The R&D Tax Credit Aspects of the Plastic Manufacturing Industry

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        From paper clips to spaceships, plastics are virtually everywhere. Low cost, versatility, and impermeability are a few reasons why they have replaced many other materials, such as metal, stone, glass, wood, ceramic, and even bone. Plastics have become indispensible for an extensive variety of markets. Examples include packaging, construction, furniture, transportation, and electronics.

        This article discusses the recent innovations in the plastics manufacturing industry, ongoing R&D efforts, and the Federal tax credit opportunity available for companies investing in eligible innovative activities.

The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On December 18, 2015 President Obama signed the bill making the R&D Tax Credit permanent.  Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against $250,000 per year in payroll taxes.

The Plastics Industry and the U.S. Economy

        Plastic manufacturing is currently the third largest manufacturing industry in the United States. According to the Plastics Industry Trade Association, which includes processors and manufacturers of machinery, molds, and raw materials, the plastics industry employs more than 885 thousand people and generates more than $380 billion annually. When considering suppliers, annual sales rise to $465 billion and workers total 1.4 million. The association reports the existence of more than 16,200 plastic manufacturing facilities in the country and asserts that, between 1980 and 2011, the annual productivity growth of the plastics industry has consistently outperformed the U.S. manufacturing industries as a whole.

Made in America

        Predictions for the future of the plastics industry are very optimistic. Michael Taylor, senior director of International Trade at the Society of the Plastics Industry, believes in an upward trend, particularly due to the re-shoring of several manufacturing activities. Producers increasingly value better services and delivery, which are conditional to a strategic location.

        A study of Saunders Mfg. Co., who relocated its manufacturing from China to Mississippi, is quite revealing. In the words of CEO John Rosamarin, "Reshoring our plastic manufacturing increases our offering of 'Made in the USA' value-priced, high-quality products. Also, this allows for a shorter supply chain that reduces lead times, and offers pricing stability to our customers."

        Similar to other activities, such as logistics , the American plastics industry benefits from physical location clustering. Plastics material and resins activities, for instance, are highly concentrated in Texas, where raw materials and advanced petrochemical infrastructure abound. The discovery of new shale gas deposits is likely to change this scenario, spurring more plastics material and resin facilities in states such as Ohio and Pennsylvania. Plastics machinery manufacturers tend to cluster near plastics processors, particularly in Ohio, Michigan, and Illinois.

Innovation in Plastic Manufacturing

        In a highly competitive market, where comparative advantages are often decisive, innovation has become a priority to plastic manufacturing agents. The following sections will present major fields of innovative efforts. Companies investing in any of these areas may be entitled to significant Federal R&D tax incentives.

3D Printing

        3D printing, or additive manufacturing, is the process of building three-dimensional objects from digital models. This is achieved through an additive technique involving laying down successive layers of material. In the words of President Obama, "3D printing has the potential to revolutionize the way we make almost everything."

        Due to unique characteristics, plastics are one of the main materials typically used in additive manufacturing. PLA, or polylactic acid (which is made from corn) and ABS, or acrylonitrile butadiene styrene, are the two most commonly used plastics in current 3D printers. Combined with the versatility of plastics, this revolutionizing technology can trigger major economic changes, particularly when it comes to convenience and creativity.

        Working from software instructions, 3D printing considerably reduces manufacturing costs. Additionally, the process generates little waste, enhancing cost-effectiveness and sustainability aspects. Recent advances have made 3D printers more affordable and, therefore, more popular. However, many challenges remain, particularly regarding the limited speed and volume at which objects can be printed and the costs involved.

        On one hand, plastic-manufacturing companies must work on innovative methods to incorporate 3D printing into its processes as a means of taking full advantage of this burgeoning technology. On the other hand, the development of new printable plastic materials is also a promising investment. The Dutch 3D printing start-up Shapeways has recently introduced Elasto Plastic, a new malleable, printable plastic material. It is more flexible than most others and, therefore, ideal for wearables.

Automation of Manufacturing

        MIT Technology Review lists development related to the Baxter Robot as one of the top ten R&D opportunities of the future. Baxter is a low cost self-programmable robot not only capable of performing a number of repetitive tasks but also of working safely and intelligently next to people. The robot's outstanding adaptability to a task's environment is explained by its behavior-based 'common sense'.

        Plastics molding is a natural market for Baxter robots. The lightness of parts and the regularity of intervals at which they come out on a conveyor facilitate the robot's work. Moreover, Baxter has proved to contribute to one of the industry's main objectives, namely, productivity levels. It undeniably raises efficiency in the factory floor, allowing people to focus on value added work. Packaging, for instance, is an example of task that can yield significant productivity gains.

        Vanguard Plastics Corporation, custom molder from Southington, Connecticut, has recently incorporated Baxter's innovative technology. The company acquired a customized robot, featuring enhanced input/output capability, which can interact with other machines. The Vanguard Plastics' example is not an exception in the plastics industry. The number of plastics companies with Baxter robots is multiplying, which is the case for Rodon Group LLC and Nypro Inc.

        When purchasing a Baxter robot, manufacturers often already rely on quite sophisticated processes, which include multiple programmable machine tools and other programmable robots. Therefore, integrating new high level robotic equipment requires experimentation and thoughtful process engineering specific to that company and its products. Process engineering such as this often qualifies for R&D tax incentives.

Innovative Applications

        Plastics are gaining strength in a wide variety of markets. Years of R&D efforts have resulted in once unimaginable applications of plastic materials, such as:

  1. Agriculture: plastics contribute to higher yields as they reduce the need for pesticides and water, and protect crops against unpredictable weather. Most common uses include mulching, greenhouse covering, silage, and haystack wrapping. Challenges remain, however, particularly when it comes to the disposal of used plastic products and the development of thinner yet robust materials, especially for mulching.

  2. Fashion and Design: thanks to a unique aesthetic appeal, plastics have built an impressive reputation among designers. After almost three decades out of fashion, formica, inflatable vinyl furniture, assorted polyester accessories, and PVC flooring are now making a major comeback as attractive and fashionable choices for a new generation of designers. A number of companies are currently engaged in R&D efforts aimed at developing novel materials that respond to contemporary fashion and functionality standards. The use of recycled plastics has gained particular attention as major designers turn to "ecological clothing".

  3. Disaster Protection: plastics can play a major role in facing unfavorable conditions. Rising sea levels, for instance, have triggered significant efforts to design floating houses, which most commonly present lightweight structures made of composites and hollowing plastic cubes that guarantee floatation. Dikes can also be revolutionized by the use of plastics. BASF's Elastocoast was designed to reinforce armourstone dike revetments. When mixed with armourstones, the resin creates a powerful barrier against water.

  4. Health Care: The plastic manufacturing industry has greatly contributed to medical advances in various fronts, from surgery to infection control and treatment of diseases. Highly technical antibacterial, antimicrobial, and anti-odorous plastics, for instance, have been important hygienic barriers. Other examples are Polyetheretherketone (PEEK) prostheses, which not only are radio wave transparent but also present bone-like elasticity. This material has proven its biocompatibility in neurosurgery, orthopedics applications, and pacemakers. R&D efforts are currently underway to test the viability of PEEK dental implants. Important R&D is also in place in the field of nanotechnology. Nanocapsules made of biodegradable polymers are essential for targeted drug delivery systems, particularly cyclodextrin-based tumor targeting treatments.

  5. Access to Water: One third of the world's population is affected by water shortage. Once considered a remote problem, this issue has gained crucial importance in the U.S., which is no longer alien to the global water crisis. The plastics industry has worked on ingenious solutions to improve access to water. This is the case of fog collectors, made from polypropylene nets. The thermoplastic polymer is highly effective in capturing droplets even in windy environments.


        Derived from renewable biomass sources, bioplastics constitute an eco-friendly alternative to the most commonly used plastics, particularly those derived from fossil fuels. Bioplastics can be composed of a wide variety of materials, such as starches and cellulose. Some bioplastics are biodegradable and, therefore, ideal for disposable items, such as packaging. In these cases, they not only represent a significant reduction in greenhouse emissions but also a meaningful cutback in hazardous waste.

        A recent study published by the German nova-Institute predicts that the bio-based polymers market will grow significantly in the years to come. Production capacity is expected to triple from 3.5 million in 2011 to about 12 million in 2020. In this context, R&D efforts aimed at improving existing materials and discovering new sources have multiplied.

        Avantium, a renewable chemicals company, has recently received the Innovation in Bioplastics Award of the Plastics Industry Trade Association. The Dutch company has developed polyethylene furanoate (PEF), whose protection against water, oxygen, and CO2 represents a promising packaging opportunity. The new bioplastic material is particularly interesting for beverage makers, as it would reduce the weight of bottles and simplify the production process. The unique properties of PEF have called the attention of major companies, such as Coca-Cola and Danone, who are now working in partnership with Avantium to make PEF bottles commercially available.

        Similar efforts reveal the dynamicity of the bioplastics market. Ecovative Design, of Green Island, NY, developed a new biodegradable bioplastic made from mushrooms. The mycelium-based bioplastic was such a success in the packaging industry that the company is now working on other applications, particularly building materials. Ecovative expects to prove that mushroom insulation lasts longer and is safer than conventional insulation. Meanwhile, in Fargo, ND, c2renew is developing an innovative combination of agricultural waste and plastics. The resulting biocomposites present lower costs and greater rigidity compared to plastics produced from petroleum alone. Moreover, by using leftovers, such as sunflower, oat hulls, sugar beet pulps, and flax stalks, the company aims at adding value to crops and favoring agriculture-related businesses.

Plastics and Energy Efficiency

        In recent years, sustainability has gained great importance and is now an unavoidable determinant of business patterns. The versatility of the plastic manufacturing industry opens the way for a multiplicity of eco-friendly innovation efforts, which are not only green but also profitable.

        When it comes to energy efficiency, the use of lightweight plastics in vehicles reduces fuel consumption. Innovative plastic packaging can also protect food and reduce the necessity of conditioned environments. Finally, high-tech plastic insulation can contribute to lowering the energy required to heat and cool buildings.

        Although significant progress has been made regarding the use of plastics in automotive engineering, R&D efforts are still necessary. This is particularly true for the fields of fiber-reinforced composite plastics and the industrial processing of high-strength fibers. Plastics are also consolidating their presence in the aviation industry. Boeing Co. pioneered the first commercial airplane with carbon-fiber composite skin. Now, the Airbus A350, which began tests in June 2012, has set a new mark as the most-composite passenger jet - 53% composites by weight versus 50% from Boeing's Dreamliner. Companies investing in R&D efforts to overcome the challenges surrounding the use of plastics materials in airplanes are strong candidates for Federal R&D tax credits.


        The impact of plastics on the environment has long been an issue. The increase in plastic usage has lead to an unprecedented accumulation of non-biodegradable material. The careless disposal of plastic products has harmed ecosystems and risked innumerous lives, from land to water environments. Plastics are very long-lived materials and, therefore, plastic products could be of service for years. Contradictorily, however, their most common use is for disposable goods. For these reasons, new and improved recycling strategies are urgent.

        Necessary advances include more effective collecting and processing methods as well as innovative equipment and finished products. Safeplay Systems, of Marietta, GA, recently received the American Chemistry Council's Plastics Recycling Award. The company developed EcoPlay, a playground equipment line containing at least 95% of post-consumer recycled HPDE.

        MBA Polymers, Inc. is one of the many companies currently investing in plastics recycling R&D. The durable goods recycler's Director of R&D, Dr. Brian Riise, highlights that important challenges for plastics recycling still remain, particularly when it comes to tackling legacy flame-retardants and tracing amounts of heavy metals. According to Dr. Riise there is a growing need for bio-based plastics recycling research. Such plastics have different densities from conventional ones and therefore need new technology to recycle.


        The remarkable versatility of plastics points to the outstanding potential for innovation in the plastic manufacturing industry. From novel manufacturing methods, such as 3D printing, to innovative applications, and automated operations, the industry can reach new levels of productivity and ingenuity. Growing sustainability concerns can also serve as an opportunity to develop new materials and practices. Federal R&D tax credits are available to support plastic manufacturing companies investing in eligible innovation activities.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Andressa Bonafé is a Tax Analyst with R&D Tax Savers.

Charles G Goulding is a practicing attorney with experience in R&D tax credit projects for a host of industries.

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