R&D tax credits for food and beverage companies.

• Author: Landrum, Wendy
• Position: Research and development

Food and beverage companies constantly face increasing costs of raw materials and fuel and regulatory changes while trying to keep their pricing competitive and gain market share. Some of these rising costs stem from research and development (R&D) strategies to develop new products related to food safety, cost reduction, organic/natural products, dietary guidelines, and sustainable resources.

According to Food Processing magazine's annual R&D survey, 48% of respondents selected new product development as their top priority for 2013, up eight percentage points from last year. Further, the magazine reported food manufacturers are extending product lines, improving existing products, "cleaning up" current products, and controlling costs. And, although 51% of R&D budgets were about the same as last year, the survey found 22% of R&D budgets increased.

Fortunately, federal and state governments offer R&D tax credits that can help food and beverage companies of all sizes offset these expenses. The federal R&D tax credit allows companies that perform technological research (which is broadly defined) to receive tax breaks on certain costs associated with research as long as it was performed in the United States.

Food manufacturers should look closely at this incentive even if, in the past, they did not believe their activities in developing new products or processes qualified as technological research.

Often, credits mistakenly are assumed to apply only to the creation of a new product or package, but food companies can qualify for research tax credits in a number of ways--including for activities they already perform. Consider the following examples of activities that may qualify as research.

Food

* Improving the taste, texture, or nutritional content of food product formulations;

* Incorporating new or sustainable ingredients in a formula; or

* Producing sample batches in a test kitchen or a pilot run.

Processes

* Developing techniques that will reduce costs and/or improve product consistency;

* Redesigning processes to comply with new federal or state regulations; or

* Improving machinery and equipment to ensure safe handling of food.

Packaging

* Creating new packaging to improve shelf life, durability, and/or product integrity;

* Reducing materials or using more environmentally friendly materials in packaging; or

* Introducing new or alternative materials to improve packaging.

Sustainability Efforts

* Creating new methods for minimizing...