St Patrick’s Day Exclusive: The R&D Tax Credit for Beverage Innovation
Each year on March 17th, the Irish and the Irish at heart across the globe observe St Patrick’s Day. What began as a religious feast day for the patron saint of Ireland has metamorphosed into an international festival celebrating Irish culture with parades, dancing, live music, beverages and food. Undeniably, for the creators and purveyors of whiskey, Guinness and green apparel, the day is indeed worth celebrating.
Nonetheless, festivity or not, the whiskey beverage industry may already be revelling due to a spike in popularity in recent years. In 2015 alone, U.S whiskey sales increased by 20% to $664 million, according to the Distilled Spirits Council of the United States. The steady rise of whiskey drinkers, aside from the Don Draper aspirants, is most likely due to more options being available in the market.
Essentially, the variant of alternatives available for the beverage comes down to an investment in research and development (R&D) to expand the products scope. Fortunately, federal and state governments offer R&D tax credits to beverage companies of all sizes to help offset the expenses of R&D.
To clarify, the R&D tax credit allows companies that perform eligible research to receive tax breaks on certain costs, as long as it was performed in the United States. However, the credits are often mistakenly assumed to apply only to the creation of a new product or package, but there are actually a number of ways in which beverage companies can qualify for research tax credits—including for activities that already regularly occur at the company. Consider the following examples:
- Improving the taste, texture, or nutritional content of beverage formulations
- Incorporating new or sustainable ingredients in a formula
- Producing sample batches in a test kitchen or a pilot run
- Developing techniques that will reduce costs and/or improve product consistency
- Redesigning processes to comply with new federal or state regulations
- Creating new packaging to improve shelf life, durability, and/or product integrity
- Reducing materials or using more environmentally friendly materials in packaging
- Introducing new or alternative materials to improve packaging
- Creating new methods for minimizing contamination, scrap, waste, and spoilage
- Increasing energy efficiency of water, fuel, and utilities through the introduction of new technologies
- Developing processes to convert waste to energy
Thus, from developing and testing the beverage formulation to improving the distilling process, the options for innovation in this field are ostensibly broad. However, it is an often overlooked fact that the expenditure incurred to bring these innovations to market is potentially available for a tax credit. On the whole, the R&D tax credit is a valuable tool for growing and improving products – whether that is for expanding the horizons of whiskey or growing innovation within your own businesses. Prompting the question, could an R&D tax benefit be the luck you need this St Patrick’s Day?
It is imperative, nonetheless, that businesses recognize what kinds of costs are eligible in order to maximize the credit so that appropriate records can be sustained throughout the year. Swanson Reed’s R&D tax professionals are available to discuss the R&D tax credit – contact us today if you would like to know if your company now qualifies.