Industry Spotlight

R&D Tax Credit for RV and Marine Industries

By July 26, 2021
Manufacturing an innovative RV part - R&D Tax Credits

The RV and Marine Industries are booming. Due to travel restrictions from the ongoing COVID-19 pandemic, many Americans opted to change their vacation plans. The last two years have seen an increase in Americans deciding to bring their vacation plans home instead of travelling abroad. Additionally, many employees have been offered the opportunity to continue remote working, allowing workers to travel cross-country while also maintaining their existing jobs. Over 1 million Americans have opted to live full time in recreational vehicles (“RVs”), with over 11% of households in the US owning at least 1 RV. 

 

The Marine and RV markets have seen explosive growth since early 2020 and it has continued to expand in 2021. Americans quickly realized RVs could offer a safe and comfortable opportunity to travel and vacation in a COVID environment. More importantly, some statistics indicate the global RV market revenue is expected to grow over 7% by the year 2025.

 

Manufacturers and others involved in bringing these products to market incur substantial research and development (“R&D”) costs along the way. To help mitigate and reduce these costs, companies can apply for the R&D Tax Credit. 

 

Research Tax Credit 

The R&D Tax Credit has been available since the 1980s. It provides federal credits of approximately 9% to 20% of total qualifying research costs. Today, most of the states also have a similar credit available, allowing for an additional 5% to 10% on average of total qualifying R&D costs. 

 

To qualify for the credit, a taxpayer must meet the 4-Part Test established by the Internal Revenue Code:

  1. New or improved business component (e.g., product, process, computer software, technique, etc.) for which the activity’s purpose is to develop or improve upon it in terms of function, performance, reliability or quality.
  2. The research activity is intent on eliminating a technical uncertainty when developing or improving upon a business component.
  3. A systematic process of experimentation must be followed to eliminate the technical uncertainty through the evaluation of alternative solutions. This includes simulations, modelling, laboratory experiments, field studies, or pilot model prototyping. 
  4. The research activity must be technological in nature and be based on the principles of a hard science such as mechanical engineering, materials, or electrical engineering.

Examples of Qualifying Research Activities

Marine companies may be able to claim the credit for activities related to designing and building a new marine model, including the various components related to the boat. For example, if a company is experimenting with new manufacturing methodologies to produce various interior or exterior components, or designing an improved propeller or engine design, the company may be eligible for R&D credits on those associated expenses. Companies in this industry typically rely upon engineering studies, such as center of gravity or hydrodynamic studies, to ensure the final design achieves performance requirements. Additionally, the process often may require several design iterations or other experimentation to arrive at the most appropriate final design. 

 

Like marine companies, RV companies also face similar challenges. An RV company may also undertake R&D to develop and design new or improved interior or exterior RV components, while also balancing the challenges related to ensuring the final design does not exceed DOT weight or width restrictions and that the final design is capable of enduring all of the bumps in the terrain the rig may experience along the way. 

 

The DST Advantage

DST Advisory Group regularly works with and assists taxpayers in these industries in obtaining and claiming these tax benefits. With its team of industry-leading Tax Engineers, Legal experts, and Financial experts, DST offers a holistic approach to R&D Tax credits to its RV and Marine clients. The R&D Tax Credit allows DST’s RV and Marine clients to stay ahead of the competition by increasing the bottom line, decreasing tax liability, and identifying lucrative benefits the Company can reinvest in itself to further development and innovation. Connect with one of our Tax Engineers today!