Manufacturers – Did You Know Custom Packaging and Automation Can Qualify for the R&D Tax Credit?

Take advantage of R&D Tax Credits and the CARES Act to support your company during the COVID-19 slow-down and beyond

Manufacturers in the U.S., regardless of size, location, or industry are fighting hard to remain productive and profitable during this COVID-19 crisis.

A reduction in consumer demand, workplace safety risks and concerns, a nervous workforce, and the struggle to keep the supply chain open are just some of the challenges manufacturers are facing.

Our team speaks daily with midmarket manufacturers across a broad spectrum of industries throughout the United States. While a fortunate few have the internal operating structures in place to pivot their operations to meet the new demands for PPE, hand sanitizers, test kits, ventilators, and other critical equipment, the majority of companies, are feeling the full weight of the COVID-19 economy. Businesses that manufacture food, beverages, essential supplies such as consumer goods, medical or pharmaceutical, energy, transportation or communications products are under immense pressure to continue operating efficiently with fewer resources.

In this tenuous environment, it’s crucial for manufacturers to look for every opportunity to reduce and recover operating costs, and sustain competitiveness. The federal R&D Tax Credit, can help manufacturers of any size or industry, invest in or subsidize their R&D costs, from product development through their distribution process. These tax subsidies can help create real opportunities for manufacturing, processing and ecommerce companies to improve their competitiveness and their cash flow.

What is the R&D Tax Credit?

The R&D Tax Credit is a business tax credit for companies who have research and development (R&D) costs in the United States. The R&D Tax Credit was initially offered in 1981 and was made a permanent part of the IRS tax code in 2015. The credit is structured to reward companies for innovation, research, and development that results in improved and new processes and products.

The R&D Tax Credit and the subsidies detailed in the CARES Act, mean that manufacturers can potentially receive tax benefits for ongoing operations and R&D.

R&D Tax Credit Qualifying Activities

Many manufacturers are missing out on valuable R&D Tax Credits because they do not understand the qualification and documentation requirements, or mistakenly believe that these credits are only apply to R&D required for new product development.

There are four tests used to qualify activities for the R&D Tax Credit:

• The activity must rely on hard science, such as engineering, computer science, biological science, or physical science.
• The activity must relate to the development of new or improved functionality, performance, reliability, or quality features of a structure or component of a structure, including product or process designs that a firm develops for clients.
• Technological uncertainty must exist at the outset of the activity; i.e. if the information available at the outset of the project does not establish the capability or methodology for developing or improving the business component, or the appropriate design of the business component.
• A process of experimentation (e.g., an iterative testing process) must be conducted to eliminate the technological uncertainty. This includes assessing a design through modeling or computational analysis and experimenting with engineering, mechanics, formulations, and materials.
  (A Tax Credit for COVID-19 Innovation, Industry Week)

Although you will want to speak with your tax professional, these qualifying R&D activities generally include new or improved process or and packaging developments that enhance quality, reduce packaging cost, improve safety and reliability or extend product shelf life, for example. By tracking the actions you take to achieve improvements like these, you could improve your bottom line by earning the tax credits. R&D Tax Credit activities can include for example:

• Redesigning and reengineering packaging to extend product shelf life.
• Implementing packaging improvements to improve food or beverage flavor.
• Process or product development tied to new or improved health outcomes.
• Environmentally friendly R&D design or manufacturing processes.
• Improving manufacturing operations and efficiencies.
• Tooling and engineering processes required to develop new packaging or manufacturing items
• All research, testing, and proof of concept activities during product R&D.
• Any R&D or packaging process improvements that protect the product during shipping, transport, and handling. This can include:
  • Working with a Packaging Specialist to design custom packaging.
  • Streamlining and automating packaging operations to reduce costs and interruptions.
  • R&D into sustainable or reusable packaging products and materials.
  • Packaging innovations that reduce packaging cost, improve quality, and/or packaging reliability. 

SupplyOne’s team of Certified Packaging Specialists, Packaging Engineers, Packaging Designers, Food Packaging Specialists and Packaging Automation Specialists, have the technical expertise and industry knowledge to help.

We are adept at uncovering opportunities that create new efficiencies, and packaging solutions that address every packaging need to increase competitiveness today and position your company to thrive tomorrow.

Contact us to learn more about how we can help you uncover hidden costs and maximize opportunities.