Sales Engineers in Manufacturing Are a Best-Kept Secret for R&D Tax Credit
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Industrial manufacturers that employ technical sales engineers might be unaware they can take advantage of the R&D Tax Credit.
A sales engineer sells technologically and scientifically advanced products and services for which extensive knowledge of related processes and applications is necessary. Think diagnostic medical equipment, industrial machinery and engineering design services
Manufacturers often don’t realize they are eligible for the R&D Tax Credit, much less that their technical sales professionals might be. While the phrase “research and development” conjures images of white-coated lab technicians, the reality is much more broadly applicable.
The R&D Tax Credit may apply to employees engaged in, directly supervising or directly supporting qualified research, as defined by the IRS.
The work of a sales engineer will typically fall into the last category, directly supporting qualified research.
What Counts as R&D?
To qualify for R&D Tax Credits, your company must be developing or improving a product or process. Your work should involve the hard sciences (engineering, computer science, biology, etc.). There must also be some uncertainty around whether a product will work or how it will work, and an iterative process of experimentation should be followed to work through that uncertainty. Additionally, the spend included in the credit is limited to work performed in the United States.
According to the U.S. Bureau of Labor Statistics, sales engineers are increasingly involved in market research and the modification of products to meet customers’ specific needs. Because of their extensive field experience, sales engineers often work with research and development departments to identify needs and develop new products.
Consider this typical scenario: A customer tells his sales engineer that he would like to see a new feature added to one of the products they’ve purchased. The sales engineer brings this feedback to her company’s R&D design team during their weekly meeting. The R&D design team works with the sales engineer to create a new product line that incorporates the customer’s requested feature.
In this example, the sales engineer was directly involved in supporting the R&D team’s research and development activities.
Formalize Your Process
Formalizing a process to integrate sales engineers into your R&D process simplifies the process of claiming the credit and creates a documentation trail or “nexus” which helps support their involvement. The tax credit can bring lucrative savings, and it requires contemporaneous documentation of time spent on R&D-related activities.
According to the IRS, payroll records, job descriptions, performance evaluations, calendars and appointment books are good sources of information. The goal is to determine what employees did and how much time they spent doing it.
Summary: Sales Engineers
Many manufacturing companies don’t realize they can take advantage of the R&D Tax Credit. In fact, sales engineers often qualify based on their documented involvement in “supporting qualified research.”
An R&D Tax Credit expert can help you determine which of your employees qualify, as well as which job-related activities apply.