How Publix’s $2.6 Million R&D Tax Credit Fight Challenges What We Think “Research” Looks Like
When you think about companies conducting research and development, a grocery store probably isn’t the first business that comes to mind.
But maybe it should be.
On August 25, 2026, Publix Super Markets filed a lawsuit against the United States seeking a refund of more than $2.6 million related to its 2018 federal Research and Development (R&D) Tax Credit. According to reports about the newly filed complaint, Publix claims approximately $38 million in qualified research expenses related primarily to two areas: software development and private-label product development.
The IRS disallowed the credit. Publix is now challenging that determination in federal court.
Because the case was just filed, there is an important caveat: the court has not determined that Publix is entitled to the credit, and the government’s response has not yet been filed. We also don’t yet have enough public information to understand the IRS’s specific objections to each category of research.
But regardless of the eventual outcome, the case highlights something important about the R&D Tax Credit:
Research is defined by what a company does—not by the industry it operates in.
Publix is a grocery company. But behind a modern grocery operation is a sophisticated organization developing technology, improving systems, creating products and solving technical problems.
Software is a perfect example.
Large retailers rely on complex software systems to manage inventory, supply chains, distribution, pricing, customer experiences and countless other business functions. Developing that software, however, does not automatically qualify for the R&D Tax Credit.
The real question is how the software was developed.
Was there technological uncertainty about whether or how a desired functionality could be achieved? Were different technical approaches or architectures evaluated? Did developers build prototypes, test alternatives, encounter failures and modify their approach based on those results?
Those facts can be far more important than the simple fact that software was created.
Depending on the nature and use of the software, additional requirements applicable to internal-use software may also come into play. That will be one area worth watching as the Publix litigation develops.
The private-label product portion of Publix’s claim may be equally interesting.
Walk through almost any grocery store and you’ll see hundreds of private-label products. It would be easy to look at those products and think of the work behind them simply as “product development.”
But product development and qualified research are neither mutually exclusive nor synonymous.
Creating a new product does not automatically mean qualified research occurred. At the same time, knowing the product you want to create does not mean there was no technological uncertainty involved in determining how to create it.
Consider a food company trying to develop a product with specific requirements for taste, texture, nutritional content, stability, shelf life or manufacturing performance.
The company may know exactly what it wants the finished product to accomplish while remaining uncertain about the appropriate formulation or methodology required to achieve it.
Different ingredients may be evaluated. Formulations may be modified. Processing conditions may change. Prototypes may fail to meet performance requirements. Testing results may lead the development team back to another formulation.
That iterative process can matter enormously when evaluating activities under IRC Section 41.
Ultimately, however, neither “we developed software” nor “we developed a new product” is enough.
Qualified research must satisfy the requirements of the Section 41 four-part test, including that the research be undertaken for a permitted purpose, technological in nature, intended to eliminate technological uncertainty and involve a process of experimentation.
And there is another lesson that may prove particularly important as the Publix case develops:
Conducting qualified research and proving that qualified research occurred are two different things.
Taxpayers need to identify the relevant business components, establish the technical uncertainties involved, demonstrate the process through which alternatives were evaluated, and connect qualified activities to the expenses included in the credit calculation.
That connection between the technical work and the tax calculation is where a well-supported R&D credit study becomes particularly important.
Publix’s decision to challenge the IRS’s disallowance gives us an opportunity to see how these principles may be applied to a large organization that most people would never describe as an “R&D company.”
And perhaps that’s the most important takeaway from this case so far.
A company’s industry classification does not answer the R&D question.
Neither does the presence of scientists in lab coats, a patent portfolio or a department with “Research & Development” written on the door.
The analysis starts with the activities.
What was the company trying to accomplish? What technological uncertainty stood in its way? What alternatives did it evaluate? How did it experiment to resolve that uncertainty? And can it substantiate the work and the associated costs?
Those are the questions that matter.
Publix v. United States is only beginning, and it is far too early to know how the court will ultimately view Publix’s research activities or the IRS’s reasons for disallowing the credit.
But for companies developing software, products, processes or formulations outside the industries traditionally associated with R&D, this is a case worth watching.
Because sometimes research doesn’t look like a laboratory.
Sometimes it looks like a grocery store.
If your business is in a non-traditional industry for the research tax credit, get in touch with DST Advisory Group to find out if your activities may qualify.