Ohio Research and Development Tax Credit: Manufacturing Study

Narrative

In 2022, a precision metal components manufacturer based in Ohio partnered with Engineered Tax Services (ETS) to identify and document federal and state R&D tax credit opportunities. The company, founded in 2015, specializes in high-precision machining and in-house anodizing, combining advanced manufacturing technologies with traditional craftsmanship to deliver innovative solutions.

The company’s R&D activities focused on developing new products and manufacturing processes, improving existing products, and enhancing manufacturing efficiency. Their work involved experimental projects to achieve maximum functionality and performance through iterative testing and prototyping.

Objective

The goal was to identify and document qualifying research activities and associated expenses to maximize federal and state R&D tax credits. ETS aimed to:

• Calculate Qualified Research Expenditures (QREs) for wages, supplies, and process improvements
• Optimize credits under the Alternative Simplified Credit (ASC) method
• Apply the Four-Part Test to validate eligible projects

Methodology

ETS employed a detailed, engineering-based approach, which included:

1. Technical Analysis: Conducting thorough reviews of research activities and experimental processes
2. Employee Interviews: Gathering data on time allocation to qualified research activities
3. Documentation Review: Examining research documentation and project costs
4. Credit Calculation: Computing credits using the Alternative Simplified Credit method

Qualified Research Expenditure Allocation

Qualifying Wages

Total Amount: $4,606,876 Percentage of Total QREs: 100%

Qualifying wages identified included:

• Engineering and design activities
• Prototyping and testing
• Direct supervision of research activities
• Manufacturing process improvements

Summary

The R&D tax credit study for this precision manufacturing company enabled them to claim $225,040 in federal R&D tax credits and $63,532 in Ohio state R&D tax credits for 2022. The study documented $4,606,876 in qualified research expenses, demonstrating how manufacturing innovators can leverage tax incentives to fuel growth and innovation in advanced manufacturing processes.