The R&D Tax Credit Aspects of the Packaging Industry

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        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.

  1. 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.

  2. 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.

  3. 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:

packaging chart reducing fottprint

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.

  1. 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.

  2. 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.

  3. 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."

  4. 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.

  5. 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.


        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.


        This novel design would contain hidden beneficial bacteria, used to protect food and cosmetics.


        An innovative tool to avoid waste, this film package would reseal, shrink, and conform to its content whenever triggered by the consumer.


        Printable micro-devices would keep the exact balance between oxygen and nitrogen in a package in order to keep food fresh for longer.


        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.


        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.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Andressa Bonafé is a Tax Analyst with R&D Tax Savers.

Charles G Goulding is a practicing attorney with experience in R&D tax credit projects for a host of industries.

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