If you asked most people which companies spend the most money on research and development in the United States construction companies probably would not rank high on most people’s lists. However, in published data, the IRS indicated that 341 construction taxpayers claimed a total of $28.2 million of federal research tax credits (SOI Tax Stats – Corporation Research Credit).
The research tax credit is intended to apply to a very broad range of taxpayers and activities.
It is meant to encourage taxpayers to develop new and improved products and processes in the United States, even if the improvements are more evolutionary in nature than revolutionary. In the construction industry, routine construction activities utilizing common construction materials and techniques will likely not qualify for the research tax credit. However, many types of construction activities can qualify under the right circumstances, including:
- Experimenting with new building materials. This could include using materials containing environmentally friendly content, using lighter materials, using new composites, etc.
- Developing new/improved construction machinery, techniques or methods
- Computer-aided design to model alternative designs
- Efforts to utilize automation or robotics to replace a manual process
- Wind tunnel testing to analyze structural designs
- Testing long-term exposure of materials to weathering
- Construction techniques and materials to improve sound-proofing
- Experimenting to create new energy sources for buildings, including solar, geothermal, fuel cells, coal gasification, etc.
The research tax credit is not just for big companies.
In the most recently published data, 16,624 taxpayers claimed a research tax credit and over half (8,775) were companies with less than $10 million in annual revenues (SOI Tax Stats – Corporation Research Credit)
It is not necessary to increase research spending in order to qualify.
Even companies that spend the same amount year after year on research and development can qualify for the credit.
The initial planning and design phases of a project are where most of the potential research and development work will occur. This is typically the point where various engineering and alternative material selections occur. Once planning is complete and construction begins, the chances for significant research and development taking place decrease. However, if an obstacle is encountered during the construction phase that requires additional research and planning, these new activities could still qualify for the credit.
We can help
If you think the research tax credit might apply to your company, contact your Elliott Davis tax advisor for more information.