8.2% of Georgia Manufacturers are Missing Out on Cash Saving R&D Tax Credits

Full results of the 2012 Georgia Manufacturing Survey by Habif, Arogeti & Wynne LLP, Georgia Institute of Technology, Kennesaw State University, and the Georgia Department of Labor, are now available.

Three key findings emerged from the survey, conducted every two years.

1. For the first time in seven years, more manufacturers are bringing facilities back to Georgia from overseas; 
2. Georgia manufacturers are missing out on monetizing R&D tax credits; 
3. Manufacturers that compete on innovation are more profitable than companies competing on quality and price. Innovative manufacturers are also paying higher wages.

Gains in In-Sourcing
“After tracking the rates of in-sourcing and outsourcing in Georgia Manufacturing since 2005, we saw in this year’s survey that the rate of in-sourcing exceeded, albeit slightly, the rate of outsourcing,” states Jan Youtie, director of policy research services in the Enterprise Innovation Institute at the Georgia Institute of Technology. Nearly 16% of the companies responding to the survey said work had been transferred to them from outside Georgia, compared to slightly more than 14% that lost work to out-of-state facilities. These%ages were 12% for in-sourcing versus 18% for outsourcing in 2005.

Monetization of Tax Credits
Survey findings suggest that Georgia manufacturers are not taking advantage of lucrative federal and state Research & Development(R&D) tax credits and incentives.

Of all Georgia manufacturers surveyed, only 17.2% indicated that they use federal or state R&D tax credits to offset the costs of their product research and development. This valuable credit is available at the state and federal level and can save manufacturers thousands of dollars each year in R&D expenditures.

When looking at R&D spend as a percent of sales Georgia manufacturers rank slightly below the U.S. benchmark of 4.54%. There are, however, some sub-sectors of the manufacturing industry that beat the national benchmark, specifically, Georgia manufacturers specializing in food, beverage, textiles, apparel, leather and materials industries. The electronics, electrical and transportation industries are far below the national level.

“Georgia’s R&D tax credit is one of the most lucrative R&D tax credits available at the state level,” says Adam Beckerman, Habif, Arogeti & Wynne, LLP’s partner-in-charge of the manufacturing & distribution group. “When you compare Georgia’s R&D tax credit to our neighboring states you can see the clear advantage our state has over all the others to attract and retain manufacturing businesses. The Georgia credit puts money directly into our clients’ wallets every day so that they can hire more sales people and bring new products to market; it gives them a cushion for working capital.”

Innovation
Today innovation truly is taking the forefront in U.S. manufacturing, as manufacturers look to new, leaner and greener practices to drive their business. The 2012 Georgia Manufacturing Survey indicates that innovation is an important strategy for manufacturers. In fact, those companies that selected innovation as a primary strategy were 10% more profitable than other manufacturers. Even more interesting is that the manufacturers focused on innovation, are paying their employees higher salaries.

The Georgia Manufacturing Survey also looked at the strategies being implemented by manufacturers in rank order and the mean return of the strategy. The strategy preferences of Georgia manufacturers were found to be: 

• Quality of Service: more than 50%
• Low price: 17%
• Adapting to client needs: 16%
• Quick delivery: nine%
• Sustainable manufacturing: three%
• Innovation/new technology: less than 10%

Beckerman explains, ”Existing is a connection between R&D tax credits and innovation. Manufacturers can, in some cases, use the monetization of tax credits to off-set the costs associated with innovation.”

Methodology
This survey was conducted among 528 Georgia manufacturers with 10 or more employees. The survey was undertaken from February to May 2012 and the results were weighted by industry and employment size to best represent the population of manufacturers. It is conducted every two years, and is a paper-based survey.