Industry: Plastic Injection Molded Components
Number of Employees: 400+
Commonly Qualifying Tasks:
- Product and process design & engineering
- Evaluate feasibility and manufacturability of the product designs
- Determine the proper fixturing and tooling for new products
- Design new tools and fixturing to machine and inspect unique shape parts
- Perform first article trial run and first article inspection
An injection molding contractor had never taken the R&D credit since their founding in the early 80’s. Their core competencies included designing and fabricating tooling for specialty parts that were designed by their clients. Some of their clients were big name manufacturers who engaged this Company to create specific components or full assemblies. Their business included the creation of a wide range of plastic products for the full spectrum of industries including fashion, electronics, medical, among others.
The study began with the review of all financial information pertinent to the generation of the credit itself including tax returns, general ledger account records, wage information for the staff and material utilization records. Once the records were received, interviews were conducted with all department heads and managers to determine their day-to-day responsibilities and ultimately, calculate how much of their work would qualify for the credit under the 4 Part Test.
Based on their product development cycle, their R&D study identified several levels of qualifying development. The first level of qualification was at the technical sales level where company representatives would have discussions with clients to define the requirements of a project and determine unit cost and pricing. During this phase, initial designs were created by the development team to determine the feasibility and manufacturability of the product, or products that their client was trying to create.
The next level of qualification came from the engineering department which was responsible for taking initial designs, making modification to iron out any manufacturability issues. In addition, the team would create designs for tooling, fixtures and molds that would be needed in the production phase of the project. All of these activities qualified at a high percentage make this one of the most highly qualified groups within the company.
The company was also able to capture time spent by the maintenance team which not only did routine maintenance (a non-qualifying activity), but also spearheaded all their process automation efforts. While maintenance did take a bulk of their time, the facilities maintenance team was able to generate meaningful, qualifying expenses through their work in process improvements, specifically, automation.
Finally, after reviewing their production process, the company identified additional qualifying expenses in the form of material costs for prototyping and creating first run articles for newly designed products. This resulted in the qualification of roughly 15% of their overall raw materials costs and was documented as a part of their standard operating procedure to calculate internal costs of production.
Ultimately, this injection molding company was able to qualify expenses from two of the three eligible pools of expenses. Of their staff of roughly 400 employees, 15% were eventually qualified at the end of the study with a wide range of qualifying percentages. They were able to generate $5M in qualifying research expenses (QREs) resulting in a net benefit of $400K.