$90,844,000. That’s the total value of the federal Research and Development (R&D) Tax Credit awarded to food manufacturers in 2010. Are you missing out on some dough?
Eighty-two percent of Georgia manufacturers are not taking advantage of the R&D Tax Credit, according to the 2012 Georgia Manufacturing Survey, conducted by Habif, Arogeti & Wynne, LLP, the Georgia Institute of Technology and Kennesaw State University. And while that isn’t necessarily the trend across the country, many food manufacturers don’t know about this valuable credit or don’t recognize that the activities they perform within their plant are eligible for the savings. Food manufacturers are missing out on millions of dollars that they could put directly into their pocket.
The Federal R&D Tax Credit was enacted in 1981 as a tax program to encourage American innovation, and while the Credit has never been made a permanent part of the U.S. tax code, it has been extended 15 times in the last 30 years. Today, the Credit is providing food manufacturers with additional capital that can be used to hire new employees, buy new equipment or re-invested into additional research and development projects.
At the Federal level, the R&D Tax Credit provides companies with an immediate source of cash as a dollar-for-dollar offset against taxes owed or paid. The credit is effective in reducing past, current and future year tax liability. Unused credits can be carried forward 20 years.
In addition to the federal R&D Tax Credit, 40 states across the U.S. offer a tax credit or incentive to companies that perform qualified R&D within their state. In Georgia, the R&D Tax Credit can be more beneficial than the federal credit for younger companies. The Georgia R&D Tax Credit can offset 50 percent of net Georgia income tax liability after all other tax credits are applied, or it can be used to offset Georgia payroll tax withholding, an automatic savings for companies.
You may think that your food manufacturing company is too small, too young or isn’t performing activities scientific enough to take advantage of the R&D Tax Credit, but that’s likely incorrect. If your company designs, develops or improves products, processes, techniques, formulas or software, then you may be eligible for the Credit. We’ve found that people typically think of R&D in terms of product development, but plant initiatives and process improvements also qualify; for example, manufacturing line improvements and process developments may meet the criteria. Even your experimentation around consistency, flavor profile, what temperature to bake at or how humidity impacts production can make you eligible for the R&D Tax Credit.
And what about company size? It doesn’t matter. In 2010, 1,442 entities with business receipts of less than $25,000 claimed the R&D Tax Credit, proof that the credit is open to companies of any size. To benefit small businesses even further, the Start-up Innovation Credit Act of 2013 (SICA) is currently awaiting Congressional approval. SICA will amend the Internal Revenue Code to allow qualified small businesses to use the federal R&D Tax Credit to offset business taxes, including payroll tax. This will benefit start-up companies that do not have taxable income, a requirement to take advantage of the federal R&D Tax Credit today.
There is money to be saved by taking advantage of the R&D Tax Credit at the federal and state level. Food manufacturers across the U.S. can put millions of dollars back into their pockets just for doing the work they perform every day. Isn’t it time that you got your piece of the pie?
Want to save money that can be re-invested into your company? Have questions about the R&D Tax Credit? Contact Adam Beckerman, partner-in-charge of manufacturing & distribution at Habif, Arogeti & Wynne, LLP at firstname.lastname@example.org or 404-898-7542.