The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayer’s business
- Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
- Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.
The New Entrants
Kohl’s operates 1,155 stores and is headquartered outside of Milwaukee, Wisconsin. JCPenney has 875 stores and is headquartered in Plano, Texas. JCPenney uses a lot of store within concepts such as Sephora and may be a potential candidate for a separate toy retailer category. Party City has 900 stores and is adept at changing merchandise to fit the occasion which may be ideal for branded toys where a current theme costume could be paired with the corresponding theme toy. Presumably many of the existing Toys ‘R’ Us buyers will be absorbed by the large retailers entering the market. A diagram presenting the new toy retail market is shown below.
STEM Toys
Initial Market Disruption
We would expect the toy market to be disrupted during the period that new entrants are establishing themselves and the existing Toys ‘R’ Us inventory is redistributed through the reverse logistics market.
Conclusion
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Charles R. Goulding and Lara Tomiko of R&D Tax Savers discuss the toy market.
Read more about the 3D printing of toys with open source resources in this work from Dr. Joshua Pearce and MyMiniFactory.