Maritime and Boating R&D Tax Credit Benefits for Businesses

Maritime & Boating and the R&D Tax Credit

Small businesses in the maritime and boating sector can significantly benefit from the Research and Development tax credit by offsetting costs associated with innovating new hull designs, propulsion systems, production techniques, or even eco-friendly solutions. This credit directly reduces their tax liability, freeing up capital for further development. Crucially, the R&D payroll tax offset for startups allows eligible businesses—particularly those not yet profitable—to apply the R&D credit against their payroll tax obligations, providing immediate cash flow relief to cover essential employee salaries and foster continued innovation.

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Founded in 1984 by J.W. Norris as Reed & Co., Swanson Reed has grown to become one of the world’s largest firms specializing in Research and Development (R&S) tax credit consulting. We boast numerous publications. Our AI software, TaxTrex, is a state-of-the-art AI language model capable of preparing R&D tax credit claims in just 90 minutes. Our R&D credit audit insurance policy, creditARMOR, is one of the most cost-effective audit management products on the market.

If you have any questions or need further assistance, please call or email our CEO, Damian Smyth, at (000) 000-0000. Feel free to book a short conference call with one of our national R&D tax credit specialists at a time convenient for you.

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Case Study: Maritime and Nautical Sector

Business Scenario

This case study exemplifies the application of key legislative requirements for eligible R&D activities, applied to relevant activities in the maritime and nautical sector.

Carter Marine Group (CMG) specializes in marine infrastructure projects. In 2013, the company was approached by a client to create a permanent pier in a high-traffic import and export area.

CMG undertook R&D activities to meet the client’s request, with the main business objective of designing and developing a permanent pier to assist in the import and export of products in the oil and gas sector.

To qualify for the Research and Experimentation Tax Credit, CMG had to ensure its “qualified research” met four main criteria, known and developed by Congress as the Four-Part Test. After a self-assessment, CMG declared the following experiments as R&D work.

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CMG Eligible R&D Activities

Design and development of a series of prototypes to achieve technical objectives (permanent pier design).

The hypothesis for this activity stated that CMG could design a permanent pier in a high-traffic area to support oil and gas industry imports/exports.

After conducting theoretical design experiments, CMG concluded that such a design was feasible but needed to be prototyped and fully tested to prove the hypothesis.

Testing and data analysis to achieve reproducible results to a satisfactory standard (development and testing of permanent pier prototype).

The hypothesis for this phase of the R&D experiment was that CMG could develop and test the pier design to prove it could be permanently installed to help the organization achieve its project goals.

CMG concluded that the theoretical findings of the design phase could be realized through prototype development and related testing. CMG declared that the new knowledge generated would be used for further design and development iterations and additional field testing.

Background research to assess current knowledge gaps and determine feasibility (background research for permanent pier).

CMG conducted the following R&D activities during this phase of its project:

Literature search and review
Initial discussions with marine engineers to discuss project feasibility
Review of existing drawings
Consultation with industry professionals and potential clients to determine the level of interest and commercial viability of such a project
Preliminary review of equipment and resources regarding capacity, performance, and suitability for the project
Consultation with key suppliers of components/parts/assemblies to determine factors they considered important in the design and to understand how the design should be structured accordingly

The activities conducted during the background research were necessary because they helped identify the key elements of the research project, thus qualifying as R&D work.

Ongoing analysis of customer or user feedback to improve prototype design (Permanent pier feedback R&D).

CMG’s eligible R&D activities for this phase of the project included:

Continuous analysis and testing to improve project efficiency and safety.
Ongoing development and modification to interpret experimental results and draw conclusions that served as starting points for the development of new hypotheses.
Commercial analysis and functionality review.

These activities were necessary to evaluate the performance capabilities of the new design in the field and to improve any defects in the design.

Live Webinar: The R&D Tax Credit in the Maritime and Boating Sector

Duration: 60 Minutes

Learning objectives include:

An overview of R&D Tax Credits
Identifying Qualifying Research Activities
Defining the 4-Part Test
How to substantiate activities through documentation
Identifying Qualifying Research Expenses

Cost: FREE

Knowledge Level: Basic*

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Definition of Qualified Research

Qualified research consists of research with the intent to develop new or improved business components. A business component is defined as any product, process, technique, invention, formula, or software that the taxpayer intends to hold for sale, lease, license, or actual use in the taxpayer’s trade or business.

The Four-Part Test

Activities that are eligible for the R&D Credit are described in the “Four-Part Test” which must be met for the activity to qualify as R&D.

Permitted Purpose: The purpose of the activity or project must be to create new (or improve existing) functionality, performance, reliability, or quality of a business component.
Elimination of Uncertainty: The taxpayer must intend to discover information that would eliminate uncertainty regarding the development or improvement of the business component. Uncertainty exists if the information available to the taxpayer does not establish the capability of development or improvement, the method of development or improvement, or the appropriateness of the business component’s design.
Process of Experimentation: The taxpayer must undergo a systematic process designed to evaluate one or more alternatives to achieve a result where the capability or method of achieving that result, or the appropriate design of that result, is uncertain at the beginning of the taxpayer’s research activities.
Technological Nature: The process of experimentation used to discover information must fundamentally rely on principles of the hard sciences such as physical or biological sciences, chemistry, engineering, or computer science.

What specific records and documentation did CMG keep?

Similar to any tax credit or deduction, CMG had to keep business records outlining what it did in its R&D activities, including experimental activities and documents to prove that the work was carried out systematically.

CMG kept the following documentation:

Literature review
Project plans
Photographs
Progress reports
Test results and analysis
Customer feedback
Field test results

By having these records on file, CMG confirmed it was “compliance ready,” meaning that if it were audited, it could present documentation to show the progression of its R&D work, ultimately proving its eligibility for R&D.