R&D Credit Opportunity for Smart Sensors

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        In their May 2011 Research Report, several authors at the McKinsey Global Institute project that the next economic wave of the future, Big Data, is going to be driven by, and in turn will drive, the increasing volume and detail of information captured by enterprises, the rise of multimedia, social media, and the "Internet of Things". Many industry analysts emphasize the importance of high bandwidth, creative capital, and advanced analytics that operate in real time. In order to integrate these three pillars, economic actors (i.e., governments and private enterprises) will need to draw on recent innovations in the field of smart sensors. Smart sensors are different from the passive sensors of the 20th century in that they are able to process information in order to pick up on patterns and then use the data to control systematic operations, whether in one's home, at a manufacturing plant, or inside the human body.

        To date, four industries that have been implementing smart sensors technologies in order to improve their operational efficiency and capacity include: 1) Oceanographic and meteorological services; 2) The smart grid; 3) Health sciences (nanobots); 4) and the "Internet of Things." Companies making investments in researching and developing improved smart sensor technologies and applications stand a great chance of qualifying for the federal R & D tax credit.

The Federal Research and Development Tax Credit

        The Research and Development Tax Credit, federally enacted in 1981, 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 product, 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 certain costs associated with obtaining a patent.

Smart Sensor Applications

        Smart sensor systems are typically composed of numerous autonomous sensors that work in conjunction by using wireless communication devices to communicate information to each other and a central processor. Depending on the particular application in which the sensor network is being employed, the central processor's role is to analyze the data being transmitted to it in order to find and use patterns to make the underlying operations of the system more efficient or execute self-organizing tasks. Following is a discussion of the role of smart sensors in the four leading industries.


        Networks of smart sensors are able to gather information needed by "smart environments," meaning that scientists researching oceanography or its related fields of meteorology and climatology will be able to use such networks to isolate individual causes in the myriad factors that predict weather patterns in the near future. When operating as part of an overarching network, smart sensors are capable of processing the enormous amounts of data required by oceanographic observation as long as the architecture of the sensor network is competent for application in a marine environment. One of the major advantages of using smart sensors in this field is that sensory data comes from multiple sensors of different modalities in distributed locations. The smart environment needs information about its surroundings as well as about its internal workings; this is captured in biological systems . A marine sensor network will need to be both flexible and scalable in its hardware and software elements.

        Future innovation in the field of marine smart sensor networking will need to focus on the adaptation of existing smart sensor technology to the marine environment. Researchers will also need to discover methods for eliminating data heterogeneity, which has heretofore handicapped oceanographers ability to develop a consistent methodology for conducting their studies . In other words, marine smart sensors of the future will need to be easily integrated.
Smart Grid Energy Efficiency and Renewable Energy

        One of the most immediately attainable applications of smart sensor technologies is the smart grid and its related field of smart metering for monitoring energy use. The smart grid is a digitally enabled electrical grid capable of gathering, distributing, and acting on information about the behavior of all participants (energy suppliers and end users) in order to improve the efficiency, importance, reliability, economics, and sustainability of electricity services. Smart buildings are a field closely linked to smart grids. Smart buildings rely on a set of technologies that enhance energy-efficiency and user comfort as well as the monitoring and safety of the buildings. Technologies include new, efficient building materials as well as information and communication technologies (ICTs). There are advanced ICT applications that can be used to execute a wide range of tasks.

        In the smart building context, smart sensors can be used in building management systems which monitor heating, lighting and ventilation, software packages which automatically switch off devices such as computers and monitors when offices are empty, and security and access systems . These ICT systems can be both found at the household and office level.

        The third-generation of smart building systems, which are now available to building owners, are capable of learning from the building and adapting their monitoring and controlling functions . While this most recent generation of technology is currently at an early stage of development, the proliferation of smart grid interconnection capability along with increased market focus on energy efficiency makes for a fertile research and development environment.

Nanobots/Health Sciences

        Smart sensors have been used in the healthcare sector in a wide variety of ways for many years; devices like heart rate monitors that are now everyday items are one form of smart sensors, but cutting-edge technologies like nanobots are growing in importance . By tele-monitoring patients' state of health, tracking and monitoring both doctors' and patients' movements, and recording the administration of medicinal drugs, smart sensors are enabling doctors and researchers to respond to medical problems as they happen while simultaneously accumulating a more sophisticated body of research. Going one step further, however, nanobots are robotic machine that are at or close to the scale of a nanometer and are capable of acting at the molecular level inside the human body. A properly programmed nanobot is theoretically capable of instantaneously sensing, diagnosing, and treating ailments within the body. Yet nanobots are very much in the research and development stage and researchers who figure out how to create nanobots will be able to use the technology not only in the health science field, but also for toxic chemical clean-ups or other disaster scenarios where danger to human life is posed.

Consumer Technologies/"The Internet of Things"

        Google's Lab X has been making headlines recently for its highly secretive research that it is conducting into the interconnectivity of all household appliances . The moniker, "Internet of Things," conveys an emerging trend wherein consumers will no longer have to access the internet via their computer or handheld device to do things like order more groceries because their smart refrigerator will sense when they are running low on various items and will automatically order more of what's needed. This trend is made possible because of smart sensor technology.

Conclusion: Research and Development Opportunities within the Smart Sensor Market

        The challenges of creating new and improved smart sensors over the coming years present great opportunities for companies in the related industries. The common challenges when it comes to sensing data input, regardless of the industry, all boil down to improved accuracy, speed, and responsiveness of the systems to rapidly changing stimuli.

Article Citation List



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

Charles G Goulding is a practicing attorney with experience in R&D tax credit projects for a host of industries.

Spencer Marr is a Tax Analyst with R&D Tax Savers.

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