Engineers apply cutting-edge scientific technologies to solve problems across every industry imaginable. From working to mitigate the effects of climate change, to developing new drugs to help fight the next global pandemic, engineers provide invaluable services to our society. In the rapidly changing world we live in today, it is vital for engineering companies to acquire the resources they need to meet our world’s growing challenges head-on.
Farming brought a slew of challenges, many of which we still face in today’s world. For instance, as populations became more concentrated within a small area while simultaneously growing, it was much easier for diseases to spread. Also, if farming became impossible on a given year due to a drought, for instance, an entire community could be entirely wiped out in a single season. So, the question became: “How do I maximize the crop yield, while minimizing costs and risks?” While we’re fortunate to not have to worry about food shortages in the modern United States for the most part, this is largely thanks to innovation within the agricultural industry. The agricultural industry continues to perform R&D to face incredibly important challenges for the future of humankind, and the cost of many of these activities can be offset by R&D tax credits.
This has never been more relevant in recent months with the Covid-19 shelter in place orders. While supply chains have been completely thrown off, it has never been more important to ensure that grocery stores are being stocked with food. Companies have been forced to come up with innovative solutions to these unprecedented supply chain issues, making R&D more important than ever.
How does an Engineering company qualify for the credit
There is a four – part test used to determine whether a company has a project that qualifies for the R&D Tax Credit. If you have a project that meets each of the four quadrants below, your project most likely qualifies
Technological in nature
- Discover information that fundamentally relies upon principles of Hard Sciences (i.e. Physical Sciences, Biological Sciences, Engineering, Computer Science, etc.)
- Not social, economic, or psychological Permitted Purpose
Permitted Purpose
- Develop a new, or improve an existing, product or process
- Related to Functionality, Performance, Reliability, Quality, Significant cost, Savings, etc.
- Not Aesthetics
Eliminate Uncertainty
- Capability
- Uncertain if able to achieve desired result
- Methodology
- Uncertain of optimal design or process to achieve project goals
- Goals to show there were issues and potential alternate solutions
Process of Experimentation
- Evaluate and test alternative design or process to identify optimal solutions
- Methods to use
- Prototyping
- Modeling
- Systematic Process of Trial and Error
- Simulation
- Computer Science Testing (Validation, Beta, etc.)
Once a company determines that their project meets these criteria, three expense categories factor into the tax credit calculation:
Wages
- Employees involved in conducting or carrying out qualified research.
- Employees providing supervision of qualified research.
- Employees providing support for qualified research activities.
Supplies
- Resources consumed or used up during the carrying out of qualified research.
Contract Research
- 3rd parties paid to assist in the conducting or carrying out of qualified research.
- Requires the Company to maintain rights to the project (i.e. research performed on behalf of the Company)
- Requires the Company to bear the expense if the research is unsuccessful.
Agricultural companies can qualify for the R&D tax credit regardless of the type of farming they specialize in. While not all-inclusive, a few examples of agricultural companies that could claim the tax credit include:
Cannabis
Few industries in the United States have experienced the level of growth seen within the cannabis market in recent years. Even with its quasi-legal status, Arcview Market Research and BDS Analytics conducted a recent study projecting that global marijuana sales will grow from $3.4 billion in 2014 to $40.6 billion in 2024. This increase in sales will come with an increase in R&D investment within the industry, which will allow cannabis growers to continue to take advantage of the R&D tax credit to limit their tax liability. A few examples of qualifying activities include:
- Developing a new strain of cannabis for medical or recreational use.
- Researching new methods to take cannabis (e.g. a new edible or vaporizer).
- Conducting clinical trials to determine efficacy of a new cannabis treatment for a given medical condition.
- Conducting clinical trials to determine efficacy of a new cannabis treatment for a given medical condition
While cannabis has been around for centuries, it is still in its infancy in terms of widespread adoption given its legal status. With that, there is still much research to be done and room for companies to innovate within the space. Cannabis growers can leverage the R&D tax credit to maximize the funds available to funnel into research activities.
Animal Feed
When you think of farming, you probably think of farmers growing crops to sell at a farmer’s market or grocery store for, you know, people to eat. However, approximately 1/3 of croplands are used for livestock feed production. This is a huge percentage, and due to environmental pressures to limit our carbon footprint and maximize green space, there is a push to limit the farmland being used for these purposes. As farmers aim to meet livestock feed demand while also limiting the space they’re using to do so, R&D will continue to be a major driver within the industry. A few examples of R&D activities might include:
- Designing new equipment or software to automate or semi-automate certain processes.
- Testing new methods of cropping (e.g. transitioning to organic farming).
- Researching methods to maximize crop yields with new fertilizer or fertilization techniques.
- Developing and implementing new irrigation systems.
- Designing specialized farming equipment for planting, harvesting, or processing.
- Optimizing feed quality through chemical evaluations.
If you own a farm that produces crops for animal feed, and you test different methods for accomplishing your goals more efficiently, your operation likely qualifies for R&D tax credits.
Commercial Plantations, Grain Farming, and Co-ops
Commercial plantations take farming to a whole new level and can specialize in a specific crop, grain for instance, and produce this crop on a large scale. Since profit margins are largely dependent on the crop yield, as there is only so much space available and the price is set by the market, commercial plantations often take part in R&D to maximize the yield within a given area. Common qualifying R&D activities performed by commercial plantations include: