Research and Development Credits for Breweries

Nick Rider is a CPA and manager at Mauldin & Jenkins and has 8 years of experience in public accounting.  Mauldin & Jenkins is an active Allied Trade Member of the Georgia Craft Brewers Guild.  Nick’s primary focus in public accounting has been in Pass-through and Individual taxation focusing on the manufacturing and real estate industries.  Nick has graciously offered to guest blog, here, on the following topics, at least as a start: Research and Development Credits (this article); Domestic Production Activities Deduction; GA Retraining Credits; and New Employee Credits.

Without further ado, here’s Nick’s post about Research and Development Credits:

Innovation, efficiency, productivity, and increased profits, are just a few of the reasons why companies invest heavily in Research and Development.  For Craft Breweries this process is vital, not only to each company, but to the industry as a whole.  While an investment in R&D can be beneficial to a company’s long-term success, it usually means large expenses at the onset of the project.  Luckily for businesses, credits are available, at both the Federal and State level, to help lower the tax burden on taxpayers who are actively involved in research and development.  While the Federal credits get most of the attention during planning, Georgia also has a tax credit that can be used.  A taxpayer is eligible for the credit if they are allowed a Federal research credit and have qualified research expenses in Georgia.  The calculations for the GA R&D credit are a little different than that of the Federal credit, but can mean a credit of 10% of qualified expenses over a calculated base amount.

Businesses engaged in manufacturing, warehousing and distribution, processing, telecommunications, tourism, and research and development that have qualified research expenses can claim the credit.  While the main focus for Craft Brewers in Georgia is typically on the development of new flavors, there should also be a focus on the processes used.  Development or improvements to a product or a process qualify as research and development activities.  The process improvement could focus on bottling and canning line optimization, new boiler heat points, automated filling and transfer processes, and the list goes on and on.  Georgia uses the same definitions of qualified research expenses that are used at the Federal level.  These expenses include in-house expenses paid for research activities, including wages and supplies used to conduct the research if conducted in Georgia.  Also included is 65% of the expenses paid to outside contractors for research efforts.

The credit can be used to offset up to 50% of a taxpayer’s remaining tax liability after all other credits have been applied.  But this is where the GA credit really differentiates itself from other credits; if a taxpayer’s credit exceeds 50% of their tax liability, the excess may be taken as a credit against the monthly or quarterly withholding tax payments.  This could be a great incentive for a business to base their R&D out of GA versus another state that may only allow for a credit carry-forward.  The credit can also be passed through to investors of a pass-through entity when the business has no tax liability of its own.  The credit must first be taken on the business return to establish the amount of credit that is available to be passed through.  The individual taxpayer can then file their personal return and claim the credit that is available.

As with any tax strategy, planning is critical and you shouldn’t make decisions based solely on the tax consequences.  Always consult your tax advisor before making any decisions on the use of Federal and State credits.

Stay tuned for more coming soon (and thanks, Nick!).