The good news is that the Research & Development tax credits survived the wrangling in Congress over the fiscal cliff. The bad news is that many moldmakers won’t take advantage of this incentive that can provide some much-needed relief from their tax bite.
According to Scott Schmidt of the Black Line Group, a business consulting firm based in Plymouth, MN, the R&D tax credits were part of the American Taxpayer Relief Act of 2012. This extended the Research & Development incentive retroactively back to January 1, 2012 through December 31, 2013.
“This is great news that can enhance the bottom line for all manner of manufacturing and technology-related companies because the tax credit is a dollar-for-dollar reduction of a company’s or shareholder’s tax liability,” says Schmidt, who works with many plastics industry companies, and is an Affinity Partner for the Society of the Plastics Industry (SPI).
While the R&D tax credits are beneficial to manufacturing businesses, moldmakers don’t take full advantage of this opportunity to reduce their tax liability because many don’t understand the program. “One of the biggest road blocks that we hear when dealing with many of these companies is the belief that they don’t do R&D,” Schmidt tells PlasticsToday. “R&D doesn’t just take place in a lab by a scientist in a white lab coat. The R&D tax credits apply to any company that makes, improves or develops products and/or processes.”
The products a company makes can be for companies that are making other products, which describes perfectly what mold makers generally do, or your own products. Often R&D activities are more obvious for those companies that make their own products, and less obvious to mold makers who are designing and building molds per customer specification. That is why many mold makers fail to take advantage of the R&D tax credit: Most see themselves as a business that simply takes a print and makes what the customer wants. However, these mold makers are likely performing R&D but have not learned to recognize that fact or identify the qualifying activities.
Mold manufacturers know that there is much more involved than taking a print and cutting steel to match the print. It often requires developing a different way to mold a part which means creating new mechanisms for the mold in order to get the part required. It requires various iterations of design, testing of various design ideas, and collaboration with other companies, suppliers of various mold components who perhaps do their own R&D to devise a method to enable the moldmaker’s mold design to work properly.
“In reality,” says Schmidt, “a large percentage of the time moldmakers are doing R&D, but because they don’t understand how broad the definition is, they may be under the impression they don’t do any R&D.”
The four-part test
There is a four-part test that moldmakers and processors can use to gauge whether or not certain activities will qualify for the R&D tax credit. Rachel Bishop, CPA and director of R&D tax credits for Black Line Group, explains these to PlasticsToday: