With the challenge of feeding an ever-growing population, food and beverage companies in the United States are forced to increase their research and development efforts to meet demand. In addition to providing more options, food and beverage manufacturers are fighting to keep up with trends in the marketplace which include the reduction in sodium, gluten-free choices, removing sugar, and adding fruits and vegetables to their products. These regulatory issues are quite common in industries that are closely controlled and the associated R&D costs can be quite large. The research and development tax credit can help mitigate some of the costs associated with the increased investment in developing new products and packaging.
The R&D tax credit was first enacted in 1981 as a way of incentivizing companies to make investments in technology within the United States. The word “technology” has created some confusion among taxpayers. Most think the incentive only applies to companies seeking to accomplish grand pharmaceutical breakthroughs (i.e., a cure for cancer) or innovations that define or create new industries (i.e., alternative energy). In reality, the R&D tax credit employs a broad definition of research and development and many companies in the food and beverage industry have been benefiting from the credit for many years.
Food and beverage manufacturers have traditionally made large investments in new products, new manufacturing processes, and new forms of packaging to not only extend the shelf life of products but also have a minimal impact on the environment. Many of these companies are unaware that these efforts can yield large amounts of research credits. Below are some of the common activities that qualify for the research credit in the food and beverage industry:
- Designing and developing new products in efforts to make traditional products healthier
- Designing and developing new or improved processes to maintain quality and safety
- Developing new packaging, canning and/or redesigning existing packaging
- Eco-friendly: biodegradable, recyclable, energy efficient
- Portable: grab-and-go, drinkable, etc.
- Improve shelf life
- Development of new or improved hopping techniques and varieties
- Development of new or improved fermentation or distillation processes
- Development of new or improved product formulations or prototype batches
- Development of new or improved preservative chemicals
- Testing of new or improved product designs to ensure consistency or shelf life
- Testing of product ingredient mixtures for desired flavor or aroma profiles
- Improving existing food product formulations to achieve specified analytical requirements, including those related to pH level, brix level, acid content, and product viscosity
- Developing new production process specifications and techniques for the production of new food products, including mixing times, batching sequences, and cooking temperatures and durations
- Improving existing production processes to improve efficiency and reduce waste
- Testing prototype samples for analytical and microbiological qualities
- Conducting sensory evaluations of prototype samples
R&D Tax Credit Case Study
A Boise, Idaho based food manufacturer develops new formulas for its expanding line of products and improved processing techniques for its manufacturing plant. The company claims R&D credits each year for the development activities of its engineers. This project involved a multi-year study covering the tax years 2011 – 2014. The company qualified for federal R&D credits of $558,833 and an additional $166,300 in Idaho. Summary of credits:
| FEDERAL . . . . . . . . . . . . . . . . . . . | IDAHO . . . . . . . . . . . . . . . . . . . . . . . . | |||||
| Year | Total QREs | Credit | Total QREs | Credit | ||
| 2014 | $2,400,000 | $264,833 | $2,400,000 | $71,750 | ||
| 2013 | 1,400,000 | 143,500 | 1,400,000 | 43,250 | ||
| 2012 | 1,000,000 | 98,000 | 1,000,000 | 31,050 | ||
| 2011 | 650,000 | 52,500 | 650,000 | 20,250 | ||
| Total | $5,450,000 | $558,833 | $5,450,000 | $166,300 | ||
If you or a client has been involved in designing or developing new products, processes, or packaging in the food and beverage industry and are curious about the R&D tax benefit available to you, call us today or visit KBKG.com/research-tax-credits to see if you are eligible.