Posted by William Mehi on 06.14.23

Innovators are continuously coming up with new digital solutions to make running a restaurant easier, faster and more profitable. This technology revolution has turned once imagined solutions into food service necessities, entirely transforming the restaurant business. It’s unlikely to go to any restaurant or bar that hasn’t implemented high-tech hardware or software in its day to day operations. From the cash register (POS System) to the kitchen, technology is an integral part of how restaurants operate. Mobile devices on the table for ordering, online reservations, digital inventory tracking and new methods of payment are just a few types of technology used in the restaurant industry today. As technology quickly develops and changes, owners need to stay on the cutting edge to keep up with their competitors. None of this new technology and equipment would be possible without the implementation of research and development.  If your restaurant tech company has spent time and resources developing new or improved products and processes, you may qualify for the research and development (R&D) tax credit. 

R&D Tax Credits

The R&D Tax Credit, originally enacted as part of the Economic Recovery Tax Act of 1981, was designed to stimulate the economy of the United States. The credit is an incentive for businesses of all sizes to invest in research and development activities to increase technological growth and competitiveness. Examples include new techniques, formulas, software, and the use of state of the art materials to create more reliable, energy-efficient products or processes. This credit was made permanent in 2015, offering ongoing incentives for R&D investment and should be utilized if available.

Qualifying Activities

R&D tax credits represent a money-saving opportunity overlooked by countless restaurant technology businesses simply because they aren’t aware the tax credit is available to them, or they misunderstand its intent.

Viewing qualifying activities in terms of new and improved designs, concepts and processes, tech companies in the restaurant industry will likely find that many of their activities will be eligible for valuable R&D tax credits that they can use to reinvest in their business. 

Four-Part Test for Eligibility

R&D tax credit eligibility largely depends on wheth­er the work you are conducting meets the criteria established by the IRS in its four-part test:

1. Developing a new or improved business component (The Business Component Test): The research’s purpose must be to create a new or im­proved product or process, resulting in increased performance, function, reliability or quality.
2. The activity is technical in nature: The process of experimentation must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
3. Elimination of technical uncertainty: You must demonstrate that you’ve attempted to eliminate uncertainty about the development or improvement of a product or process.
4. Process of experimentation: You must demonstrate – through modeling, simulation, systematic trial and error or other methods – that you’ve evaluated alternatives for achieving the desired result.

The restaurant industry is implementing a wide range of advanced technologies to stay competitive in a continually changing industry.  Listed are a few examples of the types of activities and projects most likely to contain qualified research:

• Programming software source codes
• Designing and developing the structural software architecture
• Conducting requirements, domain, software elements or scope analysis for a new functional software enhancement
• Increasing the efficiency of equipment, reducing costs for repairs or parts
• Conducting unit, integration, functional, performance and regression testing
• Developing new or improved technologies
• Developing new software for automated purchasing
• Development of second generation or improved products
• Product development using computer-aided design tools
• Tooling and equipment fixture design and development
• Optimizing manufacturing processes
• Prototyping and three-dimensional modeling
• Designing and developing cost-effective operational processes
• Alternative material testing
• Designing, constructing and testing product prototypes
• Achieving compliance with changing kitchen regulations
• Experimenting with equipment to improve both efficiency and precision

Many of the activities conducted by restaurant technology and software companies qualify for the R&D tax credit. Tax Point Advisors currently partners with some of the most forward-thinking companies and we’re eagerly looking to help additional companies take full advantage of the available credits in the most effective way. 

Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and their clients throughout the U.S. To learn more about R&D tax credits from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.