The R&D Tax Credit Aspects of the Packaging Industry
Packaging is an indispensable aspect of
every product's commercialization. From warehousing and
transportation to sale and end use, packages are fundamental
facilitators of handling, protection, and conservation of
goods.
A number of innovation efforts are
currently underway to optimize packaging practices,
particularly concerning their effectiveness, safety,
efficiency, and environmental impact.
This article will discuss examples of
innovation in the packaging industry and present the R&D
tax credit opportunity available for companies engaged in
similar activities.
The Research &
Development Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
criteria:
- New or improved products,
processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
Eligible costs include employee wages, cost
of supplies, cost of testing, contract research expenses, and
costs associated with developing a patent. On December 18,
2015, President Obama signed the bill making the R&D Tax
Credit permanent. Beginning in 2016, the R&D credit can be
used to offset Alternative Minimum tax and startup businesses
can utilize the credit against up to $250,000 per year in
payroll taxes.
Innovation in the
Packaging Industry
In recent years, the packaging industry has
faced a number of challenges, from a difficult and uncertain
macroeconomic context to mounting costs of energy and raw
material. In this scenario, innovation stands out as a basic
condition for success.
Potential for advances in the packaging
industry is limitless. As a matter of fact, since its birth,
this industry has been based on innovation. A few examples of
groundbreaking products that changed the face of packaging in
their times were the invention of moisture-proof cellophane in
the early 1900s, the use of zipper bags for food storage in
the 1960s, and the creation of modified atmosphere packages
for meat conservation in the 1990s.
Currently, a number of aspects stand out as
fruitful fields for innovation. Companies engaged in R&D
activities regarding any of the following domains constitute
strong candidates for Federal R&D tax credits.
- Materials, processes, and
design:
The search for new materials has gained importance in the
packaging industry, particularly due to heightened
environmental awareness and rising prices of raw material.
New inventive materials that are renewable and smart have
been discovered, however, research is necessary to
determine innovative and creative ways to apply
traditional materials, such as cellulose composite.
Additionally, new processes are needed to enhance
efficiency and effectiveness of operations while complying
with ever more strict regulations. As far as design goes,
the packaging industry must respond to new life-styles and
to a very competitive market.
- Sustainability:
Innovation in the packaging industry must consider a
growing concern about its environmental footprint.
Responsible sourcing, resource optimization and waste
reduction, water conservation, energy efficiency and the
use of renewable energy, reduced greenhouse gas emissions
and pollution, are examples of new inescapable priorities.
- Cost-effectiveness:
Similar to every other field of economic activity, the
packaging industry is constantly looking for new ways to
increase cost-effectiveness of its processes and products.
In other words, innovation must focus on creative
strategies that increase productivity relative to cost. A
few domains stand out as promising targets for
productivity enhancing innovation: a) reduction in package
weight, b) diminution of waste after end use, c) extension
of shelf life, and d) enhancement of production and
transportation efficiency.
Sustainability and Industry Implications:
Major companies from various economic
sectors have established sustainability commitments aimed at
reducing their environmental footprint, not only through
changes on their own operations but also through the creation
of new and stricter requirements for business partners. In
most cases, the so-called supply chain sustainability programs
present specific targets and requirements for packaging
suppliers. The following table presents a summary of major
companies' environmental policies:

Innovative Efforts:
A number of innovative packaging
initiatives are currently underway. The following examples
demonstrate the variety of promising R&D projects in the
packaging industry.
- New Materials:
The New York start-up, Ecovative Design is working on a
new biodegradable styrofoam-type material made from
mushrooms. Inspired by the natural process of adhesion,
where tissue of mushrooms bound woodchips together, the
company has used mycelium, the supporting structure of
fungi, as a building material. By combining a mycelium
network with agricultural waste, Ecovative Design has been
able to create packaging products in various shapes and
sizes. This innovative process is also a "green" one. In
addition to being completely biodegradable, it does not
require external energy. Founders of the design firm
believe natural packaging is central to the industry's
future.
- DNA Authentication:
DNA "taggants" are an innovative tool to prevent
counterfeit packaging. By incorporating unique DNA
sequences that cannot be reproduced, this technique offers
an unprecedented level of security and constitutes an
effective forensic means to verify a product's
authenticity. Custom DNA sequences containing information
(manufacturer's name, facility location, etc.) are
embedded into a host carrier, such as ink, which is then
printed onto the packaging or label. In recent years, the
increase in packaging forgery has negatively affected
consumers and brand owners, causing health, safety, and
financial concerns. This is particularly sensitive for the
pharmaceutical industry, which has experienced significant
market erosion due to counterfeit.
- Smart Labeling:
The unprecedented multiplication of mobile devices
revolutionized the access to information. In this context,
every package can now be a smart package. Mobile phone
barcode scanning has allowed consumers to instantly learn
more about a product (its use and maintenance, for
instance) and to have access to its prices and reviews.
New barcode scanning apps can also simplify various tasks,
such as inventory management and asset tracking.
Concurrently, the packaging industry has seen the
emergence of enhanced information labeling. This is
particularly true for pharmaceutical companies producing
over-the-counter medicines, which are currently obliged by
the U.S. Food and Drug Administration (FDA) to feature
"information listed in the same order; arranged in a
simpler eye-catching, consistent style; and containing
easier to understand words."
- Innovative Designs:
Crown Packaging Technology Inc. was recently issued a
patent for a re-closable beverage can end. The invention
comes from the need of a user-friendly and not costly
mechanism that allows for the storage of beverage for
later use while ensuring security, cleanliness, and
maintenance of the carbonation level. Phoenix Closures is
also engaged in developing new consumer-friendly designs.
The company is currently working on a bottle assembly with
internal scraper, inner seal, and cap. The invention is a
response to the consumers' need of a convenient way to
remove a measured dose of the product.
- Electroluminescent Packaging:
Display functions featuring electroluminescent effects are
also an emerging trend in the packaging industry. The
optical and electrical phenomenon through which a material
emits light in response to an electric field or current
allows for the colorful depiction of shining logos,
images, and texts. Different areas of the package can be
illuminated and motion sensors can also be incorporated.
Originally conceived as a marketing tool and a means to
call the consumer's attention, this technology is
currently used in pricier goods, such as liquors and
cosmetics.
What the Future Holds
Recent examples of innovative efforts in
the packaging industry inspire hopes of a promising future.
DuPont has taken on the difficult task of imagining the
probable advances on a distant future. The fictional list can
serve as inspiration for packaging companies committed to
continuous innovation.
CleanBag
A water-purifying pouch containing dry food
that can be tossed in any water to provide both safe food and
clean water. This innovative solution would facilitate food
delivery to disaster areas.
Probiopak
This novel design would contain hidden
beneficial bacteria, used to protect food and cosmetics.
Configure
An innovative tool to avoid waste, this
film package would reseal, shrink, and conform to its content
whenever triggered by the consumer.
MEM-Pack
Printable micro-devices would keep the
exact balance between oxygen and nitrogen in a package in
order to keep food fresh for longer.
Sterilex
A multi-use pouch capable of emitting a
microbe-killing gas to sterilize its contents. This innovative
package would contribute to fewer contaminations from dirty
health/medical instruments.
Conclusion
The packaging industry is a prospering
field for innovation. The combination of the increase of
environmental awareness, evolving technologies, selective
consumers, and a highly competitive market make it crucial for
packaging companies to engage in R&D projects. Federal
R&D tax credits are available to support eligible
activities.