The R&D Tax Credit Aspects of Solid State Lighting

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        The solid state lighting industry in the U.S. is slowly growing and establishing a manufacturing presence. Industry leaders, academia, and even the federal government are pushing research and development efforts to make the product cheaper, smarter, and more energy efficient. The Department of Energy (DOE) Solid-State Lighting (SSL) Program was created in response to Section 912 of the 2005 Energy Policy Act. The program was intended to meet those ends through research and development.  If the research efforts go as planned, almost nine-tenths of all lighting installations are expected to be solid state by 2030.  

        Already among A-type bulbs (the most common), LEDs are expected to outsell incandescents in North America in 2015, according to projections by IMS Research, an electronics research firm.   Because LEDs are more energy efficient, the Energy Information Administration estimates that total light bulb sales will fall by almost 40 percent by 2015, to just under one billion from 1.52 billion bulbs. Sales are expected to continue declining to approximately 530 million by 2035 as LEDs make up a steadily increasing portion of the market.

        Consumers who choose solid state lighting will benefit because LEDs and OLEDs not only have exceptionally longer life spans and consume less energy, but also are smarter and produce a better quality light.  As research efforts continue, those benefits will become more profound.  Federal and State research and development tax credits are available for manufacturers to stimulate efforts in solid state lighting.  Those incentives are discussed below.

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 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 payroll taxes.

Solid State Lighting Defined

        Solid-state lighting is an innovative technology that uses light-emitting diodes (LEDs), organic light-emitting diodes (OLEDs), or Polymer light emitting diodes (PLEDs) as sources of illumination.  This approach is in contrast to traditional methods that implement incandescent or florescent bulbs as the main source of illumination.  
        An LED is an electronic device that emits light when an electrical current is passed through it. Modern LEDs can produce different colors, including red, green, and blue (RGB) light. Recent advances have also made it possible for LEDs to produce white light.

        OLEDs are an offshoot of conventional LED technology.  Rather than an array of individual LED bulbs, OLED uses a series of films to emit light. This allows the bulbs to produce brighter light while using less energy than traditional LED technology. Furthermore, since these light-emitting films are composed of hydrocarbon chains rather than semiconductors that contain heavy metals, they are referred to as organic.

        Polymer LED is a technology based on the use of polymer as the semiconductor material in LEDs. Polymers are chemical substances that consist of large molecules that are, themselves, made from many smaller and simpler molecules.

The Department of Energy & the Solid State Lighting Program

        The Department of Energy (DOE) Solid-State Lighting (SSL) Program was created in response to Section 912 of the Energy Policy Act of 2005.  The initiative directed the DOE to “Support research, development, demonstration, and commercial application activities related to advanced solid-state lighting technologies based on white light emitting diodes.”

        Program leaders have developed a comprehensive Research and Development (R&D) strategy.  The goals are to advance the technology, reduce costs, and maximize energy savings. Such endeavors are stated more specifically:

“By 2025, develop advanced solid-state lighting technologies that, compared to conventional lighting technologies, are much more energy efficient, longer lasting, and cost-competitive by targeting a product system efficiency of 50% with lighting that closely reproduces the visible portions of the sunlight spectrum.”

        The DOE has set some ambitious targets. One short term goal is to achieve 200 lumens per watt (lm/W) luminaire by 2020.  Another important goal involves reducing the cost of SSL manufacturing.  The initial purchase of an average solid state bulb is still significantly more than traditional bulbs, even though the product already saves money for consumers in the long run.  For example, an LED-based dimmable A19 60W-equivalent replacement lamp is still approximately $10. That is almost double the price of a comparable, conventional incandescent or compact fluorescent bulb that sells in retail for approximately $5. The higher first cost of LED lighting products has been the primary deterrent for many individuals when considering purchasing LED replacement products.  If the price of the LED bulb can be brought down to match that of conventional bulbs, any rational, informed customer would opt for LED. Already, LED bulbs have an expected lifespan of 25 years.  The savings generated from operating the bulb 1,000 hours/year or 3 hours/day are quite substantial.  They amount to $156 when compared to an incandescent lamp, and $97 when compared to a halogen lamp.  

        To achieve the goals of lower initial cost, higher energy efficiency, better quality of light, and maintain the pace of development of the underlying LED and organic light emitting diode (OLED) device technologies, the DOE is conducting and encouraging research in the following areas:

LED-based Lighting R&D Priorities

  • Emitter Materials: addressing current density and thermal droop, green and red efficiency, and red thermal stability.
  • Down Converter Materials: developing efficient, stabile, and narrow line width materials.
  • Encapsulation Materials: targeting high refractive index and improved thermal stability.
  • Novel Emitter Architectures: developing advanced device architectures for enhanced performance.
  • Higher Integration Levels: investigating flexible integration of package, driver and optics elements.
  • Novel Luminaires: developing luminaire concepts to achieve enhanced light distribution control, improved building integration, intuitive control, and enhanced lighting performance.

OLED-based Lighting R&D Priorities

  • Materials Research: developing high efficiency and long lifetime emitter systems, particularly for blue.
  • Light Extraction: developing cost effective and manufacturable light extraction solutions.
  • Luminaire Development: advancing key attributes of OLED technology to realize product differentiation and accelerate time to market.
  • Improved Manufacturing Technologies: focusing on yield and reliability.
  • Manufacturing on Flexible Substrates: developing materials and processes for manufacturing on flexible substrates.

        Besides the main goals of Research and Development as described by the Department of Energy, some additional priorities include lighting controls, communication with other devices, and greater overall intelligence capabilities.  

Smart Lighting Solutions

        The convergence of other technologies with SSL is providing new opportunities for the lighting industry.  In the not too distant future, building systems, such as lighting, HVAC, and security, will be connected via the Internet of Things.  This will change the way lighting is valued, operated, and controlled. The integration of inexpensive and small sensors, smart phones, wireless network technology, and analytical software is leading to a world were light systems will control themselves according to instructions set by the user on his/her smart phone.   Lighting controls save energy by automatically turning off light when it is no longer needed and adjusting it when other illumination sources are available in the room.  


        As more devices are included in a world connected by the Internet, security risks are an ever-growing concern.  On a few occasions, firewalls are breached by hackers who actually use lighting products as a point of entry into a home computer, a payments terminal, or a sensitive database.

        Research and Development in cyber security is very extensive. President Obama identified cyber security as one of the most serious economic and national security challenges we face.  According to the Gartner, a high-tech research firm, the global market for cyber security will total $65.7 billion in 2013, and climb to $85 billion by 2016 for a compound annual growth rate of 9 percent.   

Spectral Control and Tuning

        LED lighting products can be designed so that they emit differing spectrums of visible light. Newer commercial products, such as the Philips Hued, and specialty products, such as the Telelumen Light Replicatore, can provide active control of the emitted spectrum with varying degrees of spectral resolution. It should be clear that while LED products can have a tailored spectrum, most LED lighting products do not yet have active control of the emitted spectrum. The ability to dynamically tune the emitted spectrum of an LED or OLED lighting source can unlock an entire host of value-added features for SSL lighting beyond energy savings. Some new applications enabled by LED color tunability include horticultural lighting, lighting for human health and productivity, dynamic theatrical and entertainment lighting, and spectral replication.


        Engineers and scientists in the solid state lighting industry are constantly developing innovative solutions to bring the initial cost of products down while also making them more energy efficient.  Federal and State research and development (R&D) tax credits are available to further stimulate these efforts.

Article Citation List



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

Andrea Albanese is a Manager with R&D Tax Savers.

Michael Wilshere is a Tax Analyst with R&D Tax Savers.

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