R&D Tax Credits for Postharvest Processors
Many agriculture operations don’t think that they’d qualify for R&D tax credits, and that’s not just reserved for farmers. It applies to other essential agriculture operations, such as grain elevator managers and postharvest processors.
If you ask one of these operators, however, whether they've experimented with drying temperatures to cut breakage in corn, improved aeration schedules to catch hot spots before spoilage sets in, improved sorting lines for a new commodity grade, or redesigned conveyor and auger systems to reduce damage when handling a higher-moisture crop, they may answer yes, and that's the kind of work the R&D tax credit was written to reward.
What the R&D Tax Credit Is, and Why Grain Handlers Often Overlook It
The R&D tax credit rewards companies for resolving technical uncertainty through an iterative process of experimentation, and that isn’t reserved for “technical” industries. The industry doesn’t matter; the activity meeting the four-part test is what matters.
Grain handling gets overlooked because the work resembles everyday operations, not research. A dryer setting change or new sorting configuration doesn’t feel like science, but if it meets the four-part test and is solving genuine uncertainty, then it may qualify.
The activity being performed must meet the following:
• Permitted Purpose: The activity must be intended to develop or improve the functionality, performance, reliability, or quality of a business component.
• Technological in Nature: The work must rely on engineering, physical or biological science, or computer science principles.
• Technical Uncertainty: The activity must be undertaken to discover information intended to eliminate uncertainty about the capability, method, or appropriate design of the business component.
• Process of Experimentation: Your team must have a process that evaluates alternatives through modeling, simulation, systematic trial and error, or other methods to eliminate uncertainty.
Drying and Storage Activities That May Qualify for R&D Tax Credits
Dryers, crop years, and moisture targets all may create a slightly different engineering problem. Activities that may qualify:
• Experimenting with airflow rates, temperature curves, and batch sizing to hit a moisture target more efficiently or with less kernel damage
• Developing or improving controlled atmosphere storage to reduce spoilage and insect damage
• Improving aeration schedules to hold moisture within a tighter band across different commodities or facility layouts
Automation and Handling Activities That May Qualify for R&D Tax Credits
Building or substantially modifying a system that grades, sorts, or move products involves engineering uncertainty about calibration, throughput, and error rates. Activities that may qualify include:
• Developing or upgrading grading, sorting, and cleaning systems to identify defects or separate commodity grades at higher speed and accuracy
• Engineering conveyance, dust control, or safety systems around a specific facility's layout and throughput, rather than installing off-the-shelf equipment as-is
• Building automated systems to handle a new commodity or packaging format the facility hasn't processed before
Other Grain and Postharvest Activities That May Qualify for R&D Tax Credits
A few categories outside the drying and automation activities may qualify, including:
• Developing a feed or commodity blend that hits the specific nutritional or quality specification through iterative testing
• Experimenting with cotton ginning equipment configurations to improve fiber quality, throughput, or byproduct handling
• Improving processing equipment for a new crop variety or quality standard that requires re-testing existing methods
What Does Not Qualify?
Not everything in a grain operation will qualify, including:
• Routine calibration and maintenance of existing equipment
• Quality control testing performed after a process is already established and is simply being monitored for consistency
• Market research, management studies, and cost accounting, which are excluded by statute regardless of the analysis involved
• Installing new equipment according to the manufacturer's specifications with no enhancement or facility-specific testing, since there's no uncertainty left to resolve
Documentation Best Practices
Documentation is, of course, essential in R&D tax credit claims, but it doesn’t need to be overly-scientific. Things like notes on what you changed and why, and what worked best are great to include. This is where R&D tax credit experts will be helpful as they are trained to compile documents, even informal ones, into a comprehensive study to submit.
Working with an Advisor on R&D Tax Credits
Grain handling and postharvest companies historically have claimed a very small portion of the federal research credit relative to the size of the industry. The work is being done, but so few in the agriculture sector think to call it research.
If your cooperative or elevator operation has spent the past few years improving, experimenting with, or developing new operations or methods in your facility, it’s worth exploring R&D tax credits as part of your tax strategy before another filing season passes. Schedule a risk-free consultation to see what credits you may qualify for.
R&D Tax Credits for Postharvest Processors
Many agriculture operations don’t think that they’d qualify for R&D tax credits, and that’s not just reserved for farmers. It applies to other essential agriculture operations, such as grain elevator managers and postharvest processors.
If you ask one of these operators, however, whether they've experimented with drying temperatures to cut breakage in corn, improved aeration schedules to catch hot spots before spoilage sets in, improved sorting lines for a new commodity grade, or redesigned conveyor and auger systems to reduce damage when handling a higher-moisture crop, they may answer yes, and that's the kind of work the R&D tax credit was written to reward.
What the R&D Tax Credit Is, and Why Grain Handlers Often Overlook It
The R&D tax credit rewards companies for resolving technical uncertainty through an iterative process of experimentation, and that isn’t reserved for “technical” industries. The industry doesn’t matter; the activity meeting the four-part test is what matters.
Grain handling gets overlooked because the work resembles everyday operations, not research. A dryer setting change or new sorting configuration doesn’t feel like science, but if it meets the four-part test and is solving genuine uncertainty, then it may qualify.
The activity being performed must meet the following:
• Permitted Purpose: The activity must be intended to develop or improve the functionality, performance, reliability, or quality of a business component.
• Technological in Nature: The work must rely on engineering, physical or biological science, or computer science principles.
• Technical Uncertainty: The activity must be undertaken to discover information intended to eliminate uncertainty about the capability, method, or appropriate design of the business component.
• Process of Experimentation: Your team must have a process that evaluates alternatives through modeling, simulation, systematic trial and error, or other methods to eliminate uncertainty.
Drying and Storage Activities That May Qualify for R&D Tax Credits
Dryers, crop years, and moisture targets all may create a slightly different engineering problem. Activities that may qualify:
• Experimenting with airflow rates, temperature curves, and batch sizing to hit a moisture target more efficiently or with less kernel damage
• Developing or improving controlled atmosphere storage to reduce spoilage and insect damage
• Improving aeration schedules to hold moisture within a tighter band across different commodities or facility layouts
Automation and Handling Activities That May Qualify for R&D Tax Credits
Building or substantially modifying a system that grades, sorts, or move products involves engineering uncertainty about calibration, throughput, and error rates. Activities that may qualify include:
• Developing or upgrading grading, sorting, and cleaning systems to identify defects or separate commodity grades at higher speed and accuracy
• Engineering conveyance, dust control, or safety systems around a specific facility's layout and throughput, rather than installing off-the-shelf equipment as-is
• Building automated systems to handle a new commodity or packaging format the facility hasn't processed before
Other Grain and Postharvest Activities That May Qualify for R&D Tax Credits
A few categories outside the drying and automation activities may qualify, including:
• Developing a feed or commodity blend that hits the specific nutritional or quality specification through iterative testing
• Experimenting with cotton ginning equipment configurations to improve fiber quality, throughput, or byproduct handling
• Improving processing equipment for a new crop variety or quality standard that requires re-testing existing methods
What Does Not Qualify?
Not everything in a grain operation will qualify, including:
• Routine calibration and maintenance of existing equipment
• Quality control testing performed after a process is already established and is simply being monitored for consistency
• Market research, management studies, and cost accounting, which are excluded by statute regardless of the analysis involved
• Installing new equipment according to the manufacturer's specifications with no enhancement or facility-specific testing, since there's no uncertainty left to resolve
Documentation Best Practices
Documentation is, of course, essential in R&D tax credit claims, but it doesn’t need to be overly-scientific. Things like notes on what you changed and why, and what worked best are great to include. This is where R&D tax credit experts will be helpful as they are trained to compile documents, even informal ones, into a comprehensive study to submit.
Working with an Advisor on R&D Tax Credits
Grain handling and postharvest companies historically have claimed a very small portion of the federal research credit relative to the size of the industry. The work is being done, but so few in the agriculture sector think to call it research.
If your cooperative or elevator operation has spent the past few years improving, experimenting with, or developing new operations or methods in your facility, it’s worth exploring R&D tax credits as part of your tax strategy before another filing season passes. Schedule a risk-free consultation to see what credits you may qualify for.
R&D Tax Credits for Timberland and Forest Management Companies
Timberland owners and forest management companies often don’t recognize that they may qualify for R&D tax credits, but many of them are already performing research and development activities when improving operations.
