By: Kevin Zolriasatain (guest blogger from KBKG)
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 market place which include the reduction in sodium, gluten-free choices, removing sugar and adding fruits and vegetables to their products. In this closely controlled industry, regulatory issues are quite common and the associated R&D cost can be quite large. The Research and Development Tax Credit can help mitigate some of the costs associated with increased investment in developing new products and packaging.
The R&D Tax Credit was first enacted in 1981 to incentivize companies to make technological investments in 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 enjoying the benefits of 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 extend the shelf life of products and reduce their environmental footprint. Many of these companies are unaware that their 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 healthier products
- Designing and developing new or improved processes to maintain quality and safety
- Developing new packaging, canning or redesigning existing packaging
- Eco-friendly: biodegradable, recyclable, energy efficient
- Portable: grab-and-go, drinkable, etc.
- Shelf-life improvement
- Developing new or improved hopping techniques and varieties
- Developing new or improved fermentation or distillation processes
- Developing new or improved product formulations or prototype batches
- Developing new or improved preservative chemicals
- Testing new or improved product designs to ensure consistency or shelf life
- Testing 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 for efficiency and waste reduction
- Testing prototype samples for analytical and microbiological qualities
- Conducting sensory evaluations of prototype samples
Be sure to look into if your company might qualify for the R&D Tax Credit by talking to your tax advisor.
About Kevin Zolriasatain (guest blogger from KBKG):
Kevin is the Practice Leader of KBKG’s Research and Development (R&D) Tax Credit Services. Prior to KBKG, he worked 10 years at PricewaterhouseCoopers focusing on securing R&D Tax Credits for Fortune 500 companies. Kevin enjoys working with small to mid-size business owners and over his career has documented hundreds of millions of dollars in research credits. He has accumulated extensive experience successfully defending R&D credit claims under IRS and state examination.