Tax Incentives Blog

Can Agriculture Costs Qualify for the R&D Tax Credit?

Written by Mark Echols. Updated Sep 27, 2018.

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According to the U.S. Department of Agriculture, U.S. companies produce over $300 billion of agriculture products annually.  Many of these companies are not aware that their research and experimentation activities and related expenses to develop these new or improved products might be eligible for valuable federal and state research and development (R&D) tax credits. For many U.S. agriculture companies, the R&D tax credit can significantly reduce their income tax liability and increase much needed cash flow into their businesses.  Below is a case study of a taxpayer in the agriculture business who was able to utilize hundreds of thousands of dollars of R&D tax credits by identifying and documenting their R&D activities.

Agriculture Case Study

This full-service, gourmet peanut producer and processing company headquartered in California sought to integrate science and technology into modern farming and food processing techniques. After its first crop year, the company began R&D activities to develop new and improved peanut manufacturing processes. Due to the growing market demand, food safety requirements, and the company’s high-quality standards for the product, the company continued these development efforts by incorporating various new technologies, equipment, and improvements throughout the peanut production processes.

As s a result of these continuous improvements and advancements, the company achieved new or improved functionality, performance, and quality at each stage of development of these projects including: improved burners performance for roasting consistency and overall peanut roast quality; integration of new digital controls into the system for improved control and roaster performance; and improved air flow, air quality, and ventilation for the peanut roaster and air cleaning system. 

Throughout the project, engineers performed evaluation of new burner designs, valves, and roaster components to achieve optimum peanut roasting requirements.  Consultants performed analyses of heat and temperature controls within a new roasting system as well as a redesign and evaluation of the system’s air flow and ventilation functionality.  Because of the significant complexity of the project, internal employees conducted much research and experimentation, outside contractors, and the company incurred substantial prototype material supply costs; all of which were eligible research expenses for the R&D tax credit.

In order for agriculture companies to determine whether they are performing research activities, they should look to see if they are doing any of the following:

  • Design and implementation of precision farming techniques in attempt to increase yield and/or production efficiency
  • Waste reduction or reuse
  • Experimentation with new or different fertilizers (organic, etc.)
  • Development/implementation of new ways to protect crops from disease
  • Product development through cross-breeding
  • Development and implementation of new irrigation systems
  • Researching and developing new cultivation techniques
  • Improvements in harvesting techniques
  • Implementation of new equipment to improve harvest cycle times
  • Development or experimentation with new feeds or feeding techniques for livestock
  • Development and/or implementation of automated processes
  • Research and design of an innovative product or process

If your company has produced a new or improved agriculture related product recently, you might have significant tax savings from your research and development activities.  CTI’s R&D tax experts can help your company capture all of the activities and expenditures necessary to maximize your federal and state R&D tax credits.

For more information on tax incentive programs available in your area, find your state below. 

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Topics: R&D Tax Credit

Mark Echols

Written by Mark Echols

Mark leads CTI’s national research and development (R&D) tax credits practice and is involved in all aspects of providing R&D tax credit services to his clients, including: conducting high-level R&D tax credit feasibility analyses, managing complex and comprehensive R&D tax credit studies and defending R&D tax credit claims under IRS and state taxing authority examinations.

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