-foot facility in
Harrodsburg, where the company manufactures electromechanical
auto parts. The $20.2 million expansion will add 100 new jobs
to make components for use in advanced direct injection fuel
systems in more fuel-efficient and lower-emission automobile
engines .
Advanced Manufacturing
Northern Kentucky manufacturing companies
play a vital role in the region’s economy. Continued focus on
advanced manufacturing for new and existing businesses in
Northern Kentucky includes industry sectors such as:
- Industrial machinery/equipment
- Process automation/controls
- Advanced materials/polymers
- Surgical and medical equipment
- Medical and pharma products
Mazak
Mazak (Florence, Kentucky) is a leader in the manufacturing of
advanced technology solutions including multi-tasking, 5-axis,
milling, turning, CNC controls, and automation. This
technology is used in various industries including aerospace,
auto/truck, and consumer electronics. Mazak has been
successfully manufacturing some of the world’s most advanced
multi-tasking, 5-axis, turning, and milling machines in
Florence, Kentucky since 1974. Mazak combines technological
and intellectual resources to spur innovation and provides
optimized solutions tailored to individual customer needs.
This includes on-going engineering efforts to further advance
volumetric accuracy confirmation for machining centers using a
touch probe.
As a leading provider of innovative, productive machine tools
and systems, Mazak is in the unique position to maintain the
production agility and responsiveness businesses require to be
competitive and grow. Their production-on-demand manufacturing
Facility in Florence, Kentucky ensures that they understand
the needs of their markets and allows them to significantly
shorten overall lead times and minimize inventory levels so
that they can continuously incorporate the latest technology
into every machine they manufacture and bring new products to
market quickly.
Coal Mining and
Next-Generation Sensors for Atmospheric Monitoring Systems
Although not as productive as they used to
be, the coal mines in Kentucky still turn out millions of tons
of coal per year. As workers become increasingly
concerned with health issues associated with coal mining,
scientists and developers have been creating innovative
solutions to address their concerns.
The potential for atmospheric monitoring systems to improve
mine safety is currently being enhanced by commercially
available sensors that can be deployed throughout underground
coal mines. Innovators in Kentucky partner to design, develop,
and commercialize improved air velocity, low-power methane,
and flexible-use carbon monoxide sensors, with wireless and
wired data transfer options. Twenty four hour battery backup
provides post-accident functionality for these sensors in
addition to their day-to-day use to improve mine safety by
detecting potentially harmful developments in the mine's
ventilation network. Various industry supporters such as
Booth Energy in Debord, KY collaborate with the Kentucky Coal
Academy to develop such technologies state-wide. Such
pursuits are often eligible for R&D Tax Credits.
Horse Racing
Thoroughbred racing is an extremely popular
pastime throughout Kentucky. Image quality, presentation, and
promotion are among the most important investments any
televised sport can make. FIFA for example, committed
$150 million to media production of the World Cup soccer games
to bring new people into their game and grow their business.
Innovations in sight and sound put the viewer on the field of
competition in a way that has forever changed the way viewers
experience the game. The up-close and personal images
penetrated the U.S. market beyond all expectations.
The participants in horse racing are beginning to discuss how
similar technologies can be implemented to deliver
game-changing innovation to their sport as well. Other
innovations involve new ways to wager. For example, some allow
players to put more educated bets on their horses, with
detailed up to date informatics. Many investors hope
these new technologies will bring new fans into their sport.
Bourbon Whiskey
Bourbon whiskey is now one of the most
innovative alcohol products. Distillers are making
whiskey from unexpected grains, aging them in unique barrels,
manipulating them with smoke and more. Kentucky bourbon
makers for example, are looking toward innovation not only to
keep the category fresh, but also to attract new drinkers,
many of them millenials who enjoy broad varieties and new
tastes. Enter terms like “alternative wood finish,”
“small batch,” “single barrel” and “cask strength.” With
little wiggle room for experimentation under standards of what
constitutes a bourbon, distillers are left to play around with
the mash bill, entry proof, wood grain size, and aging
location and temperature, char level, and barrel-stave
seasoning
Haven Hill Distilleries
Haven Hill in Bardstown, KY is America's largest family-owned
and operated distilled spirits producer and marketer. Heaven
Hill Distilleries has grown beyond its traditional roots as a
Bourbon distiller to become the country's seventh largest
overall distilled spirits producer and marketer with a
portfolio of well-known, innovative and relevant products.
Some of their core values include the following:
- “Continuous Improvement: We learn
from our successes and failures and constantly seek better
ways to do things every day.
- Nimble: We embrace our future
together, react quickly to changing circumstances and
achieve results faster than our competitors.
- Resourceful: We are creative and
do not let barriers prevent us from getting the job done."
Kentucky Innovation
Network
The Kentucky Innovation Network was founded
in 2001 in order to create a network of business leaders and
mentors to encourage relationships, grow companies, and create
jobs. Currently, they have thirteen offices spread throughout
Kentucky who assist over 1,300 companies and support over
6,500 jobs in the state.
The network is managed in partnership with the Kentucky
Cabinet for Economic Development and Kentucky Science and
Technology Corporation, along with local partners. Each office
is staffed by experienced and educated business leaders who
connect small businesses, researchers, and university
professors with the goal of fostering development,
implementing growth strategies, and locating funding for
R&D projects.
University of Kentucky
The U.S. Department of Agriculture recently
named the University of Kentucky School of Human Environmental
Sciences a national coordinating center for excellence in
nutrition education and obesity prevention research. The topic
is especially urgent for Kentucky, with some of the highest
rates of obesity in the country.
At the Food Systems Innovation Center the vision is a strong
economy supported by enterprises that produce safe and healthy
products to benefit producers, processors, consumers, and
communities.
The mission at the
facility is to provide technical and business development
services to facilitate the profitable production, processing,
and marketing of locally produced and processed food by
Kentucky-based enterprises and entrepreneurs . For more
on food processing innovation see “R&D Tax Credits for
Modern Food Processing”.
Conclusion
Like any healthy economy, innovation in
Kentucky is at the heart of driving growth. Federal and
state R&D tax credits are available to stimulate efforts
towards a more advanced state.
