With all the changes in hardware, Big Data monitoring, and new forms of both manufacture and repair of aircraft components, there is a lot of innovation going on in the MRO market. Yet many aerospace and MRO firms are not using the U.S. Internal Revenue Service’s tax credit for research and development, which is specifically aimed at encouraging and rewarding such investment, according to Glenn Kerrick, North American CEO of business consultancy Ayming.
Ayming R&D Tax Consultant Lauren Highsmith says there is plenty of MRO investment in Artificial Intelligence, new repair processes and how to fix new aircraft with new materials. “And lots of engineers design their own parts, companies build or customize automatic inspection systems, improve hangars with advanced technology and develop digital threads in manufacturing,” Highsmith adds.
All these kind of investments should be candidates for the R&D credit, but some companies do not claim it. Some are not aware of the tax benefit, others may not think they qualify for it and still others may see it as too onerous to figure out, apply for and perhaps be audited on.
“There is a misconception that the credit is all about scientists in lab coats, as in pharmaceuticals,” Highsmith notes. In fact, the credit is for spending on new products or processes driven by any kind of science or technology, as opposed to surveys or “gut feel,” she says.
The credit rewards constant or increasing investment in such advances and typically returns 5-10% of each dollar spent on staff, materials, equipment and other costs incurred for the advance. A company can go back three years in making its first credit claim. “And some states also offer R&D credits,” Kerrick points out.
Experts at companies like Ayming can ease the first-time credit claims, which are always the hardest to put together. And new rules from IRS have made some claims less onerous. If an MRO has $10 million or more in assets and accumulates R&D spending as a cost center in its regular accounts, IRS will allow a credit for 95% of employee R&D costs and 10% for managers’ costs without auditing the specific projects for which credits are claimed. In other cases, “we shepherd the company through the audit process,” Highsmith says.
The IRS has allocated about $15 billion a year for these credits for all corporate filers through 2026. Is your MRO or maintenance department receiving its fair share?