In a recent Economic Times article, IBM
stated that in today's market their sales teams and scientists
are working with the clients' R&D staff and new product
specialists to develop relevant new software applications. IBM
has also indicated that the underlying business models for
selling software have changed. Likewise, Oracle has recently
invested $10 billion in a new master data processing model
that can be relevant for R&D projects. New R&D based
software selling methodologies creates new opportunities for
R&D tax credits.
Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On January 2, 2013, President Obama signed the bill extending the R&D Tax Credit for the 2012 and 2013 tax years. With this new R&D based software sales model, R&D tax credits may be available to support the sale.
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:
Zachary Leminos, Vice President for research strategy at IBM, said that thirty years ago their customers had research labs to define technology but little engagement with actual new product development. He went on to say "that wasn't profitable and doesn't exist today in scale".
The referenced Economic Times says that "Earlier this year, IBM announced it will invest over $1 billion in setting up a separate group for its super computer; Watson...The new group that will look at bringing big data analytics and cognitive computing, by deploying the Softlayer cloud computing platform of IBM, will include over 2,000 employees from IBM's research labs worldwide."
IBM's Softlayer platform allows IBM to really expand their existing cloud base to a much larger client base, creating additional software sales with their new and improved product offering. Specifically related to big data analytics software, IBM has already invested $24 billion in the development of new technologies.
IBM also has created the Accelerated Discovery Lab, which is intended to help clients deal with large data sets. This expansion into big data is key for the company in an ever changing world where data sets become larger and reach the realm of unmanageable by traditional means. This has applications in drug development, social analytics, predictive maintenance, and many more fields.
Overall, IBM is focused on cognitive
computing, industries, and computing as a service.
Since 2009, Oracle has
spent over $10 billion on companies that enable cloud
computing to operate a business. The following are a list of
Oracle's recent acquisitions:
Source: Benoit Chaffinjon, Oracle June 26, 2014 Private Cloud Event
When the Oracle solution
is used in an R&D function, the usage fees paid to Oracle
are equivalent to paying a utility for electricity.
Furthermore, when the products are used in an R&D
function, the usage fees paid are supplies eligible for
R&D tax credits.
In March of 2013 IBM launched Cx (Customer Experience) labs where IBM scientists work with IBM sales teams and customers to develop products. This allows for a more customized product developed by IBM for the customer directly. IBM must now develop software in a new manner, which creates the potential for increased in R&D eligible expenses by the client as well as IBM. This, in turn, can greatly assist in the sales process.
Examples provided of
IBM/Customer co developed products include:
This article describes the IBM R&D based approach because IBM has explicitly made customer R&D and new products the focus point. With the Oracle Master Data Processing pay for usage model, Oracle products are R&D tax credit supplies when used for a R&D project. Note, however, that all software sellers have the opportunity to use the R&D tax credit model with new product customization.
The top software
companies in the United States are:
| Company |
Sales (in Billions) |
| Microsoft |
$83.3 |
| Oracle |
$37.9 |
| Symantec |
$6.8 |
| VMWare Fiserv |
$5.2 $4.8 |
Source: Forbes
End user software
projects often external and internal R&D expenditures. The
recent favorable settlement of the FedEx R&D tax credit
claim bodes well for large software projects. Figure 1
demonstrates the growth in R&D spending in various
industries.
As it can be seen from the figure, there has been tremendous growth in R&D spending in the Software and Internet area.
Source: Change in R&D Spending by Industry, 2012-2013. From Booz & Company, 2013.
Note: The software R&D consultant services may be available on a complimentary basis during the feasibility stage.
With today's powerful software offerings
the software sales process is quickly changing. Savvy software
sales people will evolve from a traditional more narrow
features and functions sales approach to a broader business
solution approach which reflects the customers new product
opportunities and is supported by customer eligible R&D
tax credits.
Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.
Gary Savell is a Systems Engineer with R&D Tax Savers.
Charles G Goulding is a practicing attorney with experience in R&D tax credit projects for a host of industries.
