Food companies are constantly facing increasing costs—raw materials, fuel, regulatory changes—all while trying to stay competitive with pricing and gain market share. Fortunately, federal and state governments offer research and development (R&D) tax credits to food and beverage companies of all sizes to help offset those expenses.
Often, credits mistakenly are assumed to apply only to the creation of a new product or package, but food companies actually have a number of ways in which they can qualify for research tax credits—including for activities that already regularly occur at the company.
A privately held manufacturer of processed beef and pork products for the foodservice and retail industries that operates several facilities throughout the US
Initially, the company was somewhat reluctant to pursue the R&D credit because it, like many food manufacturers, did not believe it was carrying out R&D activities. A common misperception is the R&D credit is applicable only to companies operating in high-tech industries that are developing cutting-edge products or technologies. However, once the company was educated on the IRS’s broad definition of what qualifies, the company realized an opportunity existed to secure R&D tax credits.
Specialized and experienced R&D credit professionals are able to assist clients in identifying and uncovering R&D tax credit opportunities. A critical component of any approach is developing an R&D credit methodology aligned with the company’s operations and internal project reporting processes and procedures. The latter was accomplished primarily through facility tours, interviews with key technical and financial personnel at the company, and a review of project documentation to support the R&D projects and activities.
Our team identified that the company engaged in numerous R&D projects, many of which were undertaken within the company’s normal course of operations. The following are examples of qualifying projects:
- Development of new or improved product formulations to meet changing consumer taste preferences
- Development of manufacturing processes to accommodate new products, including optimizing processing parameters
- Modifications to existing manufacturing processes to comply with new regulations
- Continuous improvement projects aimed at reducing scrap, waste, and spoilage and/or conserving water and utilities
- Automation of manufacturing functions to minimize product contamination
- Development of new packaging to extend the shelf life of products
- Plant layout design changes to reduce manufacturing time and increase throughput
The company secured—and sustained under IRS exam—more than $150,000 in federal R&D tax credits. A maintainable methodology was also developed for the company to use on an annual and ongoing basis to identify, document, and substantiate eligible R&D projects and costs.