Ah, orange juice. A cool, refreshing breakfast beverage. But is it just for breakfast? Some of you may remember the Florida Orange Juice commercials that depicted people from all walks of life – a horse jockey, an opera singer, a clock maker – happily sipping a tall glass of OJ. As they enjoyed their cool drink, obviously during non-breakfast hours, they exclaimed the famous tagline, “…it isn’t just for breakfast anymore!”
At this time, most people considered orange juice a libation reserved solely for morning consumption. The company’s campaign intended to dissolve that reputation to spur more people to drink the beverage more often – thus squeezing out more money for the brand. And really, why would anyone sequester juice to the a.m. hours only?
Silly Rabbit, Credits Are for Everyone
Federal research and development (R&D) tax credits carry a similar kind of pigeon-holed reputation: Only heavy-research oriented industries, such as pharma and hi-tech can cash in on the credits. Not true.
To capture R&D credits, a business must merely set out to develop new or improved processes, products, techniques, formulas, or software.
The fresh developments need not be ground-breaking inventions, only new to that business to qualify. But the words “research and development” often divine narrow notions of highly advanced organizations working to revolutionize the world with new medicines, technology, or the like.
They Qualify, Hey Mikey!
However, the mere challenge to provide for a growing consumer base and answer their demands lines up food and beverage (F&B) manufactures to capture R&D credits.
The burgeoning trends for healthier food options - such as gluten-free, low-sodium, low-sugar, no preservatives - and eco-friendly, non-toxic packaging are pushing F&B companies to develop new and improved products.
Qualifying R&D Activities for F&B Manufacturers
- Designing and developing new products, such as low-carb or trans-fat–free products
- Developing methods to extend shelf life
- Developing new or improved bottling processes
- Developing new or improved manufacturing technology to increase yield, reduce waste and by-products, improve safety, or reduce labor
- Developing new packaging and packaging systems or redesigning existing packaging
- Developing new product flavors, appearances, textures, or health benefits
- Development of new software applications to use internally, or to interact with customers and/or vendors
- Enhancing designs to comply with new environmental regulations
- Producing prototype product samples for testing and validation of new recipe formulations
- Testing prototype samples for analytical and microbiological qualities
Of course, the research and subsequent new or revamped products, ingredients, manufacturing processes, packaging materials, etc. come with a price – one that R&D credits can help offset substantially.
They’re Magically Prosperous!
The R&D tax credit calibrates a dollar-for-dollar reduction in a manufacturer’s federal income tax liability. The business can roll the resulting money back into further R&D efforts or any other business cost.
Ultimately, the more research and development a F&B manufacturer conducts, the more money they may be able save – because R&D tax credits are not just for pharma or tech anymore.
As with many tax incentives, the R&D credit process is filled with intricate regulatory pulp. The aid of a tax specialist can help strain out the confusion and complications to ensure food and beverage companies package all potential credits.