The R&D Tax Credit Aspects of Smart Cities

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        Smart cities are an investment towards our future and provide many benefits to current and future residents. Urban centers are continually growing and the utilization of smart technology will allow cities to further advance. With the development of this type of technology there are many opportunities available for the improvement and growth of smart cities.

The Research & Development 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 $250,000 per year in payroll taxes.

Smart City Growth

        It is estimated that global investments in smart city technology will likely increase by almost $19 billion to a total of $27.5 billion by 2023 . Research has indicated that populations in metropolitan areas will only develop in the future with a growth of 6.5 billion individuals by 2050. In order to support a large amount of people in a dense environment, improvements to cities have to be conducted in the present.

        Many investors and venture capitalists have shown that they are interested in the idea of a future with smart cities and are willing to contribute money towards building better cities. Some popular investors include Google Ventures, BMW i Ventures and Motorola Solutions Venture Capital. This funding allows for the development of innovative technology and opens up the door for many startup companies.


IBM & Smarter Cities

        IBM has introduced a Smarter Cities Challenge program where the company chose 16 cities around the world that were in need of assistance to rebuild and create a better city. IBM professionals focus on helping these cities create a plan to resolve issues in relation to unemployment, transportation and public safety, healthcare, revenue, social services and public works. 

        Part of the process consists of utilizing the IBM Watson Analytics Professional Edition tool to gather city data and analyze the collected information. IBM consultants then meet with officials, residents, businesses and not-for-profits in order to gain an insight on everyone’s perspectives and discuss what the best practices are to improve their city. After all of the factors are considered, consultants make suggestions as to what are the best methods to redevelop a city and solve current issues.

Sidewalk Labs

        Sidewalk Labs, a subsidiary of Alphabet Inc., has future plans to reestablish cities with new housing retail and office buildings. The company would work in collaboration with struggling cities to improve certain aspects of the municipality by implementing new technology. One of the most important aspects during planning is for urban planners and technology representatives to understand each other’s perspectives in order to collaborate and develop a functional city.

        The company is looking to achieve independence from certain municipal regulations, such as design restrictions regarding parking or street plans.  A large challenge Sidewalk Labs would have to get past is obtaining the large amount of money that is needed to create new developments, which may also take a long time to acquire.

        Daniel Doctoroff, the CEO of Sidewalk Labs, strongly believes that utilizing the right type of smart technology along with communication is significant in creating a successful smart city.  Doctoroff is aware that there have been previous attempts at building smart cities that have failed, which is why it is important to analyze every aspect. Doctoroff has suggested certain plans in the past that have failed, such as congestion pricing charges for drivers in New York City.


        There are certain types of technology that create Smart Cities including fiber optics, cloud computing, traffic management and smart sensors.

Gig City
        A Gig City  is known as a place where ultra high speed internet connections exist to provide individuals with the quickest method to obtain information. There has been an increase in the amount of cities offering fiber optic connections. Fiber optic internet connections provide people with the advantage of having high speed internet at a lower price.

Traffic Management
        Traffic management  technology assists drivers by relaying travel information including traffic conditions, alternate routes and much more. Not only does technology maintain traffic congestion, but it provides safety to drivers as well. There is specific traffic management technology, such as LED screens dedicated to changing the speed limit or real time information based on certain events.

Cloud Computing
        Cloud computing is another form of technology that offers many benefits to cities. One of the most significant aspects of adapting to cloud technology is that it makes a vast amount of information accessible to users. A large amount of data can be backed up on the cloud and can be obtained quickly and easily. By implementing this technology, cities can store large amounts of important information to keep track of certain activities.

Smart Sensors
        Smart sensors  are another component that can assist in developing a better city for the future. Several U.S. companies have partnered with China to invest in sensor networks that will assist in creating a smarter city. The smart sensors would be a part of a system that captures data to monitor issues including traffic and air quality.

        Sensity Systems Inc. is a company who is interested in creating a system created if sensors, wireless communication and computing devices to monitor these issues.  These smart technology devices will be placed on light poles to detect certain aspects such as temperature, motion, light and other various elements in the area.

E-Government Initiatives

        E-Government initiatives have the power to supply users with information based on advanced technological predictions. With the use of technology, such as smart grids, interactive devices and smart sensors, large amounts of data can be collected and analyzed in real time. Utilizing this information allows municipalities to provide a safer and more connected environment for residents to live in.

Detroit, Michigan
        Detroit has introduced a smart cities demonstration project, which showcases the different types of smart technology that can be utilized to reconstruct a better city. Implementation of certain technology can help cities become safer and healthier. There are mobile applications that residents can use to monitor and control certain activities. The DTE Insight app allows users to examine the efficiency of their energy usage. 

        Itron is a publicly traded smart grid, smart gas and smart water company has developed technology for solutions on improving energy and water functions. The company developed the Itron City app which gives residents a platform to report any issues that occur in Detroit. Issues can include crime, outages, potholes and water leaks. Reporting problems allow situations to be resolved quicker and assists in maintaining a city’s environment.

        Itron partnered with ClipperCreek Inc. to install electric vehicle charging stations  that contain Wi-Fi and a smart meter. The technology included in the station gives drivers the ability to receive information about potential charging estimates right on their phones. 
        Intelligent streetlights serve the purpose to monitor and control the lighting fixtures. These streetlights allow Detroit to reduce the amount of energy that is consumed when it isn’t required. Sensors would be implemented to detect if there is movement in the area in order to determine how much lighting is needed.

Hawaii’s Online Renewable Energy Permitting Tools
        Online tools were created for developers and investors in Hawaii who intend to develop future clean energy projects. Tools available to users include permitting, financing, incentive, citing and utility resources. Specifically, individuals have the availability of the Renewable EnerGIS Map and Renewable Energy Permitting Wizard tools.

        The Renewable EnerGIS Map is a Geographic Information System (GIS) system that displays renewable energy resources and where they are specifically located around Hawaii.  The tool distinguishes site permitting information as well. Using GIS maps allows users to analyze and determine what potential there is for investing in certain renewable energy resources. The Renewable Energy Permitting Wizard allows individuals to search what particular permits are needed if they were to continue further pursuing an energy project.

        These online tools have shown that they are beneficial to the state of Hawaii by saving time and creating a more efficient renewable energy permit and development process for stakeholders and investors. Overall, these systems assist in the development of renewable energy projects that will benefit Hawaii’s residents and their environment.

        Availability of these tools and renewable energy information allows for increased transparency by giving individuals a vast amount of resources to determine what specific type of project should be developed.

City 24/7 Smart Screen
        Cisco Internet Business Solutions Group (IBSG) and City 24/7 worked with New York City to implement interactive smart screens around the city. The City 24/7 Smart Screens have replaced deserted and outdated structures, such as payphones.  The interactive screens offer touch, voice and audio technology to users who are able to search for information about the city in relation to certain local services, events, security alerts and real time data.  These smart screens offer city residents and tourists a new way to experience the city by learning new information through an interactive system.

        The goal of implementing this type of technology is to inform, protect and revitalize New York City to become a smarter city. City 24/7 Smart Screens provide numerous benefits to the City of New York. Sensors have the ability to alert police and fire department personnel of certain emergencies and where they are needed, as well as, detecting harmful chemical, biohazard and environmental conditions in the surrounding area. The economy can improve by providing individuals with information about nearby areas, such as restaurants and stores and their current promotions. The City 24/7 Smart Screens act not only as a tool to assist individuals with obtaining information, but alerting the city of potential hazards and emergency situations as well.


There are different types of zoning that occurs in cities. Incentive, Euclidian, Overlay, Floating and Performance Zoning are all different methods of planning that can occur when designing or improving a city. 

  • Euclidian Zoning: is the most used of all the zoning practices and regulates where residential, commercial and industrial locations should be. There are certain regulations that pertain to each area which mandate a building’s size, shape, setbacks, height restrictions and density of the development.
  • Overlay Zoning: gives a certain district more flexibility to develop by introducing additional zoning requirements to an existing district. For example, extra zoning regulations may be allowed in a historic district if there are conflicts with preserving the historic character of the area.
  • Floating Zones: contain the same requirements as other zoning areas, but has no particular designation on a zoning map. Once a developer has an approved project in the floating zone, it is added to the zoning map.
  • Performance Zoning: has a set of performance standards for building and land use in the area that developers should meet. Some specific standards consist of design criteria, environmental building standards and impacts on the surrounding area.
  • Incentive Zoning: is beneficial for developers due to its process of offering incentives for a developer to build in the return for a desired public amenity. This type of zoning is especially beneficial to developers who are interested in moving towards building a smarter city.

Expedited Commercial Permit Process
        Within zoning ordinances, there are certain processes that can be expedited to develop a certain project. For example, there are expedited permit processes that exist in several municipalities to make the development process easier for owners.

        In particular, Frederick County in Maryland offers owners the option of applying for an expedited commercial permit process if no construction is involved.  The process would consist of reviewing a permit, approval and an inspection process. All of these activities occur during a short amount of time, which the city refers to a “while you wait visit,” compared to the regular permitting process.

        Certain guidelines still have to be followed, such as the permit shouldn’t include any changes that isn’t allowed by the Zoning Ordinance and doesn’t request any exterior changes to the building on the site, including parking alterations. This expedited permit process offers developers of commercial properties the benefit of a quick and easy process to improve or alter their building.  

Bernard Zyscovich
        A well-known architect from Miami, Bernard Zyscovich, created Plan Z whose concept is to provide a safer and better transportation system in Miami. Plan Z would lead to changes to the Rickenbacker Causeway to make room for a new pathway.   The creation of this new proposal was due to the high number of accidents that occur near highways. According to data obtained from the Florida Department of Highway Safety and Motor Vehicles around 3 in every 10 crashes involving cyclists occur in the Miami-Dade, Broward and Palm Beach counties.  Zyscovich’s proposed plan has the potential to alleviate this issue. Zyscovich has the intention of developing additional pathways to accommodate bikers and pedestrians to make the state of Florida safer and more environmentally friendly.

        Suffolk and Nassau County partnered together to form the Long Island Unified Solar Permitting Initiative (LIUSPI), which is beneficial to residents of Long Island who are interested in solar installation.  The initiative includes the availability of the Solar Energy System Fast Track Permit Application, which decreases the amount of time and money individuals spend when implementing solar projects. 

        There are many advantages that are offered to residents, such as lower application fees, a fast application approval and no required surveys of a resident’s property if it doesn’t relate to the solar installation. Large incentives were offered to towns in Long Island by the Long Island Power Authority (LIPA) to utilize the LIUSPI process. LIPA provided the first 10 villages $5,000 and $15,000 to each town on Long Island.

        The use of solar power has increased over the past few years and municipalities realize the installation of solar panels can assist in creating a better environment to live in. If cities continue providing incentives to their residents, the use of solar power will continue to grow.


        There are many initiatives and resources available to companies and developers who are involved with developing smart cities. Smart Cities will help areas around the world become a better place for residents to live in. R&D tax credits are available to companies who are involved with new developments in technology for Smart Cities.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Lauren Chin is a Tax Analyst at R&D Tax Savers.

Raymond Kumar is a CPA and Tax Manager with R&D Tax Savers.