Agriculture Research & Development Tax Credit Study
How can agriculture qualify for the credit?
The R&D tax credit (officially “Credit for Increasing Research Activities”) is a dollar-for-dollar reduction to your tax liability and can amount to large savings, not just this year, but retroactively as well. Despite being a huge benefit to agriculture companies around the country, the credit it is often overlooked by both big and small agriculture and manufacturing companies. From crop production to food processing to packaging for the grocery shelf, there are qualified activities throughout the supply chain of meat and produce. Our tax credit team stays current with relevant IRS whitepapers, as well as case law, and has extensive experience working with a variety of engineering, manufacturing, and agriculture companies to qualify and quantify the credit.
In order to qualify, your business activities must satisfy a four-part test, as outlined by the internal revenue code (IRC § 41):
- Technological in nature: Development must rely on the principals of a hard science (Agronomy, Food Science, Horticulture, Biology, Chemistry, etc.).
- Permitted purpose: Must develop a new or improved product, manufacturing/assembly process, formula, invention, software, or technique for the purpose of performance, functionality, quality, or reliability.
- Eliminate uncertainty: During the development of the “business component”, you must encounter uncertainty regarding the final design, methodology of achieving desired outcome, or capability of achieving the desired outcome.
- Experimentation: To overcome the uncertainty, you must evaluate one or more alternatives in a systematic way.
If your activities satisfy this four-part test, the associated wages, supply costs, and/or third-party contractor expenses could qualify towards the tax credit. We often see the credit amount to 10% of those qualified expenses.
Common activities in agriculture:
- Developing quality assurance processes to meet food safety regulations including HACCP
- Design and implementation of biosecurity practices: facility cleaning and disinfection
- Development of barn improvements including ventilation, spacing, and feeding systems
- Developing new machinery and equipment for the production or testing of products
- Testing prototype samples for analytical and microbiological qualities
- Development of innovative products or processes
• Design specialized equipment for planting (e.g. no-till drills) or harvesting.
• Technologies and/or processes to improve the harvest lifecycles.
• Irrigation systems, or soil improvement, plant nutrients or fertilizers
• Hybridization or development of new strains of crops and/or plants
• Develop and implement new irrigation systems.
• Development of climate resilient fruits and vegetables
• Implementation of precision farming techniques in attempt to increase yield and/or production efficiency
• Attempts to develop or implement new cultivation techniques
• Efforts to optimize treatment and management of farm wastes in an energy efficient manner
• Nutrition experiments involving new or improved seed structures
• Seed and crop yield storage and maintenance technique development
• Development of technical process improvements or automation techniques
• Methods or technologies to minimize/eliminate crop damage from disease or insect pests
• Develop new software applications to use internally or to interact with customers and/or vendors.
Dairy and beef production:
• Breeding and/or feeding techniques and product development for livestock
• Evaluation of new and improved nutritional programs and feed formulations to enhance livestock performance
• Developing/Integration of new or improved dairy production systems
• Developing technologies to measure body composition in livestock
• Developing ways to increase milk production
• Improvements to animal care practices, including new vaccination protocols and bio-security programs
• Developing new gene transfer technologies
• Evaluating/Integrating of accelerated growth formulas
• Making efforts to control molds, residues, and mycotoxins
• Evaluating and implementing of odor control treatment methods
• Technologies and/or processes to improve cattle lifecycles.
Dairy and beef product processing:
• Creating new and improved techniques to ensure product quality
• Developing new processing techniques, facilities, and innovative products
• Experimenting with aging techniques
• Experimenting with preservatives to increase shelf life of various products
• Developing or experimenting with new feeds or feeding techniques for cattle
• Developing or modifying pasteurization processes
• Developing new or improved methods to minimize bacteria and other contaminants
If a salaried Agronomist ($100,000 in 2018 wages) spent the entirety of 2018 testing soil content to develop the appropriate fertilizer formula to improve crop yield via precision agriculture, the tax credit for their development efforts could amount to $10,000. Furthermore, if the Agronomist utilized “test crops” to evaluate the effects of a new formula, and the fertilizer and seed costs associated with his research amounted to $25,000 you could be eligible for an additional $2,500 in tax benefit, or a combined $12,500. All employees involved in the development efforts associated with the purpose of improving crop yield could qualify. From meetings with Customers to discuss desired crops to the fertilizer testing to the harvest of the crops themselves.
While this scenario highlights the benefit from the standpoint of one employee, an R&D study evaluates the entire company’s operations, often resulting in hundreds of thousands in tax savings/refunds. Our study process is unobtrusive and thorough to ensure you get the credit you deserve, while also staying within the letter of the law.
Calvetti Ferguson works with mid-market companies, nonprofit organizations, and high net worth individuals across the country. Regardless of the complexity of the compliance, assurance, advisory or accounting need, our team stands ready to assist you. Please complete the form below, and we will follow up with you shortly.