INSIGHT

Tax savings often missed by food and beverage manufacturers   

Yash Shah, Kevin Moyers • April 9, 2025

Services: Corporate Tax Industries: Consumer Business

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In the fast-paced food and beverage industry, it’s easy to fall into routine tax planning. While focusing on quality products and operations, valuable tax savings opportunities may be slipping through the cracks.  

5 Top Tax Savings for Food and Beverage Manufacturers 

Here are five key areas where your business could be leaving money on the table. 

1. Research & Development Tax Credits: Beyond New Products 

Many mistakenly believe R&D credits apply only to groundbreaking innovations. However, the permanent R&D tax credit covers various activities in food and beverage manufacturing, including: 

• Recipe and formulation development to improve taste, shelf life, or nutritional content  
• Enhancing manufacturing processes for efficiency or food safety 
• Developing new or improved packaging for freshness or sustainability 
• Developing and implementing quality control systems 

For growing businesses, recent changes to R&D credit provisions are particularly attractive. Companies with less than $5 million in gross receipts in the current year, and those that do not have any gross receipts in the prior year or earlier, are able to offset up to $500,000 of Social Security and Medicare tax liabilities. Any R&D credits calculated in excess of the initial $500,000 may also be used against income tax liabilities or carried forward for up to 20 years until fully utilized against future income tax liabilities. 

2. Export Incentives Through IC-DISC 

If your products reach international markets, an Interest Charge-Domestic International Sales Corporation (IC-DISC) can reduce your tax burden. This strategy allows qualifying export income to be taxed at the lower capital gains rate (typically 20%) rather than higher individual income tax rates (up to 37%). 

The primary benefit of the IC-DISC is the ability to convert the ordinary income to qualified dividend income, which is taxed at the lower rate as seen above. The exporting company pays a commission to the IC-DISC, which is deductible as an ordinary business expense. This reduces the company’s taxable income, which is subject to the ordinary income tax rate. The IC-DISC being an exempt entity, can then distribute its earnings to its shareholders as a qualified dividend. These dividends which are then generally taxed at 20% for most taxpayers plus an additional 3.9% net investment income tax for high income earners. 

Despite concerns about compliance costs, businesses with export revenues typically see tax savings outweighing these costs. This structure is particularly valuable for: 

• Companies exporting specialty food products 
• Beverage manufacturers with international distribution
• Businesses with expanding global sales channels 
• Manufacturers supplying food service operations abroad 

3. State Tax Nexus Considerations 

In the age of digital commerce, food and beverage manufacturers, like many other businesses, may face tax obligations in states where they don’t have a physical presence. This is due to the concepts of state income tax nexus and sales tax nexus, which have evolved significantly with the rise of e-commerce and direct-to-consumer sales. 

• Income Tax Nexus: Historically nexus was based on physical presence within a state, however now many states have adopted economic nexus standards. This means that even without a physical presence, a business can establish a nexus through significant economic activity within a state. Thus, creating an income tax return filing obligation 
• Sales Tax Nexus: Like income tax nexus, sales tax nexus creates an obligation to collect and remit sales tax, as well as file the necessary sales tax returns, even if some sales are not subject to sales tax. The 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. allowed states to impose sales tax based on economic activity rather than physical presence. Most states have since adopted these standards. 

One of the key advantages of the manufacturing industry is the ability to leverage numerous sales tax exemptions, leading to significant cost savings. Many states offer exemptions for items integral to the manufacturing process, such as machinery, equipment, and consumable supplies in states like California, Florida, New York, and Texas. This can lead to a significant reduction of overall tax liability and increased profitability. 

A comprehensive nexus study can help: 

• Identify state tax filing requirements 
• Utilize voluntary compliance programs to reduce penalties
• Recover overpaid taxes 
• Optimize multi-state tax strategy 
• Ensure audit readiness with proper documentation 

State income tax nexus analysis helps corporations identify tax-saving opportunities by strategically shifting income and optimizing tax planning across different states, ensuring compliance and minimizing tax liabilities. 

4. Work Opportunity Tax Credit (WOTC) 

High employee turnover in the food and beverage industry makes the WOTC especially valuable. This credit provides up to $9,600 per qualifying employee, including: 

• Veterans 
• Long-term unemployed individuals 
• Federal assistance recipients 
• Summer youth employees 
• Food Stamp recipients 
• Long-term Family Assistance recipients 
• Supplemental Security Income recipients
• Other targeted groups 

By incorporating WOTC screening into your hiring process, you can maximize tax benefits while building a diverse workforce. 

5. Qualified Small Business Stock (QSBS) 

A qualified small business stock (QSBS), also known as section 1202 stock, exclusion is a tax benefit that applies to eligible shareholders of a qualified small business.  The QSBS exclusion incentivizes investment in small businesses, including those in the food and beverage industry, by offering substantial tax benefits.  Eligible shareholders may exclude up to 100% of capital gains from federal taxes upon selling or exchanging QSBS. 

To qualify, as a Qualified Small Business Stock: 

• Be a domestic C Corporation 
• At least 80% of the company’s assets must be in actively used in qualified trade or business operations 
• The stock must be an originally issued stock by a C Corporation after August 10, 1993 and not acquired from another shareholder 
• Hold the stock for at least five years 
• Have total assets of $50 million or less before and after issuing stock 

The QSBS exclusion can exempt capital gains up to $10 million or 10 times the investment’s adjusted basis, whichever is greater. However, not all states conform to federal QSBS rules—for example, New York does, while California does not. 

Take action to maximize your tax savings 

Don’t let valuable tax savings slip away. BPM’s food and beverage industry specialists can help identify and implement tailored tax strategies. Contact us today for a comprehensive review of your tax position and discover potential savings. 

A knowledgeable tax advisor can craft an optimal tax strategy, minimize liabilities, identify valuable credits, and enhance cash flow, ultimately boosting profitability and ensuring compliance with complex tax regulations. 

Ready to optimize your tax strategy? Reach out to BPM’s Food and Beverage team to discover how we can support you.