Food and Beverage R&D Tax Credit

Even the development of new manufacturing processes to prepare the food for market can qualify under the credit.

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One of the industries that most often neglects to claim applicable R&D tax credits is food and beverage because a vast majority of the leading manufacturers in the space simply fail to realize they qualify. Remember what the credit rewards, research and development. Those aren't limited to certain industries alone, there are many successful entities in the food and beverage field that have excelled at bringing high-quality products to market as a result of good R&D.

Think about all the ways in which leading food and beverage businesses both big and small perform eligible research and development activities. Food science research, the creation of new flavors, and the improvement upon existing recipes to make a better tasting product are all part of research and development. The activities performed to achieve these goals will typically qualify for the R&D tax credit.

Many companies will develop new and improved packaging or design entirely new food products that cater to recent health and lifestyle trends. Even the development of new manufacturing processes to prepare the food for market can qualify under the credit.

Qualified Research Activities for Food & Beverage
Development and formulation of new food products
Development of new beverage formulations
Development and formulation of new beers or brews
Improvement of fermentation processes
Development and enhancement of new flavors including sweeteners
Design and development of new or improved packaging solutions
Design and development of manufacturing or logistical equipment
Testing and experimentation for food safety
Improving the shelf life of existing products
Improving flavor and texture profile of food items
Analyzing samples for microbiological content
Testing products for sodium content and other nutritional factors
Development of chemicals or fertilizers used in food development
Improving processes to reduce or eliminate possible contamination
Automation of labor intensive processes
Development of software used in production systems
Case Study

Food and Beverage R&D Tax Credit Case Study

Let's examine how the credit would apply to a brewery that produces nearly 300,000 barrels of beer every year and distributes its product in 42 states and Washington D.C.

R&D Tax Credit Qualification for

Food and Beverage

The brewery owner along with the brew master and a handful of brewery employees have come up with a variety of new beer ideas. Some of these were inspired by a noticeable lack of these flavors in the marketplace, others were sparked by the ability to pair these new flavors with appropriate food dishes. New beer products are often discussed and analyzed by the company principals to determine their viability in the marketplace.

For research and development purposes, this brewery team evaluated existing or new experimental hop varieties for quality and potential use. From this research, product viability was determined. Interesting new flavor profiles were conceptualized and valuable research conducted on the creation of these new concepts. The development process was launched with the design of alternative recipes outlining which types of components were best suited to deliver each conceptualized product. The measurements of each component, including malts, yeasts, hops, and flavorings were calculated in order to build the formula necessary to produce the product.

The team considered different variables and ingredients for new brews including, but not limited to, yeast strains, yeast pitching rates and times, heating and cooling temperatures and times, and the type and amounts for their different hop and yeast varieties. Once the Innovation Team approved the recipe and process, trial runs were conducted. Samples from the first brew were tasted and sent to the lab for analysis on its chemical properties, such as yeast content, color, Alcohol by Volume (ABV), and pH.  Depending on the type of trial or recipe, the first run often yielded positive results but required additional development, until the beer or beer component met their design specifications. As a result, changes were made to both the formulation and the process. Another pilot run and round of testing was performed. This process repeated until the specifications were met or determined unfeasible.

Quality personnel performed lab testing on the experimental brews and constantly tested new yeast strains and bacteria in small fermentation runs. They reviewed the analytics to determine what the yeast was capable of in terms of flavoring, carbonation, and fermentation time. The information gathered from this research allowed the experimental brewer and the Innovation Team to make faster and more informed decisions when it came to developing and reformulating their experimental recipes in all stages of the project.

Upon approving the experimental recipe for production, the Innovation team was ready to scale up the process and recipe for the production equipment. The pilot system does not scale linearly and there was always uncertainty at this phase of which ingredients would be affected since they were working with a much larger system.  Since an experimental recipe is typically a mix of malts, multiple hop varieties, and yeast, the team was uncertain which ingredients were being over-extracted, consequently affecting the flavor and chemical properties. As a result, the team had to experiment with the ratio of amounts in order to reproduce the taste, and chemical properties developed in the lab and pilot runs. The first run was rarely successful and required multiple runs and recipe/process changes before the production process was perfected.

The Results Speak for Themselves

Claiming the R&D tax credit in any industry can be a lucrative proposition. For this brewing company, eligibility criteria was evaluated at a time when the company was enjoying revenues of around $10 million. Over the course of a decade, this brewer has claimed nearly $65,000 in R&D tax credits on an annual basis. This enabled the company to reinvest that cash back into the development of more new products that drove revenue higher, to the tune of roughly $70,000,000 in sales. Creating popular beverage products to bring to market has resulted in the company becoming wildly successful. When any business has the capability to increase revenue and use that money to develop and market innovative and unique products, consumers, employees, and the economy as a whole sees a marked financial benefit. That is at the core of why the R&D tax credit was created and we continue to see one case study after the next demonstrating the power and efficacy of the credit.

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Hire US-based engineers, developers, or scientists.
Designs and develops product prototypes and/or software.
Performs experimentation and validation on products, manufacturing processes, and/or software.
None of the above.

This calculator has been developed utilizing data from a variety of studies conducted in the industries listed. This is only an approximation based on a variety of assumptions and should be treated as such.

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