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JULY 2016
Charles R. Goulding,
Attorney/CPA, is the
President of R&D Tax
Savers, an
interdisciplinary tax
and engineering firm
that specializes R&D
tax credits.
Lauren Chin is a Tax
Analyst with R&D Tax
Savers.
Raymond Kumar,
CPA, is a Tax Manager
with R&D Tax Savers.
www.rdtaxsavers.com
The R&D Tax Credit Aspects of Smart Cities
Charles R. Goulding Lauren Chin, and Raymond Kumar
Smart cities are an investment
towards our future and provide many
benefits to current and future residents.
Urban centers are continually growing and
the utilization of smart technology will
allow cities to further advance. With the
development of this type of technology
there are many opportunities available for
the improvement and growth of smart
cities.
The Research & Development Tax Credit
Enacted in 1981, the Federal
Research and Development (R&D) Tax
Credit allows a credit of up to 13 percent of
eligible spending for new and improved
products and processes. Qualified research
must meet the following four criteria:
• New or improved products,
processes, or software
• Technological in nature
• Elimination of uncertainty
• Process of experimentation
Eligible costs include employee
wages, cost of supplies, cost of testing,
contract research expenses, and costs
associated with developing a patent. On
December 18, 2015 President Obama
signed the bill making the R&D Tax Credit
permanent. Beginning in 2016, the R&D
credit can be used to offset Alternative
Minimum tax and startup businesses can
utilize the credit against $250,000 per year
in payroll taxes.
Smart City Growth
It is estimated that global
investments in smart city technology will
likely increase by almost $19 billion to a
total of $27.5 billion by 2023i. Research has
indicated that populations in metropolitan
areas will only develop in the future with a
growth of 6.5 billion individuals by 2050. In
order to support a large amount of people
in a dense environment, improvements to
cities have to be conducted in the present.
Many investors and venture
capitalists have shown that they are
interested in the idea of a future with smart
cities and are willing to contribute money
towards building better cities. Some
popular investors include Google Ventures,
BMW i Ventures and Motorola Solutions
Venture Capital. This funding allows for the
development of innovative technology and
opens up the door for many startup companies.
R&D Tax Credits provide excellent opportunities for innovations in Smart
Cities.
IBM & Smarter Cities
IBM has introduced a Smarter Cities Challenge
program where the company chose 16 cities around the
world that were in need of assistance to rebuild and
create a better city. IBM professionals focus on helping
these cities create a plan to resolve issues in relation to
unemployment, transportation and public safety,
healthcare, revenue, social services and public works. ii
Part of the process consists of utilizing the IBM
Watson Analytics Professional Edition tool to gather
city data and analyze the collected information. IBM
consultants then meet with officials, residents,
businesses and not-for-profits in order to gain an
insight on everyone’s perspectives and discuss what the
best practices are to improve their city. After all of the
factors are considered, consultants make suggestions as
to what are the best methods to redevelop a city and
solve current issues.
Sidewalk Labs
Sidewalk Labs, a subsidiary of Alphabet Inc., has
future plans to reestablish cities with new housing
retail and office buildings. The company would work in
collaboration with struggling cities to improve certain
aspects of the municipality by implementing new
technology. One of the most important aspects during
planning is for urban planners and technology
representatives to understand each other’s perspectives
in order to collaborate and develop a functional city.
The company is looking to achieve
independence from certain municipal regulations, such as design restrictions regarding parking or street plans.
A large challenge Sidewalk Labs would have to get past
is obtaining the large amount of money that is needed
to create new developments, which may also take a long
time to acquire.
Daniel Doctoroff, the CEO of Sidewalk Labs,
strongly believes that utilizing the right type of smart
technology along with communication is significant in
creating a successful smart city. Doctoroff is aware that
there have been previous attempts at building smart
cities that have failed, which is why it is important to
analyze every aspect. Doctoroff has suggested certain
plans in the past that have failed, such as congestion
pricing charges for drivers in New York City.
Technology
There are certain types of technology that
create Smart Cities including fiber optics, cloud
computing, traffic management and smart sensors.
Gig City
A Gig Cityiii is known as a place where ultra high
speed internet connections exist to provide individuals
with the quickest method to obtain information. There
has been an increase in the amount of cities offering
fiber optic connections. Fiber optic internet connections
provide people with the advantage of having high speed
internet at a lower price.
Traffic Management
Traffic managementiv technology assists drivers
by relaying travel information including traffic
conditions, alternate routes and much more. Not only
does technology maintain traffic congestion, but it
provides safety to drivers as well. There is specific
traffic management technology, such as LED screens
dedicated to changing the speed limit or real time
information based on certain events.
Cloud Computing
Cloud computing is another form of technology
that offers many benefits to cities. One of the most
significant aspects of adapting to cloud technology is
that it makes a vast amount of information accessible to
users. A large amount of data can be backed up on the
cloud and can be obtained quickly and easily. By
implementing this technology, cities can store large
amounts of important information to keep track of
certain activities.
Smart Sensors
Smart sensorsv are another component that can
assist in developing a better city for the future. Several
U.S. companies have partnered with China to invest in
sensor networks that will assist in creating a smarter
city. The smart sensors would be a part of a system that
captures data to monitor issues including traffic and air
quality.
Sensity Systems Inc. is a company who is
interested in creating a system created if sensors,
wireless communication and computing devices to
monitor these issues.vi These smart technology devices
will be placed on light poles to detect certain aspects
such as temperature, motion, light and other various
elements in the area.vii
E-Government Initiatives
E-Government initiatives have the power to
supply users with information based on advanced
technological predictions. With the use of technology,
such as smart grids, interactive devices and smart
sensors, large amounts of data can be collected and
analyzed in real time. Utilizing this information allows
municipalities to provide a safer and more connected
environment for residents to live in.
Detroit, Michigan
Detroit has introduced a smart cities
demonstration project, which showcases the different
types of smart technology that can be utilized to
reconstruct a better city. Implementation of certain
technology can help cities become safer and healthier.
There are mobile applications that residents can use to
monitor and control certain activities. The DTE Insight
app allows users to examine the efficiency of their
energy usage. viii
Itron is a publicly traded smart grid, smart gas
and smart water company has developed technology for
solutions on improving energy and water functions. The
company developed the Itron City app which gives
residents a platform to report any issues that occur in
Detroit. Issues can include crime, outages, potholes and
water leaks. Reporting problems allow situations to be
resolved quicker and assists in maintaining a city’s
environment.
Itron partnered with ClipperCreek Inc. to install
electric vehicle charging stationsix that contain Wi-Fi
and a smart meter. The technology included in the
station gives drivers the ability to receive information
about potential charging estimates right on their
phones.
Intelligent streetlights serve the purpose to
monitor and control the lighting fixtures. These
streetlights allow Detroit to reduce the amount of
energy that is consumed when it isn’t required. Sensors
would be implemented to detect if there is movement in
the area in order to determine how much lighting is
needed.
Hawaii’s Online Renewable Energy Permitting Tools
Online tools were created for developers and
investors in Hawaii who intend to develop future clean
energy projects. Tools available to users include
permitting, financing, incentive, citing and utility
resources. Specifically, individuals have the availability
of the Renewable EnerGIS Map and Renewable Energy
Permitting Wizard tools.
The Renewable EnerGIS Map is a Geographic
Information System (GIS) system that displays
renewable energy resources and where they are
specifically located around Hawaii.x The tool
distinguishes site permitting information as well. Using
GIS maps allows users to analyze and determine what
potential there is for investing in certain renewable
energy resources. The Renewable Energy Permitting
Wizard allows individuals to search what particular
permits are needed if they were to continue further
pursuing an energy project.
These online tools have shown that they are
beneficial to the state of Hawaii by saving time and
creating a more efficient renewable energy permit and
development process for stakeholders and investors.
Overall, these systems assist in the development of
renewable energy projects that will benefit Hawaii’s
residents and their environment.
Availability of these tools and renewable energy
information allows for increased transparency by giving
individuals a vast amount of resources to determine
what specific type of project should be developed.
City 24/7 Smart Screen
Cisco Internet Business Solutions Group (IBSG)
and City 24/7 worked with New York City to implement
interactive smart screens around the city. The City 24/7
Smart Screens have replaced deserted and outdated
structures, such as payphones.xi The interactive screens
offer touch, voice and audio technology to users who
are able to search for information about the city in
relation to certain local services, events, security alerts
and real time data. These smart screens offer city
residents and tourists a new way to experience the city
by learning new information through an interactive
system.
The goal of implementing this type of
technology is to inform, protect and revitalize New York
City to become a smarter city. City 24/7 Smart Screens
provide numerous benefits to the City of New York.
Sensors have the ability to alert police and fire
department personnel of certain emergencies and
where they are needed, as well as, detecting harmful
chemical, biohazard and environmental conditions in
the surrounding area. The economy can improve by
providing individuals with information about nearby
areas, such as restaurants and stores and their current
promotions. The City 24/7 Smart Screens act not only
as a tool to assist individuals with obtaining
information, but alerting the city of potential hazards
and emergency situations as well.
Zoning
There are different types of zoning that occurs
in cities. Incentive, Euclidian, Overlay, Floating and
Performance Zoning are all different methods of
planning that can occur when designing or improving a
city.xii
Euclidian Zoning: is the most used of all the
zoning practices and regulates where
residential, commercial and industrial locations
should be. There are certain regulations that
pertain to each area which mandate a building’s
size, shape, setbacks, height restrictions and
density of the development.
Overlay Zoning: gives a certain district more
flexibility to develop by introducing additional
zoning requirements to an existing district. For
example, extra zoning regulations may be
allowed in a historic district if there are conflicts
with preserving the historic character of the
area.
Floating Zones: contain the same requirements as other zoning areas, but has no particular
designation on a zoning map. Once a developer
has an approved project in the floating zone, it is
added to the zoning map.
Performance Zoning: has a set of performance
standards for building and land use in the area
that developers should meet. Some specific
standards consist of design criteria,
environmental building standards and impacts
on the surrounding area.
Incentive Zoning: is beneficial for developers due to its process of offering incentives for a
developer to build in the return for a desired
public amenity. This type of zoning is especially
beneficial to developers who are interested in
moving towards building a smarter city.
Expedited Commercial Permit Process
Within zoning ordinances, there are certain
processes that can be expedited to develop a certain
project. For example, there are expedited permit
processes that exist in several municipalities to make
the development process easier for owners.
In particular, Frederick County in Maryland offers owners the option of applying for an expedited
commercial permit process if no construction is
involved.xiii The process would consist of reviewing a
permit, approval and an inspection process. All of these
activities occur during a short amount of time, which
the city refers to a “while you wait visit,” compared to
the regular permitting process.
Certain guidelines still have to be followed, such
as the permit shouldn’t include any changes that isn’t
allowed by the Zoning Ordinance and doesn’t request
any exterior changes to the building on the site,
including parking alterations. This expedited permit
process offers developers of commercial properties the
benefit of a quick and easy process to improve or alter
their building.
Bernard Zyscovich
A well-known architect from Miami, Bernard
Zyscovich, created Plan Z whose concept is to provide a
safer and better transportation system in Miami. Plan Z
would lead to changes to the Rickenbacker Causeway to
make room for a new pathway. xiv The creation of this
new proposal was due to the high number of accidents
that occur near highways. According to data obtained
from the Florida Department of Highway Safety and
Motor Vehicles around 3 in every 10 crashes involving
cyclists occur in the Miami-Dade, Broward and Palm
Beach counties. Zyscovich’s proposed plan has the
potential to alleviate this issue. Zyscovich has the
intention of developing additional pathways to
accommodate bikers and pedestrians to make the state
of Florida safer and more environmentally friendly.
LIUSPI
Suffolk and Nassau County partnered together
to form the Long Island Unified Solar Permitting
Initiative (LIUSPI), which is beneficial to residents of
Long Island who are interested in solar installation.xv
The initiative includes the availability of the Solar
Energy System Fast Track Permit Application, which
decreases the amount of time and money individuals
spend when implementing solar projects. xvi
There are many advantages that are offered to
residents, such as lower application fees, a fast
application approval and no required surveys of a
resident’s property if it doesn’t relate to the solar
installation. Large incentives were offered to towns in
Long Island by the Long Island Power Authority (LIPA)
to utilize the LIUSPI process. LIPA provided the first 10
villages $5,000 and $15,000 to each town on Long
Island.
The use of solar power has increased over the
past few years and municipalities realize the
installation of solar panels can assist in creating a better
environment to live in. If cities continue providing
incentives to their residents, the use of solar power will
continue to grow.
Conclusion
There are many initiatives and resources
available to companies and developers who are
involved with developing smart cities. Smart Cities will
help areas around the world become a better place for
residents to live in. R&D tax credits are available to
companies who are involved with new developments in
technology for Smart Cities.
i “How Startups are Transforming the Smart City Movement.”
Jason Shueh. Government Technology. September 1, 2015. Accessed at: http://www.govtech.com/How-Startups-Are-Transforming-the-Smart-City-Movement.html ii “IBM Name 16 Municipalities as IBM Smarter Cities Challenge Gant Winners.” Ari Fishkind. IBM. May 12, 2015. Accessed at: http://www-03.ibm.com/press/us/en/pressrelease/46838.wss iii “Gig City Startups and R&D Tax Credits.” Charles R.
Goulding, Andrea Albanese and Andressa Bonafe. RDTS
Publishing. April 2014. Accessed at:
http://www.rdtaxsavers.com/articles/Gig-City-Startups-and-
Research-Development-Tax-Credits iv “”The R&D Tax Credit Aspects of Traffic Management
Technologies.” Charles R. Goulding, Andrea Albanese and
Michael Wilshere. RDTS Publishing. March 2016. Accessed at:
http://www.rdtaxsavers.com/articles/Traffic-Management v “R&D Credit Opportunity for Smart Sensors.” Charles R.
Goulding, Charles G. Goulding and Spencer Marr.Corporate
Business Taxation Monthly. July 2012. Accessed at:
http://www.rdtaxsavers.com/articles/Smart-Sensors
vi “The R&D Tax Aspects of LED Sensor Networks.”Charles R.
Goulding, Raymond Kumar and Andressa Bonafe. RDTS
Publishing. February 2014. Accessed at:
http://www.rdtaxsavers.com/articles/LED-Sensor-Networks vii “U.S. and Chinese Tech Firms Team Up on Sensor Networks for Smart Cities.” Don Clark. The Wall Street Journal. May 12, 2016. Accessed at: http://www.wsj.com/articles/u-s-and-chinese-tech-firms-team-up-on-sensor-networks-for-smart-cities-1463081921 viii “U.S. and Chinese Tech Firms Team Up on Sensor Networks for Smart Cities.” Don Clark. The Wall Street Journal. May 12, 2016. Accessed at: http://www.wsj.com/articles/u-s-and-chinese-tech-firms-team-up-on-sensor-networks-for-smart-cities-1463081921 ix “The R&D Tax Aspects of Energy Storage.” Charles R. Goulding, Jacob Goldman and Andressa Bonafe. RDTS Publishing. June 2015. Accessed at: http://www.rdtaxsavers.com/articles/Energy-Storage x “NASEO Best Practices Review: Streamlined Renewable Energy Permitting Initiatives. ” National Association of State Energy Officials. Accessed at: https://www.naseo.org/data/sites/1/documents/publications/NASEO-Best-Practices-Review--Streamlined-RE-Permitting-Initiatives.pdf xi “Transforming the City of New York.” Jeff Frazier and Tom Touchet. Cisco. 2012. Accessed at: http://www.cisco.com/c/dam/en_us/about/ac79/docs/ps/motm/City-24x7_PoV.pdf xii “Planning Tools for Hazard Mitigation and Climate Change Adaption.” Louisiana Resiliency Assistance Program. September 10, 2013. Accessed at: http://resiliency.lsu.edu/wp-content/uploads/2014/01/Print_final.pdf xiii Expedited Commercial Permit Process-No Construction.” Division of Planning and Permitting Frederick County, Maryland. January 4, 2016. Accessed at: https://frederickcountymd.gov/DocumentCenter/Home/View/19598 xiv “South Florida Roadways Not just Dangerous for Cars.” Phil Latxzman. Urban Health Solutions. January 28, 2015. Accessible at: http://urbanhs.com/category/smart-growth-partnership/ xv “The R&D Tax Aspects of Solar Photovoltaic Development.” Charles R. Goulding, Andrea Albanese and Andressa Bonafe. RDTS Publishing. August 2014. Accessed at: http://www.rdtaxsavers.com/articles/Photovoltaic-Developments xvi “Suffolk County and Nassau County Planning Commissions: Long Island Unified Solar Permitting Initiative.” Mia Colson. National Association of Regional Councils. Accessed at: http://narc.org/wp-content/uploads/Suffolk-County-and-Nassau-County-DOE-Case-Study.pdf
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