Court: Supply Costs Qualify for the R&D Tax Credit

In TG Missouri Corp. v. Commissioner, 133 T.C. 13, the U.S. Tax Court recently found that property purchased from a third party qualifies as a supply expense for purposes of the research tax credit even though the taxpayer retains possession of the property. TG Missouri Corp is in the business of of manufacturing injection-molded products, such as steering wheels, air bags, and body side molding for the automotive industry. TG Missouri Corp hired a third party toolmaker to make production molds. It then sold the molds to its clients, but retained possession of the molds so that it could manufacture parts for its clients — the owners of the molds — using the molds. The government concluded that the molds were depreciable property in the hands of TG Missouri Corp and, therefore, are not qualified research expenses. The court considered the depreciation rules outside of the context of the research tax credit in concluding that the depreciation rules are the same for purposes of the research tax credit.