R&D Tax Credit for
Manufacturing and Distribution

Manufacturing has always been the main focus of the research and development tax credit since its creation in 1981. Manufacturers across the United States that make consumer goods, food items, medical products, electronics, pharmaceuticals, automotive goods, furniture, heavy machinery, steel parts and tools and dies all are performing R&D activities. Both product and manufacturing process development associated with any of these components requires research to continually improve and stay competitive in their respective industries.

These companies are continually looking for ways to improve product designs and develop repeatable and highly complex production processes. Activities such as the production of prototypes, first articles, and component validation may also qualify for the credit.

Qualified research costs include employee wages, raw materials and supplies, and the use of outside contractors to perform research.

Qualified Research Activities for Manufacturing & Distribution Industry

  • Development of conceptual designs and defining requirements and specifications for new or improved products
  • Use of CAD, CAM and CAE
  • 3D printing and other additive manufacturing activities
  • Development of tooling, fixtures, and dies
  • Building and testing prototypes
  • Performing Finite Element Analysis (FEA) to validate 3D design models
  • Development of production processes and equipment
  • Evaluation and testing of new materials for product development
  • Designing cellular manufacturing systems and machine cell layouts
  • Software development associated with the manufacturing process (i.e. CNC machinery, PLC)
  • Designing and evaluating manufacturing process improvements such as those associated with:
    • Regulatory change
    • Automation and robotic technological advancement
    • Improvements associated with designing new quality standards and testing methods
  • Designing and building customized manufacturing equipment
  • Development of automated production and quality control processes

R&D Tax Credit Case Study: Manufacturing & Distribution

This company specializes in developing complex and highly sophisticated electronic products including emergency response systems, communications systems, data networks, digital media hubs, and various technologies for use in urban environments.  The company may also design and develop the internal componentry of its products including mechanical, electrical, and software systems.  Research is performed by designers, mechanical and electrical engineers, software developers, computer engineers, CNC programmers, CAD designers, machinists, quality control and technicians.

R&D Tax Credit Qualification for Manufacturing & Distribution

The company begins each project with brainstorming sessions to determine feasibility and achieve a basic framework for the concept.  At this stage, hypotheses will be developed as to what the company believes will be the most likely development track.  The project then moves to the detailed design and engineering phase where the team will address form, fit, material, and performance issues.  Calculations and computer models are evaluated and modified as necessary.  Issues with configuration, material composition, and manufacturability are also addressed.  For example, how electronic components fit together on a printed circuit board is a major area of redesign requiring the evaluation of different design alternatives in order to manufacture successfully.

Prototypes are developed to evaluate various configurations of components and their resistance to environmental conditions such as vibration or heat.  The primary materials used during the prototyping process include structural metals, circuit boards, PC boards, transistors, circuits, wiring, plastics, and the housing. Oftentimes, multiple prototypes or samples are constructed and tested to validate the alternative or experimental designs.  Testing of gain and bandwidth are also included for performance and reliability.  It is common for tests to fail as circuitry, power, and electronic components are modified, and the testing environment is activated in an attempt to deliver new products to meet customer specifications.  This development process is repeated until a successful component is designed and manufactured.

Results Speak For Themselves

This $40 million manufacturing company generates over $415,000 of annual R&D tax credits with R&D expenses of about $6.5 million.