Industry: Aerospace Manufacturing
Number of Employees: 450+
An aerospace component manufacturer was evaluating the opportunity for R&D at their facility located in southern California. There was doubt as to whether ongoing manufacturing issues would qualify for the credit as most designs were finalized and many of their products were just orders to fill. Upon evaluation of their activities, there were several opportunities for qualification throughout their employee pool.
First, the ongoing development of new products was an area where they had some effort, roughly 3% of their total employee pool which was roughly 450. In these areas, the small team was making strides in improving their rivet products not only through testing new geometries, but also evaluating ways to save end user time by reducing complexity during execution. For instance, several members of their team were tasked with creating a new rivet gun that would be lighter, more powerful and easier to handle for several years across multiple prototypes and major revisions.
Second, there were continuing efforts toward making their manufacturing processes more efficient (reducing waste, bettering quality, improving performance, etc.). This effort included numerous investigations into automating different parts of the process to eliminate or reduce the number of human touches that any particular product needed to undergo before it would be ready for shipping to a client. Further improvements were being made at multiple levels including a big push toward recycling within the plant itself. This included efforts to reclaim materials that were considered waste and process this material stream for reintegration into products. At the time, this effort was largely a failure but the time that was spent in this effort qualified for the R&D tax credit.
Finally, the company was able to qualify a lot of their executive staff’s time based on their involvement in planning and directing future development. This included the conceptual development of products such as their new consumer tools in addition to planning future developments sometimes years ahead of targeted releases. This was a necessary part of staying competitive in a highly dynamic industry.
The company was able to generate roughly $500,000 in Federal and $400,000 in State credits for tax year 2013 from roughly $6MM in qualified expenses. There were numerous fact patterns that allowed the company to maximize their credit in tax year 2013. First, the company itself had a very low historic R&D spending. The company’s R&D during the 1984 to 1988 period was less than 2% of their total revenue.
