Co-packing, or contract manufacturing companies, help food companies manufacture and package their products in warehouses designed to house, develop, and prepare foods for shipping. The industry invests extensive resources in research and development (R&D). If your co-packing business improves product speed and efficiency or implements processes to meet industry regulations, it may be eligible to claim the R&D Tax Credit. Tax credits are offered at the federal and state levels and can help offset the costs of innovation.
Employee wages, raw materials and supplies, cloud computing expenses, and third-party contractor costs associated with research and development activities are considered qualified research expenses (QREs). Companies can receive refunds of up to 22% of total QREs through federal and state tax credits, depending on the state in which your business operates.
Examples of qualifying activities:
- Testing dried products during the food product development stage (e.g. extrusion, spray drying, dry blending)
- Evaluating products to ensure processes meet and maintain production standards (e.g. gluten-free, halal, organic)
- Improving existing packaging solutions and processes (e.g. drum, pouch in carton, multiwall dairy bag)
- Improving the segregation of foods to prevent cross-contamination
- Designing novel products and processes
Do you have these job titles on your payroll, or do you hire third-party contractors to do these jobs?
- Automation Technicians
- Compliance Managers
- Contract Manufacturing Managers
- Facility Managers
- Mechanical Engineers
- Process Engineers
- Quality Assurance (QA) Personnel
- Software Engineers