Tax Incentives Blog

Cultivating Innovation: The Power of Agriculture and the Research Credit

Written by John Bohannon. Updated Jul 17, 2019.

RD_AgCultivators of the earth are the most valuable citizens. They are the most vigorous, the most independent, the most virtuous, and they are tied to their country and wedded to its liberty and interests by the most lasting bonds.”

Writing to fellow Founding Father John Jay, Thomas Jefferson expressed his deep affection for members of the agricultural class of the American economy, emphasizing both their moral virtues as well as their economic value.

However, Jefferson’s vision of a rising new economic class—the humble yeoman farmer working small and independent farms—never truly came to fruition. Instead, the industry continues to concentrate into the hands of the few.

By 2017, megafarms came to dominate the landscape, acquiring small farms no longer able to compete with the new economies of scale being harnessed. Farms earning more than $1 million in sales annually - less than four percent of all American farms - now account for more than two-thirds of the nation’s agricultural production.

Consequently, farming and related agribusinesses, both small and large, are redoubling their efforts to expand technological innovation while integrating these efforts into their production processes to improve output and efficiency.

Make Hay While the Sun Shines

Frequently seen as foundational elements for a robust and self-reliant economy, it’s no surprise that many farmers and agricultural industries enjoy significant aid through incentives programs and subsidies.

In addition to programs specifically tailored for agricultural businesses, many in the industry can benefit from the research and development (R&D tax credit). As it was recently inducted permanently into the tax code, the sun shines brighter than ever - enticing more and more businesses in the industry to “make hay.”

Learn More: How the 2018 Farm Bill Sows Tax Breaks for Industrial Hemp Farming

The research credit rewards taxpayers for attempting to develop and implement new or improved products or processes. The breadth of potentially qualifying activities allows for a multitude of agriculturally oriented businesses to recoup a significant amount of expenditures incurred to create new products or processes.

To give you an idea: a breeder can potentially earn a research and development credit for attempting to identify and create new plant strains more resilient to the elements or pests.

Similarly, businesses that pioneer new or improved fertilizers or other agricultural chemicals can often claim the credit for qualifying expenses incurred during development and testing of the product.

Megafarms like those mentioned above, as well as smaller operations, are also frequently able to enjoy significant R&D credits stemming from the design, creation, and integration of sophisticated equipment used to improve production efficiency when processing harvests.

Helping the Harvest

For example, in a single tax year CTI recently secured over $75,000 in combined federal and state research credits for a crop producer and processor. Specifically, CTI identified several process improvement projects initiated to improve the consistency, quality, and reliability of the company’s finished product output through the design and implementation of a customized system of processing equipment.

In another recent example, CTI helped a fertilizer and pest-control products manufacturer claim over $200,000 in federal research credits for three tax years. Primarily, the credits stemmed from the company’s development of a new product line of fertilizers tailored to enhance citrus trees’ ability to ward off a blight capable of destroying entire groves.

The manufacturer incurred significant time and effort in identifying and validating a unique formula capable of protecting the trees from the disease while maintaining the ability to be integrated into current citrus farming techniques and practices.

Don’t Put All Your Eggs in One Basket

Contact CTI and get matched with an R&D consultant who can help navigate the process and identify and claim critical savings for your business.

As lucrative as the research credit can be, you should never put all your eggs in one basket, lest you fail to take advantage of all possible avenues for prosperity. CTI can also help you discover and secure significant tax savings and improved cash flow through cost segregation studies for many agribusinesses. Find out today about all the ways CTI can help you boost your bottom line.

 

 

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Topics: R&D Tax Credit

John Bohannon

Written by John Bohannon

Graduating from South Texas College of Law Houston, John acts as CTI’s chief R&D legal researcher. His focus on tax law research combined with his years of experience performing R&D tax credit studies and providing audit support affords unique insight into the research credit’s application and other evolving areas of tax law.

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