Fitting the Mold: Why Plastics Professionals Should Join Their Competitors and Take Advantage of the R&D Tax Credit

The Research and Development Tax Credit, which saves U.S. businesses $10 billion every year, has helped plastics industry professionals, particularly those who work in plastic injection molding, become more agile, and ultimately, more competitive in their marketplace.

Those in the industry who use a cross-discipline approach to testing and production likely qualify for government provided tax incentives that can help take their business to the next level. The plastics industry has seen recent surges in markets such as electronics packaging and automobiles, which is expected to see a 75% growth by 2020. Within the industry, plastic injection molding in the U.S. is seeing the same kind of growth, but the pressure is on to continue the trend. 

Other countries are beginning to increase their standing as industry powerhouses, primarily China, which in turn is putting pressure on U.S. plastic injection molding companies to innovate now more than ever. U.S. companies have stepped up to the plate, with innovations including molding materials that are flexible, more durable, and cheaper, as well as automated machinery to reduce cycle times while ensuring quality and durability.

Plastic injection molding companies are leveraging automation and 3-D printing to garner a competitive edge, all while striving to remain environmentally friendly. These types of industry improvements aren’t just good for the consumer; they also open up an opportunity for the company that’s charged with determining how to make the end product.

The Research and Development Tax Credit, which was enacted by Congress in the 1980s as a way to kickstart the U.S. economy, was designed to reward American businesses who innovate on a daily basis—and ultimately help maintain the country’s status as an economic superpower.

The credit has only been strengthened over the years, with judicial activity and legislative changes widening the lane and increasing the amount of American businesses who qualify for the credit.

For example, the PATH Act made the credit a permanent fixture of the U.S. tax code, making it so the businesses of our country can wholly rely on this valuable reward. The credit was also opened to startups through the startup provision, which allows businesses with gross receipts of less than $5 million a year to claim the credit (which is capped at $250,000) against their payroll taxes.

One of the primary shortcomings of the credit was that newer companies, which are more likely to take risks and invest in improving their products and processes, weren’t able to take advantage of the incentive.

A second change came with the AMT turn-off, which allows small businesses (defined as businesses with less than $50 million in gross receipts) to be able to claim the R&D credit against their alternative minimum tax (AMT).

The AMT was the single greatest barrier preventing perfectly eligible companies from claiming the incentive. Now that the gate has been lifted, small to mid-sized companies working in the plastics industry are able to benefit heavily from its removal.

To give further insight into how companies working in plastic injection molding qualify for the credit, here are just a few business activities that have qualified other businesses in the past:

• Initial conceptual value engineering and manufacturability analysis to identify alternative means and methods to produce a reliable plastic part;
• Working with shop employees to overcome dimensional issues and make design and/or tooling changes; and
• Evaluating improvements for manufacturing methods to improve the quality and manufacturability of the final product design.

Regardless of the size of the project or how intricate it might seem to a plastic injection molding company, these types of common incentives can, and have qualified businesses for the innovation-based incentive. The basis requirement of the R&D Tax Credit is that the business is improving either a process or product.

The bottom line is that if your company is helping to develop or improve products and/or processes through technical know-how, particularly if those improvements are designed to enhance quality or productivity and efficiency, then your business likely qualifies for the incentive.

Those working in the realm of plastic injection molding have already seen significant results from stepping up to claim this incentive for the work they were already doing on a daily basis.

For example, a plastic injection molding company in California with gross revenue of $490 million in 2017 received more than $870,000 in federal and state tax credits by claiming the R&D credit. Another example came when a tool and die plastic injection company in Michigan with gross revenue of $56 million in 2017 received more than $1.2 million in federal tax credits alone from claiming the R&D credit.

While not every company will see these types of results, most companies, especially in the world of plastic injection molding, will be surprised by not just the amount of business activity that qualifies—but ultimately the amount of credit they bring in.

The unique ways in which the manufacturability of these products are designed and tested, along with the end-result products and processes that plastic injection molding companies use to make those products, make these businesses a perfect fit to take advantage of the incentive.

These credits allow companies to reinvest in their business by hiring new employees, purchasing new equipment, and considering other long-term initiatives. This will of course help the company’s bottom-line, but more importantly will help achieve the credit’s original intent, to further strengthen the U.S. economy.

Those working in the plastic injection molding industry have worked tirelessly to help provide American businesses and citizens with the products they need. It’s time they were rewarded for the work they have done.

About the author: Tracy Lustyan is a Managing Director based in alliantgroup’s Chicago office, focusing on clients in the Midwest. Lustyan has broad knowledge of government-sponsored programs, with concentrated expertise in the business application of the R&D Tax Credit, IC-DISC, SUT, DPD, energy credits, and tax controversy services. Since 2010, Lustyan has partnered with more than 120 CPA firms to uncover tax savings for clients. Lustyan is a graduate of California Polytechnic State University at San Luis Obispo.