Machinery executives credit the 100 percent depreciation for capital purchases — part of the federal stimulus package — for motivating some customers to move up investment plans. But the overall economic recovery is more important than a tax break for fueling the rebound in new plastics equipment, they say.
“There are a lot of people that are certainly taking advantage of that, but I don't know that it's the driving force for their purchase decisions. Not at this point,” said Glenn Anderson, senior vice president of global and strategic accounts at Milacron LLC, based in Cincinnati.
Congress included the accelerated depreciation in the extension of the Bush-era tax cuts, passed in December. The new law permits full, 100 percent first-year expensing of capital equipment and machinery purchases for 2011, and those retroactive to September 2010, according to the Washington-based Society of the Plastics Industry Inc.
To qualify for the 100 percent, the machinery must be placed into service by Dec. 31 of this year. A 50 percent depreciation will apply to equipment put into place in calendar-year 2012.
Machinery officials said that year-end deadline for the full write-off helps sharpen the decision to invest now, rather than later. And after the harsh recession, the improving manufacturing economy means companies are returning to profitability, so a tax break can help, and they're looking to invest.
“It's great. People that are on the fence, it pushes them to pull the trigger,” said Charlie Martin, general manager of American Leistritz Extruder Corp., a supplier of compounding extruders in Somerville, N.J.
“People aren't going to buy a twin-screw extruder just because of the accelerated depreciation, but if they're thinking about it, it pushes them to do it. And it has definitely propelled, or moved forward, a handful of sales, which in our business is a lot.”
That was the case for injection molder Accurate Molded Plastics Inc. in Coeur d'Alene, Idaho. CEO Dale Meyer said the accelerated depreciation prompted him to buy eight new Arburg injection presses, to replace older machines.
“I would not have done that this year without the accelerated depreciation, because it wasn't required from a capacity standpoint. It was a replacement. And when are you ever going to replace machines any cheaper than this,” Meyer said.
He said Accurate Molded would have purchased the machines anyway, but probably over the next three years, not immediately and all at once.
Much of Washington's economic stimulus package has come under attack. Think bank bailouts. But machinery officials say the capital investment incentive will have solid benefits of a stronger U.S. manufacturing sector and more skilled employment.
“It's real stimulus, it's not just throwing money at a problem. People still have to make the investment,” Martin said. “You don't buy a machine unless you have the employees to run it. You need to staff that. In our case [compounding extruders], it could be a half-million, or a million dollars worth of investment. You just can't have that sitting on the plant floor.”
SPI has devoted a section of its website to the federal tax incentives. Several machinery firms also actively promote the bonus depreciation on websites, through email blasts and arming their sales representatives with details.
Auxiliary equipment manufacturers also report a tax- incentive bump in sales. At Conair Group, Steve Petrakis called it “a really great opportunity for processors” to invest in new technology. “It's a very simple, straightforward way for them to realize payback quickly,” said the sales vice president for the U.S. and Canada.
Petrakis noted that customers have a limited time frame to buy equipment. “It's going to push some projects into this year that might have been first quarter next year,” he said. “You've got to have the equipment up and running by Dec. 31 of this year to take advantage of it. Which means, depending on the [auxiliary equipment] product, if you've got eight to 12 weeks of lead time, people have to be ordering this stuff by the end of the summer,” he said.
Conair has a flyer on its website explaining the write-off. The company is based near Pittsburgh in Cranberry Township, Pa.
Larry Doyle, Conair's vice president of global sales and marketing, said money saved from the tax incentive might spur some customers to buy additional equipment. He explains the thinking: “Because of the savings, I can buy a couple of extra things that maybe I didn't have in my original project, because all of a sudden I have some additional capital.”
Of course, customers don't always share that level of detail with their machinery suppliers. “My read is, no one's used that as an example. No one has said, ‘OK I want to get this ordered now because I can take advantage of this bonus depreciation,' “ said Mike Sansoucy, president of Netstal Machinery Inc. in Devens, Mass.
Compounding extruder maker SteerAmerica Inc. encourages its salespeople to talk about the accelerated depreciation, but most customers already know about it, said Wayne Stagner, president of the company in Uniontown, Ohio.
“We have seen some people move up their plans and buy their equipment. I don't know that we've seen people buy equipment that they would have otherwise not bought,” Stagner said.
He said customers would have to order Steer extruders by around September to meet the year-end deadline.
At Milacron, Dave Lawrence said tax breaks help, but processors need solid order books before they invest in machinery.
“We had a conversation with a customer the other day and the customer said, ‘Yeah, I know it's there, but I need the equipment. We're making money and it's always nice to pay less taxes. But it's not the reason why we bought the piece of equipment,' “ said Lawrence, president of worldwide plastics machinery for injection, extrusion and mold technologies.