In 1992, Joseph Prischak decided to load 17 flatbed trucks during two weekends and move a division of his plastic molding and toolmaking company from California to Pennsylvania.
Now Prischak said he might be forced to load the trucks and move again.
Prischak, president and chief executive officer of Plastek Industries Inc. of Erie, Pa., said the problem is a decision by the state Department of Revenue to start levying a 6 percent sales tax on molds.
So far, Plastek is the only company in the state to receive a bill, he said. His firm received the unwelcome surprise this winter: a $2.8 million bill for sales and use taxes, including about $1.1 million in back taxes.
``Of all the tool and molding shops in the state, they had to pick little old us,'' said Prischak in a July 8 telephone interview. ``An auditor wanted to find out if the state could collect the tax. Unfortunately, we're the test case.''
While Prischak appeals the judgment with the Revenue Department, interest penalties are piling up.
``The meter is still running,'' he said.
Meanwhile, Prischak and other plastics firms in northwest Pennsylvania—where there is a concentration of plastics firms—are appealing to the Legislature for relief. They say the tax hampers their ability to compete. The issue has galvanized the industry in Pennsylvania—one of the nation's largest states for plastic molding.
The target is a little-known state law, passed in 1971, that taxes molds and related mold equipment for plastic products. Once tools are shipped to a molder, the mold's value can be taxed at an estimated 6 percent rate, according to molders involved in the issue.
The Department of Revenue is evaluating the issue and could make a decision internally on the law within the next few weeks, said department spokeswoman Wendy Taylor. Meanwhile, the Harrisburg, Pa.-based department expects to continue enforcing the law, she said.
Until the letter arrived six months ago at Plastek, the law never had been enforced. Now, other molders wonder who will be next to be assessed.
``One auditor picked up on this and opened a can of worms,'' said Hoop Roche, president and chief executive officer of Erie Plastics Co. of Corry, Pa. ``If we're forced to absorb the tax, we'll lose money on molds. And a lot of us will have to move out of state.''
The law has Erie Plastics in limbo. The company planned to spend about $10 million to move its operation next year to a new location in Corry, nearly doubling its size to 470,000 square feet. Now, that project is on a back burner until the issue is resolved, Roche said.
Erie spends about $10 million annually to buy molds, he said. The tax burden would cost the company another $600,000.
Still, he was optimistic that the problem is just an anomaly that will be overcome.
Others were not as certain. One of the state's largest plastics employers, Osram Sylvania Inc., has threatened to pull up stakes and move its plants, possibly offshore.
The company operates a 550,000-square-foot plant in Warren, Pa., that molds automotive electrical connectors. The firm employs nearly 3,000 at five state locations, and spends about $8 million annually in Pennsylvania on molds, said Janet Baird, operations comptroller at Osram Sylvania's Warren plant.
``It's more difficult to justify our business in Pennsylvania,'' Baird said July 8. ``We have locations throughout the world, and Pennsylvania is making it hard to compete with those other areas.''
Baird, Prischak and Roche were among those testifying at a July 7 hearing in Erie before the House Finance Committee. The committee is drafting a bill that would create a tax exemption for molds and molding equipment, quashing the 28-year-old law.
The bill has the support of the committee's chairman, Rep. Karl Boyes, R-Erie. Another hearing is scheduled for Sept. 14 in Harrisburg, Pa., the state capital. After that, Boyes said, he hopes to have enough backing from political leaders to bring a bill for a vote before the House.
Still, Boyes hedged his bets on whether the bill would pass. It will take a grass-roots effort from the state's plastics companies to gain the exemption, he said.
``I've seen [House members] get religion when local people come in,'' Boyes said. ``Otherwise, they think it's just a regional issue for northwest Pennsylvania. And once the state starts collecting money and the numbers grow, it's difficult for the law to say goodbye.''
According to published reports, the state expects to reap about $10 million annually from the tax. Roche, who heads state political-action group Plastics Pennsylvania, pegged the figure at closer to $50 million to $100 million annually.
Plastics Pennsylvania was formed earlier this year and includes about 90 member companies, Roche said. The group, sponsored by Washington-based Society of the Plastics Industry Inc., has started a letter-writing campaign to state legislators.
The American Plastics Council also is spearheading a lobbying effort. Pennsylvania is a critical state, generating annual sales from plastics companies of about $14 billion annually, said Shari Jackson, APC associate director for state and local public affairs.
In contrast, the state of Pennsylvania has an annual budget of about $12 billion, Jackson said. The state is ranked seventh nationally in plastic-parts shipments, according to a 1996 SPI study.
Three other states — Florida, Georgia and California — have similar mold-tax laws, said Rudy Underwood, APC director of state and local public affairs for the southern region. In Florida, APC has estimated that companies lose $66 million annually in business to other states because of the tax.
APC this fall will work with Florida legislators to roll back that tax. And in Georgia, molder Piolax Corp. of Canton, challenged the regulation and won a refund of back taxes, Underwood said. Now, APC is asking other companies to file for refunds, he said.
``It's a peculiar situation,'' Underwood said. ``As long as it can be demonstrated that molds fit the definition of machinery equipment in Georgia, companies can gain an exemption.''
In Pennsylvania, both molders and mold makers lose under the law, sources said. If the state begins enforcing the law, molders will be forced to pay the sales tax, either passing on the increase to end-use customers or absorbing it themselves.
And toolmakers — although not directly affected by the tax burden — will be equally maimed, said Tim Mullen, vice president of Starn Tool & Manufacturing Inc. in Meadville, Pa. Those companies will be forced to quote a higher price for jobs than companies out of state or out of the country, said Mullen, president of the northwest chapter of the National Tooling & Machining Association of Fort Washington, Md.
Many toolmakers — most of them small companies — will need to relocate to survive, he said.
``The law is too absurd to be true,'' Mullen said. ``You don't infringe on the people who actually spend money in the state.''
