The R&D Tax Aspects of Tennessee Innovation
Tennessee-Innovation
The Tennessee economy is a robust
one. The state is home to eight Fortune 500 company
headquarters and a diverse range of economic sectors.
The automotive industry is spearheading economic growth while
a broad array of other innovative sectors pushes
forward. Common to them all is a focus on
innovation. Federal and state R&D tax credits are
available to stimulate these efforts.
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 Elimination
Eligible costs include employee wages, cost of supplies, cost
of testing, contract research expenses, and costs associated
with developing a patent. On December 18, 2014 President
Obama signed the bill extending the R&D Tax Credit for the
2014 tax years.
Automotive
The automotive sector is crucial to the
local Tennessee economy. Automotive related production
accounts for one in three Tennessee manufacturing jobs,
employing over 100,000 people. Business Facilities
Magazine named Tennessee the top state in its Automotive
Manufacturing Strength ranking for 2012, the third straight
year that recognition has gone to the state. The
Tennessee Automotive Manufacturers Association reports the
following impressive numbers :
- 1,000 auto manufacturers and
suppliers statewide
- 115,939 employed in auto
manufacturing jobs
- $80,867,444 invested by the state
since 2006 for automotive industry training
- Eight interstate highways provide
immediate access to Tennessee cities for inexpensive and
convenient auto transport
- $6,011,801,340 annual payroll for
Tennessee’s auto industry
Perhaps more impressive is the substantial R&D spending by
the automotive industry. In order to keep pace with ever
growing consumer demands for sophisticated new technologies,
the automotive sector spends considerably more than other
industries on innovation and R&D.
Globally, the industry spent more on R&D in 2013 than ever
before as manufacturers try to stay ahead of fierce
competition from both the technology industry and competitors
within their own sector. Research and development
spending by the car industry has grown at an annual rate of
eight percent over the past four years, almost three times the
rate of increase seen between 2001 and 2012, according to
research by the Boston Consulting Group.
The automotive industry in Tennessee is no exception to this
trend. The state is a leader in public sector R&D
for the industry, ranking second among automotive
manufacturing states and eighth in the nation, despite the
fact that it is only a fraction of the size of many larger
states.
Today’s automobile represents the most sophisticated
technology brought to market. Recent technology allows
cars to “see” all around, gathering data on possible roadway
conditions and essentially giving drivers eyes in the back of
their heads.
In addition to visual capabilities, cars may soon be “talking”
to each other and to the roadway as well. Car-to-car
information sharing can alert vehicles miles behind that the
cars ahead have come to a halt, warning drivers to prepare to
slowdown.
“Smart” intersections will allow stop signs and traffic lights
to communicate with vehicles, as sensors report, for example,
if another vehicle is running a red light. Traffic
lights could be synchronized to improve traffic flow and fuel
efficiency so that if there is only one vehicle on the roads
at a particular time it would only see green traffic lights.
The visual below demonstrates vehicle-to-vehicle
communication.
As large innovators in Tennessee like Nissan, Volkswagen, and
General Motors research and experiment with these
technologies, they provide anchors to the automotive industry
in the state. Nonetheless, over 900 other automotive
manufacturers and suppliers are located throughout the state
whom produce equally innovative component parts and technology
developments. Some of these companies are discussed
below.
SL Tennessee
SL Tennessee (Clinton, TN) is a segment of SL America, a
leading global automotive supplier with a proven commitment to
innovation. The company strives to be the most
innovative automotive market supplier. Their goal is to
provide end users with designs that improve safety,
reliability, and quality of life using innovative and world
class manufacturing techniques. Some innovative
technologies at SL include 360 degree views of the environment
around the car as well as turn signal/power folding outside
and inside mirrors that include special camera displays as
demonstrated below.
*Surround View Monitoring
System
*Camera Displays as demonstrated
above
In addition to automotive R&D, the
company also takes innovative measures to reduce costs. Some
of these are discussed in their statement below:
“As a manufacturer, we genuinely
feel it is our responsibility to make products while
consuming fewer precious resources, less energy, and
reducing hazardous emissions. Our facilities
are equipped with state of the art lighting and control
systems along with generous use of natural lighting. Ceiling
ducts draw wasted heat from manufacturing operations at SL
Tennessee and transport it to cooler areas of the plant. The
reclaimed heat reduces natural gas consumption and CO2
emissions by thousands pounds per year.”
Like product developments, innovative cost savings techniques
are eligible for R&D tax credits as well. Moreover,
projects such as the one described above are usually eligible
for certain alternative energy tax credits. For more on
alternative energy tax credits visit www.energytaxsavers.com.
Remington Industries
Remington Industries (Ooltewah, TN) is an interior automobile
accessories company that is committed to innovation. At
Remington, engineers believe that the only way to make the
best
products
on the road is to
never stop innovating. Remington holds a number of
patents including their latest innovation involving
interlocking floor mats. For most manufacturers, a floor
mat is just a commodity. Remington, on the other hand, takes this
product seriously by investing substantial R&D in order to
provide a “smart, sensible solution that helps protect your
investment in your car season after season.” The
innovation lies in the material, which is a special blend of
commercial grade rubber compounds designed to create a product
which exceeds expectations for function and performance.
Although floor mats
seem like the most basic of technologies, the company has
recently patented designs and prides itself in floor mat
innovation. For more on the automotive sector see “The
R&D Tax Credit Aspects of South Carolina”.
Chemicals and Plastics
Tennessee’s chemical and plastics industry
is providing solid benefits to the state. The segment is
one of the state’s six core industry groupings. More than 800
chemical and plastics related businesses operate in Tennessee,
providing employment for more than 52,000 people. Exports of
chemical and plastics products have exceeded $3.5 billion in
the state for the past several years and have more than
doubled in the past 10 years . For more on chemicals
and plastics see “The
R&D Tax Credit Aspects of the Plastic Manufacturing
Industry”.
The major reasons for such a strong chemical and plastic
presence in Tennessee are its proximity to major markets,
relatively low labor costs, and innovative state programs to
assist companies wishing to locate or expand.
Tennessee’s largest employer in the chemical/plastics industry
sector is Eastman Chemical Co., headquartered in Kingsport.
Eastman employs more than 6,500 workers there and has annual
revenues of more than $5.8 billion. The facility manufactures
hundreds of chemicals, fibers and plastics found in products
that people use every day.
Eastman officials cite several reasons
why they like the Volunteer State, including its positive
business climate, skilled workforce, excellent quality of
life, great interstate highway and rail systems, and strong
educational institutions .
The Eastman facility has more than 550 buildings and about
4,000 acres of land, with its main production facility
covering 900 acres. Eastman recently completed a five-year,
$1.3 billion reinvestment project to upgrade and the Kingsport
location.
The chart below demonstrates the
history of innovation in the cosmetics industry at Eastman. For
more information on cosmetics see “The
R&D Tax Credit Aspects of Cosmetics”.
Aerospace
Tennessee is flying high when it comes to
leadership in the aerospace and defense industry. The
Volunteer State has more than 100 companies devoted to
aerospace and defense-related activities.
Micro Craft Inc. is an employee-owned company based in
Tullahoma. Micro Craft, founded in 1958, provides engineering,
manufacturing, and testing services for aerospace companies of
all sizes, including NASA. Transfer of these
technologies and other innovations to the private sector has
created new industries in the U.S, resulting in substantial
cost savings for companies and consumers, and proving jobs for
Americans. For more information on this topic see “The
R&D Tax Credit Aspects of a Non-Dysfunctional Airline
Industry”.
Food Production
Tennessee’s broad range of food producers
provides much economic stability to the state. Compared
with other industries, food production is relatively
stable. “We don’t go up when the economy goes up and don’t go down when economy goes down,”
says Steve Harrison, a vice president at Bush Brothers &
Co., the 101-year-old food company known for its baked beans
with headquarters in Knoxville and a large plant in Chestnut
Hill. While the company is largely known for its classic
product, it often introduces new varieties, including a line
of “grilling 
beans” in 2008 that Harrison describes as “more
robust” and mixed with other vegetables.
Achieving such robustness or other varying textures and
consistency often involves significant R&D. The
process is further complicated by the need to meet government
guidelines and consumer health specifications. Producers
compete on nutrition, shelf-life length, taste, texture and
cost. They often have contingents of chemists,
scientists and nutritionists constantly seeking to better
their product.
Generally, innovative producers aim toward more nutritional
content. Still, consumers won’t buy the product if it
contains excess amounts of fat, sugar, and salt. Consumers
today are more concerned than ever with exactly what goes into
their food. Thus, the problem is two-fold - How can food
producers create a product that meets consumer taste
expectations without sacrificing nutritional content? For
more on this topic see “R&D
Tax Aspects of Gluten-Free Foods” and “The
R&D Tax Aspects of Salt Reduction”.
Alcohol
A
recent whiskey war has been brewing in the heart of the
Volunteer State and it largely surrounds an innovation
issue. Jack Daniel’s master distiller Jeff Arnett
recently urged state lawmakers to stick with a state law
enacted in 2013 that requires any product labeled as
‘Tennessee whiskey’ to be made from 51 percent corn, aged in
new charred oak barrels, filtered through maple charcoal and
bottled at a minimum of 80 proof.
Many new distillers have been coming to the state and
experimenting with various production processes.
Opponents of the law argue that it could prove too restrictive
and will stifle innovation. Supporters argue that it has
been understood for 150 years exactly what Tennessee whiskey
is. Thus, there should be a law that will keep all producers
within that framework. The debate comes at a time when
breweries are innovating more than ever. Recent bottling
and packaging technologies combined with millennia’s desire
for variety in their alcoholic beverages provide much
opportunity for R&D. For more on this topic see
“The R&D Tax Credit Aspects of Kentucky”.
Smart Ovens
Today, like many technologies surrounding the Internet of
Thing, ovens are becoming quite clever. Imagine being
able to cook your dinner on the way home from work or while
sitting in the dentist’s chair. That’s what TMIO --
Tonight’s Menu Intelligent Ovens – in Chattanooga has recently
been developing. The Connect Intelligent Oven is not
only an oven, but also a refrigerator. By placing a
prepared meal in the oven before leaving home, the appliance
can also keep it cold until ready to cook. “Dinners
placed in the refrigerated appliance before the consumer goes
to work are done by the time he or she arrives home,” says
TMIO President and CEO David Mansbery. “If plans change,
there’s no problem. Using their cellular phone or logging on
to the Internet, they can delay the cook time, change the cook
temperature, refrigerate after cooking, set a warming mode or
cancel the cook cycle altogether.” According to TMIO research,
the Connect Intelligent Oven can reduce meal preparation time
by up to 33 percent – giving the cook more time for family and
friends.
TMIO recently moved its engineering operations to Chattanooga
from Cleveland, Ohio. According to management, the Ohio-based
company decided to locate engineering operations to
Chattanooga due to the area’s long association with the
manufacturing of cooking appliances, specifically wall ovens.
“The community offers a well-trained workforce in this
industry that we needed to bring our product to market,” CEO
David Mansberry says. Trevor Hamilton, vice president of
economic development for the Chattanooga Area Chamber of
Commerce, responded to the re-location - “TMIO represents the
kind of high-tech manufacturing company that is one of our
primary recruitment targets – one that plays to the strength
of our manufacturing heritage, coupled with exciting new
technologies.”
TMIO technologies proved to be exiting indeed. Their
intelligent ovens have received an enormous amount of
attention from the media, including being featured on CNBC’s
“Power Lunch,” ABC’s “Good Morning, America”, and HGTV.
The patented TMIO internet-controlled refrigerated oven
recently won the Reader’s Digest “Best of America” award
. For more on smart appliances see “The
Internet of Things Creates R&D Tax Credit
Opportunities”.
University Research
The University
of Tennessee Knoxville
As a research-extensive institution, graduate and
undergraduate students at the University of Tennessee are
given the opportunity to delve deeply into a broad range of
subjects including zero-energy 
housing, supercomputers, aerospace, and
advanced manufacturing. At the University of Tennessee
Space Institute (UTSI), current work revolves around active
programs in aerospace engineering, mechanical engineering,
physics, aviation systems, engineering management, and a
variety of other activities. One specific project
involves the “Hypersonic Vehicle Electric Power System
(HVEPS).” The Center for Laser Applications (CLA) has
led the UTSI research program to help develop MHD generators
for a new generation of high-speed Air Force vehicles. The
generator would provide short bursts of high power electrical
energy to supply laser or other beamed energy weapon systems.
UTSI’s effort, part of a program led by General Atomics,
focuses on computational modeling and sub-scale tests of the
MHD generator .
Pellissippi State Community
College
Pellissippi State Community College is dedicated to providing
a state-of-the-art environment for education and workforce
development. It is crucial that the region have a
skilled workforce that can meet the demands of an increasingly sophisticated
manufacturing centered economy. Last fall, the college
launched the Automated Industrial Systems (AIS) 
concentration as part of the Engineering
Technology program. AIS prepares students to operate
state-of-the-art automated manufacturing equipment, including
programmable controller training systems, robotics, and motor
training equipment.
Conclusion
The economy in Tennessee is robust and
diverse. All modern industries in the state are driven
by innovation. Federal and state R&D tax credits are
available to stimulate the efforts of economic
progression.
