A common question from manufacturers is whether packaging development and testing can qualify as research and development for the federal R&D tax credit under Section 41. The short answer is that packaging development may constitute qualified research when the work evaluates alternative designs or materials to resolve a technical uncertainty about functional performance — such as structural performance, barrier properties, or durability. Aesthetic packaging changes are excluded under Section 41(d)(3)(B). This page explains the framework in general terms. It is educational and is not individualized advice. For the foundational framework, see our page on qualified research.
Functional vs. Aesthetic Packaging Development
A central distinction is between functional packaging development and aesthetic changes. Under Section 41(d)(3)(B), research relating to style, taste, cosmetic, or seasonal design factors is not treated as conducted for a qualified purpose. This means that work directed primarily at the visual appearance of packaging — changing graphics, colors, or shapes for aesthetic reasons — generally does not satisfy the permitted purpose element.
Functional packaging development — where a company is uncertain whether a packaging design can achieve a required functional performance (structural strength, barrier properties, durability, or production compatibility) and tests alternatives to resolve that uncertainty — may warrant review.
When Packaging Development May Warrant Review
Packaging development may warrant review when the work involves:
- Structural performance — evaluating alternative package designs or materials to resolve uncertainty about whether a package can survive shipping or handling without damage.
- Barrier properties — testing alternative materials or coatings to resolve uncertainty about whether a package can achieve the required barrier against moisture, oxygen, or light.
- Durability — evaluating alternative designs or materials to resolve uncertainty about whether a package can achieve the required shelf life or environmental resistance.
- Materials development — testing alternative packaging materials to resolve uncertainty about whether a material can achieve the required combination of properties.
- Production compatibility — evaluating alternative designs to resolve uncertainty about whether a package can be produced at the required speed or quality on existing equipment.
In each case, the four-part test applies: the work must be for a permitted purpose (functional improvement), be technological in nature, be intended to eliminate uncertainty, and be conducted through a process of experimentation.
Hypothetical Example
Consider a manufacturer that is developing a new package for a product that requires a long shelf life and is uncertain whether any available barrier material can achieve the required oxygen transmission rate at an acceptable cost. The company evaluates alternative barrier materials, tests each for oxygen transmission and shelf life, and systematically varies the package design to resolve the uncertainty. This systematic evaluation of alternatives to resolve a technical uncertainty about barrier performance may warrant review as qualified research.
By contrast, if the same manufacturer changes the graphics or color of an existing package for aesthetic reasons, that is an aesthetic change, not research.
This example is illustrative only and does not state that the activity definitely qualifies.
Documentation That May Help
Records that can help support packaging development claims include design records identifying the functional uncertainty and alternative designs, structural and barrier test results, shelf-life data, and records of how results informed design or material changes. Records that distinguish functional development from aesthetic changes are particularly useful. For more, see our page on R&D tax credit documentation.
Key Takeaway
Packaging development and testing may constitute qualified research when the work evaluates alternative designs or materials to resolve a technical uncertainty about functional performance. Aesthetic packaging changes are excluded under Section 41(d)(3)(B). Because the distinction is fact-specific, professional review is appropriate before claiming the credit.