Chemical manufacturers perform activities across a broad range of categories that qualify for the R&D tax credit. These activities can range from product development and formulation to the design and development of large scale production plants. Taxpayers that develop a few chemical products often spend significant resources to develop the product, validate safety and secure regulatory approval. Larger taxpayers may incur significant expenses to design and construct a plant for large-scale production. The development and use of pilot plants for testing and scaling up the production process may qualify. Safety, stability and packaging of chemical products also involve significant R&D efforts. Sub-industries in this area include consumer chemicals, industrial chemicals, cosmetics, textiles and many more.
Qualified Research Activities for Chemical Companies
- Development and formulation of new chemical products
- Design and development of new packaging solutions
- Design and development of laboratory and manufacturing equipment
- Development of pilot plants
- Testing and experimentation for product stability and safety
- Development and testing of additives or catalysts
- Software or electronic analysis tool development
- Development of new or improved feedstocks
- Development of new polymer products
- Methanol and ethanol products and process development
- Improving the shelf life of existing products
- Analyzing samples for chemical content
- Development and formulation of health and beauty products
- Automation of labor intensive processes
- Scale-up from lab batches to full production
- Development of software used in production systems
- Development of control room software and components
- Design and development of wastewater systems
- Design and development of safety systems
- Quality control activities
R&D Tax Credit Case Study: Chemical
For over 35 years this chemical company has developed and manufactured environmentally friendly products for personal care, household and industrial use.
R&D Tax Credit Qualification for Chemical
This company’s R&D process started with concept development which included input from chemists, product managers, process engineers, technical specifications personnel and company leadership.
Once the initial concept was created, the project moved to the detailed formulation and recipe development phase in the laboratory. Trials were conducted and various formulations were evaluated.
The prototype phase followed which included creating ever increasing batch sizes. The recipe was scaled for the R&D reactors and the operations personnel produced the first prototype batch. Once the prototype batch was completed, the material was taken through a number of tests depending on the surfactant characteristics desired in the product. This was often an iterative process with adjustments being made to new prototype batches followed by another round of testing.
Prototypes were subjected to environmental testing, which normally included stability and temperature tests. With many products going into personal care products, a wide variety of skin irritation and other types of tests must were also conducted to certify the product. Some tests were conducted by outside resources so the time between batches was significant. Many times the material would have to be taken to a customer for acceptance testing. Once the batch was approved by the customer, full production began.
Results Speak For Themselves
This company has more than $1,500,000 in qualified research expenditures each year, which equates to $104,000 of tax savings each year.