Innovation, Growth and New Tax Incentive Opportunities for Material Handlers/Harness Manuf.
By Tracy Lustyan, alliantgroup Managing Director
As a result of new technologies and expanding global supply chains, the material handling and logistics market has experienced rapid growth in recent years. And considering the accelerated pace at which automated capabilities and other advanced technologies such as AI, loT and RFID are being adopted by material handlers and the manufacturing sector, projections show that we can expect to see even further growth from the material handling market in the coming years.
According to a report released last year by Global Marketing Insights, the material handling market is expected to exceed $190 billion by 2024. The same report also projects that the robotics segment in the material handling equipment market will see significant CAGR of over 8% to reach over $20 billion by 2024 as a result of the demand for high-performance robotics systems across a number of industry verticals.
Clearly, the numbers point to a booming industry that is being driven forward by innovation and technological progress. It is also for these very reasons that material handlers qualify for a valuable opportunity that could further accelerate the growth of their industry – the Research and Development (R&D) Tax Credit.
The R&D Tax Credit: Rewarding Technical Labor and Technological Investment
Originally introduced in 1981, the R&D Tax Credit has actually been around for almost four decades. However, if this is the first time you have heard of the credit (or the first time you have heard of material handlers being eligible for the credit) there are a number of good reasons companies self-censor and fail to explore their potential eligibility. In my experience, they namely relate to what people think of when they hear the term “research and development” and how it is actually defined by an evolving and expanding tax credit.
In the decades following its inception, the R&D Tax Credit has become much more taxpayer-friendly over the years due to new laws, regulations and judicial rulings. No longer is the credit just for companies that perform laboratory research, nor is it just for companies that have created products that are “new to the world.” The credit has been greatly expanded over the years and now rewards companies that are performing the technical activities that are associated with developing and enhancing industrial processes. For hiring technical labor, developing new (or improving upon existing) technology or enhancing the efficiency of industrial processes, material handlers can receive a substantial tax benefit through the R&D Tax Credit.
Through the various expansions made to the credit over the years, our policymakers have sought to encourage companies to keep production and distribution in the United States. Specifically, this credit rewards businesses that use American components in their products or hire American contractors to handle the fabrication, controls and automation of material handling systems. Additionally, the R&D Tax Credit is now permanentand one of the largest incentives offered at the federal level. Many states now offer their own versions of the federal credit as well.
To show the value that this credit can potentially offer, let’s look at a few real-world examples.
One conveyor systems solutions provider received over $1 million in federal and state credits for designing a heavy-weight conveyor belt system for a frac sand mining operation. This company tested various conveyor belt designs and also evaluated different substances to build the conveyor belt itself (such as Kevlar, rubber or polyvinyl chloride).
Another material handling company received $596,000 in federal and state R&D credits for designing improvements to an existing industrial system. This company determined the optimal layout for the automated system by testing different designs and response times. They redesigned existing components to ensure compatibility with the improved system and rewired the communication system.
While these examples are certainly high end credits results, and the amount of credits received will vary depending upon a number of different variables (wages, supply costs, the amount of qualifying activities, etc.), they do show the value that is potentially on the table for qualifying material handling companies.
Businesses in the material handling industry conduct a broad range of everyday projects and activities that qualify for the R&D Tax Credit. Here are a few that have traditionally qualified material handlers in the past:
- Developing, designing, programming, manufacturing, testing or fabricating equipment or material handling systems
- Performing retrofits or other system modernizations
- Developing or programming guiding systems software for automatic guided vehicle systems (AVGS) or automated storage / retrieval systems (AS/RS)
- Designing, developing or programming robotic systems
- Developing logistics, order fulfillment or tracking software
- Manufacturing or integrating motion controls or motor systems
- Developing overhead material handling solutions (i.e. cranes, hoists, monorails)
Explore Your Options
Given the spread of new technologies and automated systems within their industry, and considering the technical labor that is needed to implement these systems and their various components, material handlers have become among the best candidates for this valuable tax incentive opportunity.
If your company has not already done so, I would highly encourage you to at least explore your options when it comes to the R&D Tax Credit. This could be perhaps one of the best opportunities to add value and grow your business.
If you would like to learn more about how the R&D Tax Credit is driving American business and to see if your company qualifies, go to our website at www.alliantgroup.comand click on Services.