It is easy to see how pharmaceutical companies qualify for the research and development (“R&D”) Tax Credit: state-of-the-art labs and equipment, chemistry, and scientists in white lab coats! However, there are many qualified activities and expenses that are often overlooked without a comprehensive understanding of the types of qualified activities and expenses outlined in Section § 41.
In addition to developing novel pharmaceutical drugs, companies must determine how to take a drug formula from small-scale development in the lab and scale it up for large-scale production and distribution. Therefore, it’s not just the activities of pharmacists, chemists, and laboratory technicians that can be captured towards the R&D Tax Credit. Many of the employees that work on the production line are often participating in qualified R&D activities as well. Further, not only is employee time working on initial production runs to refine the manufacturing process a qualified expense, but the raw materials used during first-runs are also qualified.
alliantgroup recently worked with a growing pharmaceutical company to identify R&D Tax Credits. This particular company specializes in developing generic drugs and is currently making efforts to expand its product line. Even after the final drug formulations are determined for each new product, a significant time investment remains to develop and optimize the manufacturing processes.
Additionally, the company expended significant resources to improve the regular manufacturing processes that were already in place to increase overall efficiency. Many of these costs constituted qualified research expenditures. For example, the company hired consultants to design the optimal production floor layouts to maximize production.
Ultimately, alliantgroup identified nearly one million dollars in R&D Tax Credits for this client. A significant portion of the credit was based on new and improved manufacturing processes demonstrating that qualified R&D expenses extend beyond the confines of a laboratory setting.