The R&D Tax Credit Aspects of Photonics
Cutting edge research in photonics/optical
technology provides a hopeful solution for technological
hurdles being currently encountered in the electronics
industry. As the amount of electronic information being
created, transmitted, and stored on a daily basis continues to
grow, the use of current technology is being pressured to cope
with increasingly large bandwidth demands. In addition,
the computer chip industry is demanding increasingly small
products that can transmit data at ultra fast speeds.
One billion smartphones
are sold worldwide annually, each one requiring access to a
data center. Every second, two households are being
connected to the fibre-optic internet; and every 18 months the
amount of data each connection demands doubles. It is
estimated that by 2045, the world will need at least 1000
times the current capacity to process the amount of data that
will be used at that time. Existing semiconductor
technology that transmits data with electricity and copper
simply can’t keep up with this pace.
the use of light to transmit data provides a practical
solution. Already representing 20% of global sales, photonics
is increasingly consuming market share in electronics.
The exponential demand for bandwidth in our modern world means
that light will soon replace copper as the means for providing
internet service and transmitting/storing data.
Still, there remains
many technological challenges ahead as much is unknown when
pursuing basic optical science. However, one thing is
clear: there is a vast field of opportunities with optics and
photonics technology, many of which could dramatically improve
our daily lives.
Recognizing this, nearly
all photonics companies generate an annual budget which
includes a line entry for R&D. The expenses that make up
that figure are often eligible for significant federal and
state R&D tax credits.
While at Dover Corp., R&D Tax
Savers’ president Charles Goulding handled R&D tax
credits for PRC Laser Corp. and Lee Laser Inc.
The Federal R&D
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
- 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 19, 2014 President Obama signed the
bill extending the R&D Tax Credit for the 2014 tax year.
Proposed tax extender legislation would extend the tax credit
through December 31, 2016.
Photonics is the study of light and
photons, a field that encompasses research into lenses,
lasers, and fiber optics. The technology has a wide
range of applications, from high powered sensors and lasers to
LED’s, digital x-ray machines, and fiber optic cables.
Photonic technology is already used in sensors, laser, and
other devices that depend on light to send a signal, detect
information, or communicate. The further development of
photonic circuits will likely make computer chips faster and
with expend less energy, leading to dramatically increased
battery life, smaller and faster components, and bandwidth
capabilities that are far larger than current standards.
Virtually all photonics companies of any
size are R&D intensive. Companies with less than 100
employees represent 90% of the entire industry. Still,
investments in R&D by these companies runs from 5% to as
high as 20% of sales, with 8% to 12% being the industry
average. These companies typically develop photonic technology
in all stages of product development from completely new
products, to additional features and applications for mature
products and everything in between.
Each stage requires the
support of R&D activities to maintain market share,
improve market share, or acquire share in new markets based on
using existing products or developing new ones. As a
broad generalization, mature product lines normally get about
20% of available R&D funding, while 50% goes to upgraded
products and 30% goes for totally new products.
Industry/ Silicon Photonics
Progress in computer technology is becoming
increasingly dependent on faster data transfer between and
within microchips. Most of these chips, however still
use electricity to operate which is problematic since as chip
components become smaller, the chips start to overheat and the
small wires squeezed closely to one another start to interfere
with each other.
Using light to carry
data to or between chips could solve many of these problems.
The technology has the power to increase bandwidth capacity,
reduce the size of microchip components and increase the speed
of data transmission. In 2006, former Intel Vice
President, Pat Gelsinger stated that, "Today, optics is a
niche technology. Tomorrow, it's the mainstream of every chip
that we build." Researchers around the country are
working towards that end. Some common research hubs in the
U.S. are discussed below.
New York Research Hub
The federal government recently announced a
decision to make Rochester, New York the home of a new $610
million research and manufacturing hub dedicated to the
development of photonics technology. The new
private-public partnership announced by the Obama
Administration in July 2015 includes key players such as the
Massachusetts Institute of Technology (MIT), Kodak Company,
Xerox Corporation, and the Department of Defense.
Part of the initiative
involves the creation of a Photonics Manufacturing Institute
that is expected to have a long lasting effect on the local
economy. “This could create, over the years, thousands
and thousands of good-paying jobs,” said Senator Charles
Schumer. President of Optimax Systems Inc., Mike Mandina
said the institute’s impact on the local economy will be
similar to “a large firm moving into the region and doing
massive hiring.” The region already has about 100
companies focused on optics and photonics research.
The Stanford Photonics Research Center is a
strategic partnership between the Stanford University research
community and companies employing optics and photonics in
their commercial activities. Stanford engineers at the
university have designed and built a prism-like device that
can split a beam of light into different colors and bend the
light at right angles, a development that could eventually
lead to computers utilizing optics, rather than electricity,
to carry data.
The goal is to transmit
data faster and more efficiently via optical rather than
electrical signals. This is a big step toward creating a
complete system for connecting computer components with light
rather than wires. Professor Jelena Vuckovic who lead
the research states, "Light can carry more data than a wire,
and it takes less energy to transmit photons than electrons".
The photonics industry is undergoing
extremely innovative changes and applications. As the
amount of electronic information being created each day
continues to grow, existing technology is unable to keep up
with the demands. Photonics technology provides a
promising solution, however, crucial technology developments
must occur and hurdles must be overcome before the use of
light becomes the dominant means for storing and transmitting
data. Federal and state R&D tax credits are
available to help support and stimulate these efforts.