Why Manufacturers Need R&D Tax Certainty
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For companies like O-I Glass, Inc.a glass manufacturing company headquartered in Perrysburg, Ohioresearch and development just got a lot more expensive.
Until the beginning of 2022, businesses including manufacturers could deduct 100% of their R&D expenses in the same year they incurred the expensesbut a change in the tax law that took effect this year required businesses to spread deductions over a five-year timeframe. O-I Vice President of Global Tax and Business Services Scott Gedris explained how that impacts the company.
The scale: With 17 plants in 13 states around the countryand 70 plants in 19 countries around the worldO-I has a significant reach, serving both large multinational companies and smaller customers like microbrewers and small batch spirits manufacturers.
- The scale of the operation means that O-I invests significantly in R&D, working to develop innovative processes and specific product designs to meet individual customer needs.
- If you look at our public financial statements, we spent $82 million in 2021 on R&Dprimarily in the U.S.and that is a significant investment for us, said Gedris.
Case in point: In the past decade, O-I has invested heavily in developing more effective, efficient and sustainable processes. In 2011, it built a 24,000-square-foot R&D facility on its Perrysburg, Ohio, campus and has announced plans for a new glass manufacturing facility in Bowling Green, Kentucky, using technology developed at the Ohio facility.
- Because the company spends so much of its resources on R&D, a significant increase in the cost of investment would require it to make difficult decisions.
- Anything that comes out of this in terms of tax dollars creates a choice within our organization about where we allocate our capital, said Gedris.
Environmental effects: At a time when O-I is making important investments in sustainability, a significant reduction in available resources could present obstacles to the companys environmental goals.
- When we rebuild a glass manufacturing furnace, that is a multimillion-dollar investment. The cost continues to increase with inflation and investment in modern technology that we need in order to meet our corporate sustainability goals, said Gedris.
- With the cost of that equipment increasing, if weve got $10 million less because of increased taxes, we need to evaluate whether we are going to rebuild a glass furnace in one of our 17 U.S. plants, or are we going to defer that? Alternatively, those dollars could come out of our R&D spend, which will impact what we are able to invest in future technology improvements.
Human impact: Investments in innovation and R&D dont just create better products and processes for consumers; they also support local economies across the country.
- When we invest in a glass manufacturing furnace in these towns, its an investment in the community, said Gedris. Weve got multigenerational glass manufacturers in those facilities. Its a project that people depend on, and they have a lot of pride in the product and the processes at their facility.
The last word: When youre investing in R&D, youre investing long termand that means you need certainty in the tax policy, said Gedris.
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