R&D Tax Credits Helping the Water Treatment Industry Grow with the U.S. Population

R&D Tax Credits Helping the Water Treatment Industry Grow with the U.S. Population

Posted by William Mehi on 04.16.18

With the growth of U.S. cities and increasing population, the water treatment industry is relied on heavily for providing clean water and protecting our environment. Whether treating our water for drinking, or for waste, everyone depends on it. The fact that the simple turn of a faucet delivers clean, safe water to our homes is easily taken for granted thanks to the water treatment facilities and water treatment scientists making sure that the water you and your family use is safe and readily available. Water treatment companies use methods such as filtration, distillation and chlorination to ensure that waterborne bacteria and parasites do not cause any outbreaks of disease in the United States. In addition to the water needed for drinking, communities use much larger amounts of clean water in other applications such as household uses like cleaning and cooking, agricultural irrigation and recreation. Consequently, the quality of our freshwater supply is important for virtually every aspect of our lives.

The water treatment industry is pushing to constantly improve or invent tools and processes to treat our water to keep up with the growing population. Testing & developing new fixtures, filters, pumps and chemicals are just a few activities performed everyday, requiring time and money, which is where the federal R&D tax credit can help. The R&D (research and development) credit was designed to help businesses grow by providing credits toward any expenses that helped improve a product or process. It’s important to know that R&D does not just apply to inventions, but rather encompasses the design, development or improvement of products, processes, techniques, formulas or software.  A broad range of common water treatment practices will qualify for the credit under the Internal Revenue Code Section 41’s definition of R&D. The architects, engineers, designers and machinists employed by the water treatment industry often spend a substantial portion of their time developing new and innovative designs and processes in an effort to remain competitive.  This continuous advancement of technologies provides plenty of opportunities for water treatment companies to take advantage of the R&D tax incentives.

Qualifying for R&D Credits

The federal government implemented the Research and Experimentation tax credits in 1981 to create jobs and spur technology in the U.S., also known as R&D tax credits. The program was meant to be a temporary measure to give the economy a boost, and since has been extended by Congress more than a dozen times until the Pro­tecting Americans from Tax Hikes (PATH) Act of 2015 made the R&D tax credit permanent. 

Qualified research must meet the following four criteria:

  • New or improved business component
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation 

Watch this video: How to Qualify for R&D Tax Credits: The Four-Part Test

What kind of activities qualify for the credit?

Qualifying research activities are those performed to make a product or process more efficient, faster, cheaper, or cleaner. The product or process involved must be technological in nature, based upon physical science, and resolve an uncertainty by testing alternative solutions in an experimental process. The credit is available to taxpayers who incur qualified research expenses (QREs) for research activities conducted within the U.S. These expenses can include wages related to performing a qualified service, supplies directly linked to qualified research activities and contract research for payments to third-party contractors that meet the same qualification requirements for wages.

Some activities that may qualify for R&D credits are:

  • Design functions directed at improving performance, reliability, quality, safety, and costs
  • Environmental impact studies (Using EPA guidelines)
  • Design for LEED/green initiatives
  • Performing CAD modeling
  • Building information modeling (BIM) for sub-system coordination
  • Improving or determining alternative heating and cooling systems
  • Conducting energy efficiency research
  • Evaluating individual components of contamination and determine causes and effects
  • Inventing new and improved Filtration Systems
  • Developing new Water Softeners
  • Inventing new and improved Distillation Systems 
  • Developing faster ways of disinfecting 

The water treatment industry not only helps keep our water safe for use and drink, but also helps to keep our environment safe and clean. As technology improves, ongoing research and development is necessary to keep up with our growing cities for continuous improvements of our water quality.  

Request a free assessment to determine qualifying R&D tax credit eligibility.

If your company operates in the water treatment industry and performs any of the previously mentioned qualifying activities, there is a good chance that you would benefit from the R&D credit. The federal government awards billions of dollars in R&D credits every year, and if your company is not considering the potential of the R&D credit, you could be missing out on your share of these significant tax benefits. Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.

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