Manufacturing & Distribution Advisor: Benefiting from Innovation in the Manufacturing Industry

January 25, 2016 by Paul Beckman, Steve Pashley and Marina Hadley

Today’s rapidly changing business environment demands constant adaptation for companies to remain competitive. Innovation and efficiency go hand-in-hand as companies work to keep up with or take advantage of new technologies, including disruptive technologies that may change how we conduct business.

Emerging Technology

One emerging disruptive technology in the manufacturing industry is three-dimensional (3D) printing. 3D printing is an additive process where materials are added layer by layer to produce an object rather than a traditional subtractive process. A computer-aided design (CAD) software application is employed to create a digital design of a three-dimensional object, which is then uploaded to a specialized 3D printer where the object is “printed” on the build platform.

What started as printing small plastic objects with limited utilization has progressed into creating advanced applications for raw materials, metals and even organic matter. Recent innovations include 3D printed robotic aircraft, 3D printed cars and even 3D printed human prosthetic implants. Admittedly, some of the possibilities for this process sound like science fiction; however, numerous manufacturers already use 3D printing and more continue to see the potential benefits. According to recent studies, worldwide revenues from 3D printing are expected to grow from $3 billion in 2013 to almost $13 billion by 2018.

Examples of leveraging this technology are emerging worldwide. The Federal Aviation Administration (FAA) has just given approval for the first 3D printed part to be used in a commercial jet engine. Middle market companies are using the technology to produce mock ups or prototypes of products: During a product’s design phase, a 3D printed prototype can quickly be produced, giving designers timely and valuable insights into what the finished product will look like. For smaller business, service companies are now offering small business solutions for 3D printing services. Innovators are emerging as 3D printing pioneers, printing model organs for pre-surgical planning, creating custom footwear and even manufacturing construction materials. This adoption of new technology indicates an evolution in the manufacturing industry.

Change also means opportunity for manufacturers. 3D printing may help reduce inventory cost, eliminate waste, improve processes and achieve significant tax savings. Many traditional manufacturing techniques require a subtractive process, such as tooling, machining and cutting while 3D printing is an additive process that produces little waste. A recent study by the Oak Ridge National Lab cited a project whereby a subtractive process created 30 pounds of waste for every one pound of useful material. The department of energy cites that over 98% of raw materials are utilized in 3D printing, which in turn can translate into a reduction in overall energy use.

Utilizing New Technology? You may be Eligible for Tax Savings

The hard work that companies invest in developing new technologies involving 3D printing may be eligible for federal and state research and development (R&D) tax credits. The federal R&D tax credit was established in 1981 (and made permanent in 2015) to incentivize private sector investment in qualifying research. Generally, R&D credits can be applied dollar for dollar to reduce taxpayers’ federal and state income tax liabilities.

The definition of research and development is fairly broad. Any company that invests time, money or resources towards the development or improvement of products or processes may be eligible for the credit. This enables businesses of all sizes across a variety of industries to take advantage of these favorable tax regulations.

Documentation to support R&D tax credits can be tricky. The advisors of Elliott Davis Decosimo can help you navigate through many types of complex issues including tax credits. Contact your Elliott Davis Decosimo advisor or email to determine how you can utilize the R&D Tax Credit to reduce your tax liability for 2015 and beyond.