The R&D Tax Credit Aspects of Traffic Management Technologies

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        Recent technology advancements provide opportunities for alleviating traffic congestion throughout the U.S.  Traffic congestion is at an all time high in the country and urbanization, population growth, higher employment rates, stronger economies and lower gas prices have all resulted in more drivers on the roads.  In 2014, U.S. drivers spent an average of 50 hours stuck in traffic - an all time high for traffic congestion in the country.

        Entrepreneurs and innovators are aiming to discover new ways of reducing traffic congestion with the use of technology.  Big data analytics, for example, can be used to identify traffic patterns and re-route drivers.   The Internet of Things (IoT) can be utilized to allow communication between vehicles, prevent accidents, and even minimize downtime spent at traffic lights.   Smart phone apps can be used to identify traffic patterns from a distance and make better decisions and avoid traffic.   Smart highways, or active traffic management technology (ATM) can dynamically control traffic based on real-time roadway conditions.  Innovators developing these and similar technologies are eligible for federal and state Research & Development (R&D) Tax Credits which are available to stimulate innovation.

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 Tax Credit can be used to offset Alternative Minimum tax and start-up businesses can utilize the credit against payroll taxes.


The Growing Traffic Problem

        In 2014, the time spent sitting in traffic amounted to a total of 14.5 million hours every day, commuting or moving goods to market.  An INRIX 2015 Traffic Scorecard analyzed and compared the state of traffic congestion in countries and major metropolitan areas worldwide. The U.S. had the worst congestion rating with the average commuter spending nearly 50 hours in traffic.   New York City commuters spent an average of 73 hours sitting behind the wheel - a 20% increase compared to the prior year.   What was previously a 45 minute drive from Manhattan to JFK Airport on any given day is now closer to an hour. The list below shows the average hours wasted sitting in traffic  per commuter in major cities across the nation: 

  1. Los Angeles, CA – 81 hours
  2. Washington, DC – 75 hours
  3. San Francisco, CA – 75 hours
  4. Houston, TX – 74 hours
  5. New York, NY – 73 hours
  6. Seattle, WA – 66 hours
  7. Boston, MA – 64 hours
  8. Chicago, IL – 60 hours
  9. Atlanta, GA – 59 hours
  10. Honolulu, HI – 49 hours

        Since 1970, the U.S. population has grown by 32%.  The number of licensed drivers has grown by 64% while the number of registered vehicles has grown by 9%; and the vehicle miles traveled per vehicle has grown the most – 131%.  Despite increases in all these categories, the total number of road miles has grown by only 6% since 1970.  These factors have resulted in an unusual and all time high levels of congestion on the nation’s roadways.

        There is however a practical solution.  Most of the congestion in the U.S. is caused by bottlenecks, traffic incidents, and poor signaling/timing as shown in the following chart.  Unlike other inevitable factors such as bad weather,  these factors can be significantly controlled with the use of innovative technology.  Driverless cars will soon make accidents a thing of the past; bottlenecks can be eliminated with smart technology that re-routes drivers; and similar intelligent technology allows communication between vehicles to better coordinate intersection crossing and lane changing which can also significantly reduce traffic congestion. 

Intelligent Transportation Systems

        Intelligent transportation systems is used to describe a range of different technologies interacting with each other to provide innovative services.  It includes smart cars, smart highways, active traffic management technology (ATM), autonomous intersection management technology, and the use of big data to make more intelligent traffic management decisions.  Some technologies that are being developed and experimented with throughout the industry include:  

Overhead Gantries -  Display changing speed limits and real-time traffic information for drivers in each lane.

Variable Speed Limits - Dynamically and automatically reduce/increase speed limit signs so drivers are  to slow down when approaching congestion, collisions, or backups at off-ramps.

Queue Warning - Alerts drivers of backups and directs drivers passing through to use alternate lanes.

Junction Control - Changeable traffic signs, electronic pavement markings, and lane to direct drivers to specific lanes based on varying traffic demand.

Dynamic Rerouting - Overhead signs, lights, and changing lane markings to alert drivers that they need to change their route based on current traffic conditions.

Travel Time Signs - Display estimated travel times other traffic conditions so drivers can make on-the-road route decisions.

        Many state and local governments and even the federal government are relying on Intelligent Transportation Systems to reduce traffic congestion in the U.S.  In Woodbridge NJ, state officials integrated a 22 foot-high mounted screen at their control center to make real-time decisions and alerts about traffic conditions.  The screens are linked to supercomputers which collect data from millions of cell phones and GPS signals.  Those devices relay information about vehicle speed, weather conditions, and other identifiable patterns.  For example, if vehicles are repeatedly slowing down around a certain area, a service truck can be sent out to identify and solve the problem.  It may be a piece of debris in the road or a large pothole in the road. 

        New York City plans to retrofit thousands of government vehicles with smart technology in order to reduce traffic accidents, automobile pollution, and congestion. The federally funded initiative involves integrating trucks, buses, and taxis with intelligent devices the size of a smartphone to alert drivers to potential collisions ahead, traffic jams, and other hazards such as crossing pedestrians or large potholes.

        Meanwhile, the federal government is developing regulations requiring new vehicles to have technology that has the ability to communicate with other cars and roadside infrastructure.  So far, United Parcel Service Inc., the Metropolitan Transportation Authority and trucking associations will take part in the program, according to city officials.

        Cities embracing the developing Federal regulations and investing in intelligent transportation systems should see a substantial return on their investment in reduced transport network and infrastructure costs, as well as  in enhanced business and economic growth.  Reducing traffic congestion by 25% across the country would result in $185 billion in economic savings according to analysts at IBM.  Those savings are also estimated to  increase national retail sales by 6%.

Smart Cities

        Some of the most capable companies in the world are currently working to reduce traffic congestion and make smart cities a reality.  Alphabet Inc., Google’s parent company, is currently recruiting people to close the gap between traditional urban policy and the latest technology.  The Sidewalk Labs start-up team members include Craig Nevill-Manning, founder of Google’s NYC-based engineering group and Anand Babu, a cities and transportation expert at Google.  The idea is to integrate technology such as the Internet of Things, advanced computing power, and new design and fabrication technologies in order to make smarter use of existing infrastructure.

        Sidewalk Labs will utilize the arsenal of fast-developing technologies, includes sensors, smart phones, and the resulting explosion of digital data combined with software to help alleviate the traffic challenges.

        IBM has a similar vision as the company expects the number of vehicles on the world’s roads to double to around 2.5 billion by 2050 however, they envision less traffic. How? By using data from sensors in roads and vehicles, predictive analytics, and social media to reduce traffic congestion.  The company is working with cities such as the Dutch City of Eindhoven to pilot a traffic management solution that collect and merge braking, acceleration, and location data from in-vehicle sensors with traffic data gathered.

        IBM is helping Volkswagen advance this concept in Wolfsburg, Germany, as well where geospatial data generated by vehicles helps the town see traffic density and patterns in real time. VW’s connected car also offers personalized guidance to drivers, such as ideal departure time and the best route to avoid traffic jams. 

Internet of Things (IoT)

        The IoT network of devices embedded with electronics, sensors, and network connectivity enables these objects to collect and exchange data with each other.  The most practical application of this technology may be on the highways where vehicles will soon collaborate with road signs, traffic lights, and other vehicles. Other applications in the transportation industry involve monitoring drivers’ speed, detecting potential vehicle failures, controlling carbon emissions, and providing internet access for passengers.  Realizing the potential of the technology, the government is exploring the idea of possible widespread integration of the IoT in the public transport sector.

        The federal government is in the process of developing regulations requiring that cars have technology to communicate with other cars and roadside infrastructure.  The Department of Transportation is in the process of developing what it calls connected-vehicle technology. Though still in its infant stages, the wireless technology will soon  allow drivers to receive real-time traffic warnings that could prevent accidents, avoid property damage and save lives.  For example, the technology already has the ability to warn drivers that a car 200 yards ahead is braking or that road work is being done ahead.

        In addition, Portland local government installed a one-of-a-kind active warning system requiring drivers at busy intersections to look over their shoulders and yield to passing bicyclists.  If a bicycle is nearby, a flashing sign lights up warning the driver that a bike is approaching. As bikes become more common, one growing hazard is cars colliding with cyclists.

Big Data Analytics   

        While some industries have used big data methods for years, gadgets like mobile phones and the growing power of computers to store and analyze data quickly and easily has made it more practical in the traffic monitoring industry.   Start-ups like Birds Eye Systems and tech giants like Google and  Uber Technologies Inc are also using big data to reduce traffic congestion.

        Using cloud technology and analytics, these companies disseminate data from thousands of sensors, vehicles, smart devices and surveillance cameras.  “For sensing traffic flow, it's not just Bluetooth or Wi-Fi; it's also cellular-based data,” says Tony Voigt, a research engineer at Texas A&M's Transportation Institute. The city of Houston has been using Bluetooth signals for nearly five years to aggregate data and compute average travel times.

        Recent technologies have significantly assisted traffic coordinators in their routine decision making processes. Ralf-Peter Schäfer, Vice President of TomTom’s Traffic and Travel Information Product Unit states, “With the emergence of connected GPS systems, smartphones, and smart cars, we suddenly have millions of connected users on the road, which has allowed us to gather huge amounts of real-time floating vehicle data based on real trips.” 

        The information gathered from big data analytics can be used in a number of ways, including planning trips, re-routing for commuters, helping transportation companies arrive at their destinations faster and using less fuel,  and increasing roadway safety.

Smart Phone Apps

        Traffic management technologies are also useful for drivers with the development of mobile apps.  Veer Parking’s app  provides a list of nearby parking options sorted by price.  The app guides users to their chosen destinations and shows them a picture of the parking area.  Users can also use it to find their parking spot in case they forget where they parked. 

        Some apps even connect users with the owners of privately held parking spots, allowing owners to rent their parking spots by the hour or even on a daily or monthly basis.  This is part of the new consumer to consumer economy that is emerging in many industries. 

Tolling Technologies

          Technology is at the heart of everything tolling agencies do.  Payments, collections, traffic management, customer service, and enforcement all involve constantly evolving technologies.  The goal of most of these new integrations is to relieve congestion at the toll booths without the addition of new highways, lanes and pavements.  E-ZPass technology was an exceptional breakthrough at the time and since then new vehicle identification technologies have continued to evolve and improve.  Some ideas on the horizon involve the use of social media to deliver tolling messages, charging per mile, connection of infrastructure with vehicles and smart toll lanes that can open and close based on traffic patterns. 

Highway Maintenance

        Emerging technologies have the potential to change the way highways are monitored for maintenance and repaired.  The nation’s road system is vital to the U.S. economy. Valued at close to $3 trillion, according to the Bureau of Economic Analysis of the U.S. Department of Commerce, 75% of goods are transported on roads by truck, 93% of workers commute on roads by private automobiles and public buses, and by far the largest share of non-work and pleasure trips are taken by road. 

        Data from the Federal Highway Administration’s annual publication, Highway Statistics, indicates that although the condition of the nation’s highways and bridges varies with general economic conditions, as much as one third of the nation’s highways may be in poor or mediocre condition, and one-quarter of the nation’ s bridges may be functionally obsolete or structurally deficient.

University of Michigan

        The University of Michigan has a special research program dedicated solely to traffic management technologies.  Typical research projects at the center include innovative traffic safety devices, human-machine interactions related to motor vehicles and driver interaction, and SMART cities projects.  Researchers at UMTRI also maintain the Eco-Driving Index (EDI), a national index that estimates the average monthly amount of greenhouse gases produced by individual drivers.

University of Texas at Austin

        The University of Texas at Austin also has a traffic management research center where researchers focus on a range of technologies including autonomous intersection management.  At modern-day intersections, traffic lights and stop signs assist human drivers in conducting their vehicles safely through the cross traffic.  Much of the time we spend on the roads is actually at stop lights and intersections. With autonomous intersection management technology however the need to ever stop at a traffic light could potentially be eliminated. Researchers believe that vehicles properly communicating with each other could precisely time the way they approach intersections so that all vehicles pass through seamlessly and smoothly without stopping. 

Virginia Tech

        Virginia Tech’s Center for Advanced Automotive Research (CAAR) focuses on the research, development, and evaluation of next generation automotive systems.  The primary research areas of CAAR include crash warning/avoidance/mitigation, connected vehicles, driver-vehicle interfaces, crash causation, and vehicle automation. CAAR comprises two research groups: the Advanced Product Test and Evaluation (APTE) group and the Connected & Advanced Vehicle Systems (CAVS) group. These groups work cooperatively with their industry and governmental partners to solve complex transportation problems through technology advancement.


        Traffic congestion on U.S. roads and highways is at an all time high.  Meanwhile, existing infrastructure is rapidly deteriorating.  To avoid costly infrastructure expansions innovators are working towards a better solution to the traffic challenge.  That solution involves investments in technology to make more efficient use of existing infrastructure.  Those developing technology such as this are eligible for federal and state R&D Tax Credits.

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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