July 12, 2019
by Neil Shah, alliantgroup Director
Published in Modern Materials Handling

While innovation in the material handling sector will itself create growth, a powerful tax incentive can help companies become more agile by putting money back into the hands of the business.

The R&D Tax Credit, which is a dollar-for-dollar incentive that to date has helped U.S. businesses save $10 billion every year, was implemented in the late 1980s to encourage domestic corporate innovation.

Today, the credit is the government’s premier incentive to reward businesses that are innovating while keeping technical jobs in the U.S. In the last few years, various legislative changes, including the 2015 PATH Act, have not only made the credit permanent, but also widened the scope of the incentive.

For example, companies that have less than $50 million in gross receipts can now claim the incentive against their alternative minimum tax (AMT), making the credit more lucrative for smaller businesses. These are monies that businesses can put right back into their operations to become more competitive in their respective marketplace.

All in a Day’s Work

The daily tasks performed by businesses that work in the realm of material handling more than likely qualify for the R&D Tax Credit. Here are just a few:
  • Programming software for the automation components as well as back end systems for tracking and order fulfillment
  • Performing load calculations and materials supply calculations to ensure appropriate distribution of materials throughout a company’s system
  • Designing and evaluating the layout of the material handling system to meet the cycle times for the various processes
  • Identifying, designing and determining the appropriate placement of jack lifting points, access doors, belt guards and evaluating other pinch points to allow for access and maintenance of the conveyor system, packaging stations or other types of components in the automation line
  • Developing, designing, engineering, manufacturing, testing or fabrication of conveying equipment, washing equipment, crushing equipment and screening equipment used in conveyor systems and material handling systems
  • Implementing and validating conveyor systems or other material handling systems to increase efficiency, reduce energy consumption and improve distribution of materials for a given purpose
  • Programming or integrating controls for automatic guided vehicles (AGVs), automated storage/ retrieval systems (AS/RS), robotics, or motion control/ motor systems
  • Designing, engineering or fabricating pulleys, idlers or other accessories used by or incorporated into the conveying system including overhead solutions (cranes, hoists, monorails)

Recent regulatory changes have also expanded the type of supply costs that are eligible for the credit. Components and material costs consumed in the development of a first article delivered to customers now qualifies as an eligible supply cost. 
Businesses who have counted these supply costs have found an increase in their credit value that is two to ten times larger than their previous credits.

As new technologies that increase the speed and efficiency of automation and tracking are further integrated into the material handling sector, the opportunity for businesses to claim the R&D Credit will only increase.

The Payoffs of Innovating

For example, a material handling company with an annual revenue of $74.7 million was able to claim more than $1 million in federal and state credits for designing a heavy-weight conveyor belt system for a client’s frac sand mining operation, among other qualifying projects. The belt system was custom made, from the initial design to the testing of materials used for the belt itself (including Kevlar, rubber or polyvinyl chloride). The activities that went into the design, testing and integration of the conveyor belt system helped the company claim the credit, which went right back to the business.

A second company, a custom conveyance systems provider with an annual revenue of $253 million, received $2.7 million in federal and state credits for its qualifying projects, including a custom-built low profile conveyor channel frame that had specific length and angle requirements from the client.

The future of the material handling sector is limitless, and the amount of money being put towards the field is just one indicator of its upward trend. For example, total spending on logistics increased to $1.5 trillion in 2017, a 6.2% jump from the year before.

From radio frequency identification (RFID) to machine learning and artificial intelligence (AI), the technologies used to improve the process of order fulfillment is hitting its stride. 
Faster. More accurate. Increasingly reliable.

These are the expectations for material handling companies in the next decade and beyond. Expectations that certainly can be attained not only through the creation and implementation of new technologies, but that can be guaranteed with the help of leveraged tax incentives and credits.

Underused tax incentive could benefit material handling companies

Neil Shah is a Technical Director at alliantgroup, specializing in the architecture & engineering, construction/contracting and manufacturing industries. An engineer by trade, he has worked for a prestigious architecture & engineering firm, as well as Fortune 500 software and technology company. In his role at alliantgroup, Neil has worked with hundreds of small to mid-sized businesses and has helped claim over $250 million in credits and incentives.

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