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