The R&D Tax Credit for the Retail Industry…

When the subject of research and development (R&D) tax credits is mentioned, images of white coat scientists are often conceptualized. However, those designing and creating those white coats may be eligible for the claim too. In fact, R&D tax credits are a frequently overlooked opportunity for retail and apparel companies.

Furthermore, several businesses in the apparel industry are unaware that they may be eligible for the credits due to the fact they manufacture their products overseas. Nonetheless, these same companies frequently have sample makers or testers here in the United States. Despite offshoring the production of their products in Asia or Europe, a company’s domestic design and development activities may still make them eligible for federal or state R&D tax credits.
Certainly, by capitalizing on these opportunities, fashion and apparel retailers can produce generous tax savings, including generating cash for their past and future investments. To meet the requirements for the credit, a company must endeavour to cultivate or improve the quality, reliability, or functionality of one of its processes, products, or software.  Thus, as defined by the IRS, the R&D credit is essentially an activity-based credit.

In fact, several apparel manufacturers have previously executed qualifying activities. Although aesthetic modifications are not traditionally eligible, activities related to improving a garment’s functionality or performance, for example weather-resistant clothing or dye formulas, may well qualify. In addition, software development, such as e-commerce and point-of-sale solutions, can also be eligible.

Moreover, the use and further development of innovative materials are also likely to lead to further activities that qualify for the R&D tax credit.  An example of a company utilising innovation in the apparel industry is Kusaga Athletic, aka creators of the ‘greenest t-shirt on the planet’. The company spent two years in R&D and have developed and prototyped a compostable, biodegradable shirt that uses less than one per cent of water to manufacture a standard cotton tee. This is exceptionally eco-friendly as it takes 3,000 litres of water to make a single cotton t-shirt and over two billion t-shirts are sold worldwide every year. Hence, due to investing in R&D, Kusaga Atheletic is having a huge positive impact on the effect of climate change.

Consequently, R&D can not only have a positive effect on the environment, but can also increase a company’s competitive edge in an increasingly innovative economy. Thus, organizations that take advantage of these incentives to drive innovation can create tax savings for their own business and assist in generating growth for their national issues, business models and interactions with customers, suppliers and intermediaries. If you believe your company is undertaking qualifying R&D activities, contact one of our specialists today to find out if you could benefit from R&D credits.

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