Mining R&D Tax Credit Benefits for Businesses

Mining and the R&S Tax Credit

Small businesses in the mining sector can benefit significantly from the R&D Tax Credit by offsetting costs related to the development of new extraction methods, equipment improvements, or the enhancement of environmental practices. For startups with little or no revenue, the R&D Tax Credit payroll offset allows them to apply the credit against payroll taxes — up to $500,000 annually — providing immediate cash flow relief. This helps reduce the financial burden of innovation and allows mining startups to reinvest in growth, technology, and talent during their high-spend early stages.

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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 specialist Research and Development (R&D) tax credit advisory firms. We boast numerous publications. Our AI software, TaxTrex, is a cutting-edge 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 that suits you.

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Case Study: Mining Sector

Business Scenario

Wino Incorporated (Wino) is a specialist in the field of wine cellar refrigeration. In 2012, Wino was approached by a winery to create a solution that would allow them to reduce operating cellar temperatures from 59℉ (15°C) to 54℉ (12°C).

A solution was devised to use cold liquid CO2 from a CO2 recovery plant, vaporizing the liquid and passing it through cooling units in the cellar to lower temperatures to 54℉ (12°C).

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

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Wino’s Eligible R&D Activities

Design and development of a series of prototypes to achieve technical objectives and prove the hypothesis (design development and initial testing of the solution to reduce cellar temperatures via a CO2 system).

The hypothesis for this phase of Wino’s R&D project questioned whether cellar temperatures could be reduced by 5℉ (approximately 2.8°C) through the use of CO2.

In an attempt to prove its hypothesis, Wino conducted the following R&D activities:

Practical design through in-depth analysis of potential issues
The system design was constantly refined over a period of months to improve system performance
Technical drawings and design calculations were updated as needed to incorporate changes and refinements
Implementation of the solution on-site for testing and further development

Wino proved that the system was a failure as too many variables outside of its control did not allow the system to operate consistently. With all these factors influencing performance, the system was too complicated for stable cellar operation.

Trials and data analysis to achieve reproducible results to a satisfactory standard and to test the hypothesis (testing and performance evaluation of the revised solution).

Although Wino failed to find a solution to lower the overall temperature in the cellar, it was still able to claim the credit for the following testing and evaluation activities as R&D:

A complete design change was necessary using CO2 as a conventional refrigerant to reduce the cellar temperature.
Redesign of the system as a standalone plant using two new compressors and liquid CO2 pump recirculation to larger evaporators in the cellars.
A new evaporator in each cellar was added to the existing evaporators.

Background research to assess current knowledge gaps and determine feasibility (background research for designing a solution to reduce cellar temperatures).

Wino’s background research focused on identifying problems, designing a potential solution using CO2 recovery tanks, and collaborating with the client on design development. Design development included:

Meetings with the client, presentation of typical designs, other system options, and commitment to provide refined designs.
Internal design development and creation of sketches and calculations.
Discussions with site operators on the practicality of the system.
Presentation of the design to the client for review and acceptance.

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

Ongoing analysis of customer or user feedback to improve prototype design (Feedback-based R&D for the cellar temperature reduction solution via a CO2 system).

Wino conducted the following activities during its analysis:

Development and modification to interpret experimental results/observations and draw conclusions that served as a starting point for developing new hypotheses; e.g., solutions to inefficiencies or observed problems
Evaluation of client feedback to improve system design
Client inspection upon completion of the construction phase
Validation of design inputs on the operation and commissioning of the new system

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

Live Webinar: R&D Tax Credit in the Mining 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*

Mining Sector R&D Tax Credit Training

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Definition of Qualified Research

Qualified research consists of research aimed at developing 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 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 undertake 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 the principles of hard sciences such as physical or biological sciences, chemistry, engineering, or computer science.

What specific records and documentation did Wino keep?

As with any tax credit or deduction, Wino had to keep business records describing what it did in its R&D activities, including experimental activities and documents to prove that the work proceeded in a systematic manner.

Wino kept the following documentation:

Project progress (e.g., meeting notes, minutes, emails, reports)
Conceptual sketches and technical drawings
Photographs of completed models
Test protocols
Results or logs of test analyses/trials
Tax invoices

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