Have you ever thought about the amount of plastic that surrounds you?
I certainly have. Just a quick scan around my immediate surroundings reveals plastic desktop organizers, and plastic computer, phone, and cell phone. My writing utensil is plastic. My flower pot is plastic. My stapler, my water bottle … and the list goes on.
Plastic is literally everywhere, and much of the plastic that surrounds us is injection molded plastic. This was revolutionary manufacturing technology when introduced well over a century ago. Of course, the technology isn’t new anymore.
Maybe that’s why so many in this industry fail to think of what they do as innovative. On more than one occasion, I’ve spoken with a plastic injection molder who has told me flat out that they don’t think they “do any R&D.”
Yet, when I hear them talk in more detail about their work to develop better, cheaper products–and to do it faster than they ever have before–it’s obvious that a great deal of their work is eligible for the IRC Sec. 41 R&D tax credit.
This credit was never intended solely for those who are inventing new technology–though they clearly qualify as well. Efforts to improve upon existing products and technologies were always intended to qualify, so long as they meet a basic four-part test.
If you want to dive deep on this four-part test, you can check out IRC Sec 41 here, but for the purposes of this blog post, let’s just take a quick look at why the work of many injection molders tends to meet all four criteria:
The “Permitted Purpose” Test:
Most injection molders are working to develop new or improved products or processes for themselves or for their customers. And unless it’s a repeat job, injection molders are almost always working to develop and refine a process needed to manufacture a new plastic part, component or assembly. In fact, what we’ve seen with our own clients is that there may be just a handful of design engineers on staff, but a whole team of processing engineers who are working to determine the optimal molding process. And if an injection molder is taking on this type of new or improved development effort, they’ve likely passed obstacle one.
The “Technical Uncertainty” Test:
When an injection molder takes on a new project, they tend to face at least some challenges in determining the best way to manufacture a viable end-product. Looking at our own client base, we’ve occasionally heard that the shape and design of some parts are so complex, or the material being molded so finicky, that there was fundamental uncertainty as to whether a project would even be possible. In other cases the goal seems more achievable but challenge really comes down to determining the optimal process of how to manufacture a product given all the variables in play (tolerances, durability, chemical resistance, convolute flexibility, etc.) Bottom line, there are some things they just don’t know until they start getting their hands dirty. That’s technical uncertainty.
The “Process of Experimentation” Test:
When injection molders face the type of technical uncertainties outlined above, they almost always go through some type of process of experimentation to resolve those uncertainties, whether they call it “experimentation” or not. This does not necessarily need to be a formalized process. Modeling, simulation, and even systematic trial and error are perfectly acceptable forms of experimentation under the tax code. For many of the injection molders we work with, this process could include anything from upfront CAD work and multiple iterations on a basic design, to the subsequent development and testing of various prototype parts, all the way up until commercial production.
The “Technological Information” Test:
Speaking generally, if you are involved in the development of new products or processes, encountering technological uncertainties, and undertaking a process of experimentation to resolve those uncertainties –the odds are likely that you are relying fundamentally on one of the hard sciences to achieve your goal. This could include mechanical engineering, chemical engineering and even computer science. Any one of these disciplines applied means that you’ve likely cleared this final hurdle.
So, as you can see most injection molders who are working to develop new or improved products or processes can meet the necessary requirement to claim the R&D credit. And by recognizing these efforts for what they are, these injection molders also have the opportunity lower their tax bill and use the savings to reinvest into further R&D efforts to keep them competitive in the future–which is basically what the R&D tax credit is all about in the first place.
If you are a plastic injection molder wondering if your efforts might qualify for the R&D tax credit, contact us at any time for a free scoping assessment at http://taxcreditsgroup.com/schedule-free-rd-tax-credit-assessment/