Theme Park R&D Tax Credit Benefits for Businesses

Theme Parks and the R&D Tax Credit

Small businesses in the theme park sector can leverage the Research and Development Tax Credit to recover costs for innovative projects, such as developing new attractions, improving visitor experience, or increasing operational efficiency. Eligible R&D expenses, including wages, supplies, and contractor costs, can generate significant tax savings. Additionally, startups may qualify for the R&D tax credit payroll tax offset, allowing them to apply up to $500,000 per year against payroll taxes, alleviating pressure on cash flow. This incentive helps offset personnel costs while financing further innovation, making it easier for small theme park businesses to grow and compete in a dynamic industry.

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Founded in 1984 by J.W. Norris under the name 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 artificial intelligence software, TaxTrex, is a cutting-edge AI language model capable of preparing R&D tax credit claims in just 90 minutes. Our audit insurance policy for R&D credits, creditARMOR, is one of the most convenient audit management products on the market.

If you have questions or need further assistance, call or send an email to 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: Theme Park

Business Scenario

This case study exemplifies the application of essential legislative requirements for eligible R&D activities, applied to relevant activities in the theme park sector.

Waveland is a popular water park offering engaging experiences for visitors, designed for both domestic and international guests. Waveland constantly adds new and exciting activities for its customers, thus engaging in frequent R&D work.

In 2012, Waveland initiated an R&D project with the primary business objective of developing an innovative technique to allow for the effective and efficient preparation, installation, and operation of the TwistTunnel water slide.

After establishing that the design and implementation of the TwistTunnel were innovative due to the unique design of the water slide, Waveland identified specific activities that would qualify for the Research and Experimentation Tax Credit. To be eligible, Waveland had to ensure that its “qualified research” met four main criteria, known and developed by Congress as the Four-Part Test. Waveland recorded the following experimental activities.

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Waveland’s Eligible R&D Activities

Design and development of a series of prototypes to achieve technical objectives (design of the TwistTunnel installation method).

Waveland’s hypothesis for this R&D activity stated:

“It is feasible to design and develop an innovative technique to allow for the effective and efficient preparation, installation, and operation of the TwistTunnel water slide.”

During this phase, Waveland designed and developed the foundations and infrastructure for the TwistTunnel implementation, the tube, the trapdoor, and maintenance access points. Waveland also prepared the installation site and the equipment necessary for the procedure.

Testing and data analysis to achieve reproducible results to a satisfactory standard and to test the hypothesis (testing of the TwistTunnel installation method).

The hypothesis for this R&D experiment was that the theoretical conclusions of the design phase could be realized through comprehensive analysis and valid testing.

Waveland concluded that the results were overall positive and effectively confirmed the hypothesis. Waveland confirmed that it would use the new knowledge generated for further research and development work and would apply the project concepts to current and future jobs.

Background research to assess current knowledge gaps and determine feasibility (background research for the TwistTunnel installation method).

Waveland’s background research included researching and reviewing literature, consulting with industry professionals and potential clients, and a preliminary review of equipment and resources.

These specific research activities contributed to determining the fundamental 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 of the TwistTunnel installation method).

Waveland conducted the following qualified research:

Continuous analysis and testing to improve the efficiency and safety of the design
Continuous development and modification to interpret experimental results and draw conclusions that served as a starting point for the development of new hypotheses
Commercial analysis and functionality review

These R&D experiments were considered “qualified research” because they 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 Theme Parks and Amusement Resorts 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 Qualified 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 eligible for the R&D Credit are described in the “Four-Part Test,” which must be satisfied 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 follow a systematic process designed to evaluate one or more alternatives to achieve a result where the capability or method to achieve 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 Waveland keep?

Similar to any tax credit or deduction, Waveland had to keep documents outlining what it did in its R&D activities, including experimental activities and business records to prove that the work took place in a systematic manner. Waveland kept the following documentation:

Project logs / lab notes
Conceptual sketches
Design drawings
Photographs / videos of various construction / assembly / testing phases
Prototypes
Test protocols
Test analysis results or records / trials
Tax invoices

By having these documents on file, Waveland confirmed it was “compliance ready” — meaning that if it were audited, it could present documentation to show the progression of its R&D activity, thus demonstrating its eligibility for R&D.