Exhibitors at NPE2009, held June 22-26 in Chicago, said a U.S. tax incentive known as the bonus depreciation should help spur equipment sales by giving companies an immediate, 50 percent write-off on new machinery but most expected only a modest impact.
The accelerated depreciation covers machinery bought and put into service during 2008 and 2009. Because it's set to expire at the end of this year, the tax write-off could give some plastics processors a nudge to buy now, rather than wait until 2010, when the economy is expected to rebound.
Of course, to get the tax benefit, a company has to be profitable. The global downturn has squeezed profits and left processors with idle machinery, driving down sales of new equipment.
Will a faster write-off of new capital equipment spur sales?
Stephan Braig of Engel Machinery Inc. called the 50 percent depreciation a wonderful opportunity. He praised the U.S. government for the move.
Unfortunately, a lot of companies have such low utilization right now that, regardless of how attractive it is, there's just no need for a new machine, said Braig, president and CEO of York, Pa.-based Engel.
It's a factor somewhere down the list, but by that point the decision to invest or not has been made. It's kind of like the gravy, said Craig Reynolds, business manager for PET systems at Husky Injection Molding Systems Ltd. in Bolton, Ontario.
At the end of the day, the investment decision isn't based on how fast I can depreciate the machine, Reynolds said.
It depends on if you already need a machine, said Bill Duff, national sales manager of Negri Bossi USA Inc. of New Castle, Del. The criteria has to be you need a machine in the foreseeable future, and now the time's right to take advantage.
Arburg Inc.'s Friedrich Kanz agreed that depreciation alone is not a sufficient reason to buy an injection press.
If companies want to buy capital equipment anyway, then I think it's a nice program. For companies that are doing well, making money, it may motivate them, said Kanz, president of the Newington, Conn., firm.
The U.S. injection press market has fallen hard. Press shipments ended 2008 at 2,444 a 15 percent decline from 2007, according to the Society of the Plastics Industry Inc. So machinery makers are competing heavily for the sales that are out there.
Peter Gardner of DJK-Global Group said the bonus depreciation is one piece of the puzzle that potential buyers consider before they buy new equipment. Another factor: Some utilities are offering incentives for all-electric injection presses, which cut electric use.
We are selling machines to people, believe it or not. It's like a perfect storm for them, an advantage for them because they've got the stimulus and they also have the potential rebate from the energy company, said Gardner, who heads sales of Niigata injection presses for the Wood Dale, Ill.-based company.
The U.S. government first enacted a bonus depreciation in 2001, renewed it in 2003 and amended the measure in 2004, said Brandon Carlton, an adviser for the Treasury Department's Office of Tax Policy.
In 2008, President George W. Bush included it in a package of business tax incentives. The bonus depreciation was extended under the $787 billion economic stimulus bill that President Barack Obama signed in February.
According to Carlton, the federal government hopes the depreciation allowance spurs investment and modernization.
Taxpayers will be able to buy additional equipment and hire additional employees, he said.
To be eligible for the depreciation, the property must have been acquired and placed into service by the buyer between Jan. 1, 2008, and Dec. 31, 2009.
Washington-based SPI is promoting the bonus depreciation, along with other tax incentives, on its Web site. Plastics machinery makers are getting the word out as well.
Earlier this month, Milacron Inc. opened a tax incentive center to help customers calculate their potential benefits. The tax center will operate out of Milacron's headquarters in Batavia, Ohio.
Niigata sales people use an economic stimulus calculator so customers can see the savings from the depreciation.
Machinery executives said it's important to raise awareness of the bonus depreciation. Frankly, I don't think too many people know about it, said Robert Koch, president of Boy Machines Inc. in Exton, Pa. He was planning an e-mail blast to promote it.
But Koch said tax breaks have limited impact. If people need equipment, they buy it. If they don't, they won't buy it no matter what the price is or the incentive is, he said.
Tax-savvy executives already know about the bonus depreciation, said David Purcell, injection molding machinery manager at Wittmann Battenfeld Inc. of Torrington, Conn.
I think a lot of the larger companies that are more in tune with the tax laws and tax incentives take advantage of it more so than some of the smaller guys, he said.
KraussMaffei Corp. also promotes the issue.
I would think most manufacturers still in business today have to be pretty decent in their jobs. So I think they should be aware of that, said Paul Caprio, who is president of the Florence, Ky.-based U.S. subsidiary of Krauss Maffei AG of Munich, Germany.