R&D Tax Credits in the Food & Beverage Industry
Formulation, Packaging, Process, and Sustainability
Every food and beverage company seems to run some version of the same loop: a consumer trend shifts, a regulation changes, an ingredient cost spikes, or a competitor launches a new product, and the company responds by changing something to accommodate the shift. That response may look like an ordinary business practice, but the activities might qualify for the R&D tax credit under IRC §41.
The R&D tax credit rewards technical uncertainty and experimentation, and that doesn’t exclude the food and beverage industry. A food scientist improving a formulation, a packaging engineer experimenting with barrier materials, a plant manager developing tooling for a production line, or a sustainability team piloting a new water recovery process all may be doing qualifying work. The question isn’t what department they’re operating in, it’s whether the activities meet the four-part test laid out by the code.
The Four-Part Test, Applied to Food & Bev Companies
Every activity included in a credit claim must satisfy the same four-part test, regardless of which part of the business it’s performed in.
• 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.
One exclusion does matter in this specific industry: IRC §41(d)(3)(B) states that research does not qualify if it relates to style, taste, cosmetic, or seasonal design factors. A flavor adjustment made purely for taste preference, with no underlying technical question, does not qualify. The same flavor adjustment can qualify when it requires solving a real technical problem underneath it, such as maintaining flavor stability through a new preservation method or replacing an allergen while keeping the product’s functional properties intact.
Formulation
Formulation work is the most straightforward fit for the credit, and the area where companies are most likely to undersell their own activity by describing it as “recipe development” instead of research. Examples of formulation activities that may qualify include:
• Reformulating a product to remove or reduce an ingredient, such as sugar, sodium, or an allergen, while holding taste, texture, and shelf stability constant.
• Developing a new ingredient system (a combination of ingredients that work together, such as a preservative blend) or substitute, including plant-based protein sources, natural preservatives, or clean-label stabilizers, and testing how it performs against the original.
• Improving product shelf life through experimentation with preservation methods, packaging interactions, or formulation changes.
• Improving a formula to work with a new production method or piece of equipment, where the interaction between the formula and the process is not known in advance.
• Developing a formulation that has to perform consistently across different climates, altitudes, and storage conditions.
Routine adjustments, following a published formulation, duplicating a competitor’s product from its label, or making a small taste tweak based on consumer feedback with no underlying technical uncertainty generally falls outside of what will qualify for the credit.
Packaging
Packaging development is often overlooked because it’s easy to think of as a design choice rather than genuine engineering. Examples of where packaging work may qualify include:
• Developing a new packaging material or structure to extend shelf life, improve barrier properties against oxygen or moisture, or replace a material the company can no longer source or wants to phase out.
• Engineering packaging to survive a specific distribution challenge, such as temperature swings, vibration during shipping, or extended time in transit.
• Experimenting with new closures, seals, or fill methods where the interaction with the product itself is uncertain, such as how a seal performs with a carbonated beverage or a high-viscosity sauce.
• Developing packaging that is required to meet a new regulatory requirement, such as a recyclability standard, where the technical path to compliance is not already established.
Under IRC §41(d)(2)(C), a manufacturing process or production process is treated as its own separate business component from the product it produces. Packaging that requires its own line changes or new equipment often sits between formulation, packaging, and process work, and these pieces should be tracked independently rather than as one, overarching project.
Production Processes
Process work covers everything that occurs between the finalization of a formula and a final product leaving the plant, and is often the largest source of qualified expenses performed in food and beverage companies. Some of these activities include:
• Scaling a product from pilot batch to commercial production, where consistency or quality change in a way that was not predictable from the smaller batch.
• Developing tooling or configuring a line to run a new product, ingredient, or packaging format, where the equipment's behavior with the new input is not already known.
• Developing or improving a pasteurization, fermentation, freezing, drying, or extraction process.
• Automating a manual process where the automation must be engineered around the specific characteristics of the product, not installed off the shelf.
Routine or ordinary testing and quality control are excluded from the credit, so while a QA process confirming a batch meets known specifications isn’t research, developing the process that determines what that specification should be or solving why a process is failing to meet the specifications may qualify.
Sustainability Initiatives
Sustainability work has grown quickly across the industry due to many outside factors, such as cost pressure, regulations, and consumer demands, and a good share of sustainability work involves the technical uncertainty that may result in qualified activities. Some of these sustainability activities that may qualify include:
• Developing a process to reduce water usage in production, where the reduction requires engineering how the process works rather than simply running equipment less.
• Formulating a product or developing its packaging to reduce environmental impact, such as replacing a material with a recyclable or compostable alternative, where the substitute must be tested against the original's performance.
• Developing a process to capture, treat, or reuse a byproduct or waste stream that previously went unused.
• Engineering energy efficiency improvements into a production process where the change requires testing and iteration, not just installing a more efficient version of existing equipment.
Purchasing energy-efficient equipment off the shelf, installing solar panels, or adopting widely available recycling programs generally will not meet the requirements of the four-part test.
What Generally Doesn’t Qualify
A few categories that will not qualify come up regularly in the food and beverage sector, and some of these include:
• Taste and style changes with no technical uncertainty. Making changes solely to satisfy subjective consumer preferences won’t qualify, however, food-product development involving taste texture, mouthfeel, or other sensory characteristics may qualify when directed toward a new or improved product characteristic.
• Market research and consumer testing. Section 41(d)(4)(D) excludes market research, surveys, and similar activity, even when it drives a later formulation decision.
• Routine quality control. Confirming a batch meets an already-known specification.
• Duplicating an existing product. Reverse-engineering a competitor's product from its label or a physical sample generally falls under the exclusion in Section 41(d)(4)(C).
• Funded research. Work performed under a co-packing or private-label agreement where a customer funds the research and the company does not retain rights to the results or bear the risk of failure may be excluded under Section 41(d)(4)(H).
Building the Record
Food and beverage companies often generate documentation without realizing how valuable it is to a tax credit; batch records, trial logs, and quality data are already part of how the industry operates on a day-to-day basis. A few habits that will be useful for compiling an R&D tax credit study:
• Keep batch and trial records that show what was tested to achieve the final result, not just the final formula
• Track the problem behind a project separate from the marketing or business decisions that influenced its inception.
• Separate time spent on research and development activities from quality control, production support, or routine batch adjustments.
• Document packaging and process trials in addition to your formulation trials.
• Identify supply costs tied specifically to experimental runs separately from materials used in normal production runs.
As we’ve previously stated, none of this needs to be highly structured or “scientific,” and an expert in the R&D tax credit can help identify and organize these notes into a defensible study.
Frequently Asked Questions
Does recipe development qualify for the R&D tax credit?
It can, when the work involves genuine technical uncertainty, such as replacing an ingredient while preserving taste and texture, rather than a preference-based adjustment with no underlying technical question.
Does packaging development qualify separately from the product itself?
Yes, when it involves its own technical uncertainty, such as a new material's barrier properties or how a package performs under a specific shipping condition. A manufacturing process is also treated as its own business component under §41(d)(2)(C).
Do sustainability projects qualify for the R&D tax credit?
Some do. Work that requires engineering a new process or material to fit the company's specific product can qualify. Simply purchasing an off-the-shelf efficient solution generally will not.
Does scaling up a product from pilot batch to full production qualify?
It can, when the scale-up involves real uncertainty about how the product or process will behave at commercial volume, rather than a straightforward repeat of the pilot process.
Does a co-packing or private-label relationship affect eligibility?
It can. Under the funded research exclusion in §41(d)(4)(H), research paid for by another party may not qualify for the company performing it, depending on the contract terms around economic risk and rights to the results. Having an experienced expert view the details of the contract will be essential in determining qualification.
The RK Partners Approach
Food and beverage companies run research across formulation, packaging, processes, and sustainability teams that may not realize the extent that they qualify for R&D tax credits.
RK Partners works with founders, CFOs, and CPAs to identify qualifying activities across all of these areas, not just in the “lab.” Our engineers, consultants, CPAs, tax attorneys, and engineers have extensive experience spotting and compiling these into a study that can stand up to scrutiny. If you think your company may be performing activities that qualify for the R&D tax credit, please reach out; we’re happy to discuss your eligibility, risk-free.
R&D Tax Credits in the Food & Beverage Industry
Formulation, Packaging, Process, and Sustainability
Every food and beverage company seems to run some version of the same loop: a consumer trend shifts, a regulation changes, an ingredient cost spikes, or a competitor launches a new product, and the company responds by changing something to accommodate the shift. That response may look like an ordinary business practice, but the activities might qualify for the R&D tax credit under IRC §41.
The R&D tax credit rewards technical uncertainty and experimentation, and that doesn’t exclude the food and beverage industry. A food scientist improving a formulation, a packaging engineer experimenting with barrier materials, a plant manager developing tooling for a production line, or a sustainability team piloting a new water recovery process all may be doing qualifying work. The question isn’t what department they’re operating in, it’s whether the activities meet the four-part test laid out by the code.
The Four-Part Test, Applied to Food & Bev Companies
Every activity included in a credit claim must satisfy the same four-part test, regardless of which part of the business it’s performed in.
• 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.
One exclusion does matter in this specific industry: IRC §41(d)(3)(B) states that research does not qualify if it relates to style, taste, cosmetic, or seasonal design factors. A flavor adjustment made purely for taste preference, with no underlying technical question, does not qualify. The same flavor adjustment can qualify when it requires solving a real technical problem underneath it, such as maintaining flavor stability through a new preservation method or replacing an allergen while keeping the product’s functional properties intact.
Formulation
Formulation work is the most straightforward fit for the credit, and the area where companies are most likely to undersell their own activity by describing it as “recipe development” instead of research. Examples of formulation activities that may qualify include:
• Reformulating a product to remove or reduce an ingredient, such as sugar, sodium, or an allergen, while holding taste, texture, and shelf stability constant.
• Developing a new ingredient system (a combination of ingredients that work together, such as a preservative blend) or substitute, including plant-based protein sources, natural preservatives, or clean-label stabilizers, and testing how it performs against the original.
• Improving product shelf life through experimentation with preservation methods, packaging interactions, or formulation changes.
• Improving a formula to work with a new production method or piece of equipment, where the interaction between the formula and the process is not known in advance.
• Developing a formulation that has to perform consistently across different climates, altitudes, and storage conditions.
Routine adjustments, following a published formulation, duplicating a competitor’s product from its label, or making a small taste tweak based on consumer feedback with no underlying technical uncertainty generally falls outside of what will qualify for the credit.
Packaging
Packaging development is often overlooked because it’s easy to think of as a design choice rather than genuine engineering. Examples of where packaging work may qualify include:
• Developing a new packaging material or structure to extend shelf life, improve barrier properties against oxygen or moisture, or replace a material the company can no longer source or wants to phase out.
• Engineering packaging to survive a specific distribution challenge, such as temperature swings, vibration during shipping, or extended time in transit.
• Experimenting with new closures, seals, or fill methods where the interaction with the product itself is uncertain, such as how a seal performs with a carbonated beverage or a high-viscosity sauce.
• Developing packaging that is required to meet a new regulatory requirement, such as a recyclability standard, where the technical path to compliance is not already established.
Under IRC §41(d)(2)(C), a manufacturing process or production process is treated as its own separate business component from the product it produces. Packaging that requires its own line changes or new equipment often sits between formulation, packaging, and process work, and these pieces should be tracked independently rather than as one, overarching project.
Production Processes
Process work covers everything that occurs between the finalization of a formula and a final product leaving the plant, and is often the largest source of qualified expenses performed in food and beverage companies. Some of these activities include:
• Scaling a product from pilot batch to commercial production, where consistency or quality change in a way that was not predictable from the smaller batch.
• Developing tooling or configuring a line to run a new product, ingredient, or packaging format, where the equipment's behavior with the new input is not already known.
• Developing or improving a pasteurization, fermentation, freezing, drying, or extraction process.
• Automating a manual process where the automation must be engineered around the specific characteristics of the product, not installed off the shelf.
Routine or ordinary testing and quality control are excluded from the credit, so while a QA process confirming a batch meets known specifications isn’t research, developing the process that determines what that specification should be or solving why a process is failing to meet the specifications may qualify.
Sustainability Initiatives
Sustainability work has grown quickly across the industry due to many outside factors, such as cost pressure, regulations, and consumer demands, and a good share of sustainability work involves the technical uncertainty that may result in qualified activities. Some of these sustainability activities that may qualify include:
• Developing a process to reduce water usage in production, where the reduction requires engineering how the process works rather than simply running equipment less.
• Formulating a product or developing its packaging to reduce environmental impact, such as replacing a material with a recyclable or compostable alternative, where the substitute must be tested against the original's performance.
• Developing a process to capture, treat, or reuse a byproduct or waste stream that previously went unused.
• Engineering energy efficiency improvements into a production process where the change requires testing and iteration, not just installing a more efficient version of existing equipment.
Purchasing energy-efficient equipment off the shelf, installing solar panels, or adopting widely available recycling programs generally will not meet the requirements of the four-part test.
What Generally Doesn’t Qualify
A few categories that will not qualify come up regularly in the food and beverage sector, and some of these include:
• Taste and style changes with no technical uncertainty. Making changes solely to satisfy subjective consumer preferences won’t qualify, however, food-product development involving taste texture, mouthfeel, or other sensory characteristics may qualify when directed toward a new or improved product characteristic.
• Market research and consumer testing. Section 41(d)(4)(D) excludes market research, surveys, and similar activity, even when it drives a later formulation decision.
• Routine quality control. Confirming a batch meets an already-known specification.
• Duplicating an existing product. Reverse-engineering a competitor's product from its label or a physical sample generally falls under the exclusion in Section 41(d)(4)(C).
• Funded research. Work performed under a co-packing or private-label agreement where a customer funds the research and the company does not retain rights to the results or bear the risk of failure may be excluded under Section 41(d)(4)(H).
Building the Record
Food and beverage companies often generate documentation without realizing how valuable it is to a tax credit; batch records, trial logs, and quality data are already part of how the industry operates on a day-to-day basis. A few habits that will be useful for compiling an R&D tax credit study:
• Keep batch and trial records that show what was tested to achieve the final result, not just the final formula
• Track the problem behind a project separate from the marketing or business decisions that influenced its inception.
• Separate time spent on research and development activities from quality control, production support, or routine batch adjustments.
• Document packaging and process trials in addition to your formulation trials.
• Identify supply costs tied specifically to experimental runs separately from materials used in normal production runs.
As we’ve previously stated, none of this needs to be highly structured or “scientific,” and an expert in the R&D tax credit can help identify and organize these notes into a defensible study.
Frequently Asked Questions
Does recipe development qualify for the R&D tax credit?
It can, when the work involves genuine technical uncertainty, such as replacing an ingredient while preserving taste and texture, rather than a preference-based adjustment with no underlying technical question.
Does packaging development qualify separately from the product itself?
Yes, when it involves its own technical uncertainty, such as a new material's barrier properties or how a package performs under a specific shipping condition. A manufacturing process is also treated as its own business component under §41(d)(2)(C).
Do sustainability projects qualify for the R&D tax credit?
Some do. Work that requires engineering a new process or material to fit the company's specific product can qualify. Simply purchasing an off-the-shelf efficient solution generally will not.
Does scaling up a product from pilot batch to full production qualify?
It can, when the scale-up involves real uncertainty about how the product or process will behave at commercial volume, rather than a straightforward repeat of the pilot process.
Does a co-packing or private-label relationship affect eligibility?
It can. Under the funded research exclusion in §41(d)(4)(H), research paid for by another party may not qualify for the company performing it, depending on the contract terms around economic risk and rights to the results. Having an experienced expert view the details of the contract will be essential in determining qualification.
The RK Partners Approach
Food and beverage companies run research across formulation, packaging, processes, and sustainability teams that may not realize the extent that they qualify for R&D tax credits.
RK Partners works with founders, CFOs, and CPAs to identify qualifying activities across all of these areas, not just in the “lab.” Our engineers, consultants, CPAs, tax attorneys, and engineers have extensive experience spotting and compiling these into a study that can stand up to scrutiny. If you think your company may be performing activities that qualify for the R&D tax credit, please reach out; we’re happy to discuss your eligibility, risk-free.
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.
