Industry Category: Manufacturing & Wholesale Distribution

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2019 has proven to be an interesting year for many middle market companies from an economic and risk perspective. According to RSM’s 2019 Economic and Risk Outlook webcast, economic growth is decelerating at a projected 2.2% overall, the U.S. labor market is currently on the upswing as job creation through the year is averaging 155,000 per month, and middle market companies are reporting recruitment and the ability to retain skilled employees to be key stressors. Along with these economic challenges, companies also face risks relating to global political tensions, technology threats, and new data privacy demands.

The following are the most prominent risks that middle market companies should evaluate and address for future success:

• Volatility and global supply chain.
• Culture and conduct.
• Cloud risk and compliance.
• Technology risk transformation.
• Rise of data privacy regulations.

For more information on how your company can prepare for these risks, click here or contactJohn Rittichier, CPA at 800.880.7800 ext. 8484 or at jrittichier@hsccpa.com.

Effective January 1, 2019, Indiana has adopted a market-based sourcing approach for sales other than the sale of tangible property. This significant shift from the previous cost of performance approach bears some significant tax consequences for service providers whose markets stretch across state lines. Sales of tangible personal property continue to be sourced to where the goods are physically shipped or delivered.

Sales of services are now attributable to Indiana to the extent that the benefit of the service is received in Indiana, rather than where the service was performed. For example, an Indiana-based company performing a service for a customer located in New York is no longer required to apportion the sales from that service to Indiana. The opposite holds true, however, in that a New York firm providing services to a customer in Indiana will be required to source those sales to Indiana.

This shift has the potential to provide a tax benefit to Indiana companies performing service work in other states, while also potentially drawing in revenue from out-of-state service companies. Keep in mind that these new sourcing rules may conflict with the rules in other states, so it is important to consult your tax advisor in these matters to come up with an optimal result.

For more information on how your company will be impacted by the new sourcing rules contactJohn Rittichier, CPA at 800.880.7800 ext. 8484 or at jrittichier@hsccpa.com.

Effective January 1, 2020, non-public companies (January 1, 2019 for public companies) are required to comply with ASC 842 – Leases. Under ASC 842, companies will need to re-evaluate each of their existing leases, old and new contracts to see how the new definition of a lease will affect their current arrangements.

Key decision points include:
Companies generally may not understand the resource requirement necessary to implement the new standard. Is your company properly equipped with “technology solutions” to help organize and analyze leases to make adequate financial and business decisions? Software solutions to help deal with leases may be cost prohibitive, and it is important to find a vendor that understands your company’s needs and can keep costs within budget.
While the primary focus regarding ASC 842 has been on compliance and financial accounting, companies must additionally consider tax implications the new standard presents.
Has your company considered naming someone to lead the transition so the company can effectively overcome early challenges and concerns regarding the implementation?

For more information on the new lease accounting standard, click here or contact Scott Olinger, CPA, CPIM, CGMA at 800.880.7800 ext. 8466 or at solinger@hsccpa.com.

Developing markets face growing risks that present a clear and present danger to middle market firms in emerging economies. In RSM’s estimation, the developing economies most at risk include Indonesia, India, Iran, South Africa, Russia, Mexico, Argentina, Brazil, Turkey, and Venezuela. The policies pursued by the United States may force emerging market countries to undergo a self-induced bout of fiscal austerity or suffer through what is looking like a classic emerging market financial and banking crisis.

To download the Real Economy Vol. 45, click here or contact Scott Olinger, CPA, CPIM, CGMA at 800.880.7800 ext. 8466, solinger@hsccpa.com.

A recently issued IRS private letter ruling gives new hope to former students working to pay off their student loan debts. Student loan debts have been on a rapid rise, nearly tripling over the last decade. Former students are looking for help from whatever corner possible, and may now have a tangible solution by collaborating with their employer.

Private Letter Ruling 201833012 affirmed that employers can substitute qualifying student loan repayments made by employees in place of employee matching contributions for company 401(k) plans. Under the typical 401(k) structure, employees must contribute a portion of their earnings to their 401(k) in order for the employer to contribute an employer match. This alternative system under the letter ruling gives employees the option to both pay off their student loans and receive retirement benefits at the same time. This change in employer match should have a net zero impact to the employer’s bottom line.

Employers who wish to provide the benefits described above will need to amend their existing 401(k) plan documents to account for the change. Having the ability to assist employees in paying off their student loans can make a potential employer very attractive in the competitive hiring marketplace.

To learn more about 401(k) student loan benefits from MarketWatch, click here or contact Aaron Wilzbacher, CPA at 800.880.7800 ext. 1322, awilzbacher@hsccpa.com.

TSK of America Inc. (a manufacturer of automotive parts) included tooling costs for metal stamping and plastic injection molding in the calculation of its 2013 Research Tax Credit. The tools were purchased from a third party with the intent of being used in production processes.

TSK’s customers usually require TSK to sell any unique tools to them. However, in this case TSK kept the tools due to an extensive trial and error process involved in refining the effectiveness and efficiency of the tools. Despite being purchased from a third party, the tools did not immediately perform at optimal effectiveness and efficiency and had to be altered.

In 2013, TSK included $9.3 million in supplies and materials as part of its qualified research expenses. The IRS initially only allowed approximately $1.2 million of expenses, which would have reduced the Research Credit by $500,000. The IRS’s ultimate concession in this case strengthens the arguments of manufacturers with similar fact patterns, but does not provide any precedential value as it never went to court.

For more information on the case or Research Credits in general, click here or contact John Rittichier, CPA at 800.880.7800 ext. 8484 or at jrittichier@hsccpa.com.

RSM US LLP recently released the 2017 RSM Manufacturing Monitor Report. Again this year, manufacturers seem optimistic as rising revenues and profits help spur investments in information technology, research and development, equipment and training.

Continue reading “2017 Monitor Report Identifies Top Manufacturing Trends” →