Tax Issues for Manufacturers – Stay On Top Of Changing Laws

It is challenging for manufacturing companies in many areas of their businesses. Now there are tax changes which directly impact the way that business is being done. Some of the changes are positive in nature, and others are downright confusing, causing accounting and tax reporting to be complicated in determining where taxes are owed and what credits are pertinent.

Here are a few items that may be considered positive for the industry:

1. If you happen to be in the semiconductor manufacturing sector, there is a 25% tax credit covering the manufacturing equipment, as well as the construction of semiconductor manufacturing facilities. This does not benefit a lot of local manufacturers from a tax perspective at this time but should cause the availability of these chips in products being made by the manufacturers in the future as the U.S. begins producing this item (which might be 5 to 8 years out).
2. There are Section 48C Manufacturers’ Tax Credits that are allowed for certain types of Clean Energy Components that can be built into a factory. The items that may be included for purposes of this credit are property designed to capture, remove, use, or sequester carbon oxide emissions, equipment designed to refine, electrolyze, or blend any fuel, chemical, or product which is renewable or low-carbon and low emission products designed to produce energy conservation technologies, components and materials for electric or fuel cell vehicles or charging stations and all other property designed to reduce greenhouse gas emissions by at least 20%. While this sounds good, the manufacturer must be preapproved by the IRS to get an allocation of the Section 48C credit. As is the case with this type of legislation, there is a lot of fine print that will have to be reviewed, if a company wants to qualify for this type of credit.
3. With respect to depreciation, a company may now deduct the first $1,080,000 of equipment that is considered Section 179 property acquired in 2022 from their taxable income. There are limitations when the amount purchased is higher than the above amount. There is also the availability of 100% bonus depreciation in addition to the Section 179 depreciation. This is an especially useful deduction. If your company is going to invest in new equipment anyway, it is a good idea to review your tax information with your accounting firm to determine if 2022 is the best year for you to take this deduction.

A change that is adding confusion and complication to the system involves the Wayfair sales tax case, which held that states now generally have the right to require out-of-state companies to collect and remit sales taxes based on an objective measure of sales or transactions. While each state has their own threshold, it is generally $100,000 in sales or 200 transactions. A company that sells to customers in many states is going to have to review this thoroughly to make sure that they remain compliant with the sales taxes of various states. As a result, this has added so much complexity to the issue of sales taxes that some companies are considering ERP tax software to cover it, or alternatively, to outsource sales tax compliance to outside companies. For companies who have not filed in the past, there may need to be voluntary disclosure agreements, or amnesty programs involved.

Taxation changes have produced complexity that can keep business owners awake at night. It is essential that they talk with their accounting firms to make sure they are compliant with the always changing tax rules, and at the same time, taking advantage of any deductions for which, they may be eligible.

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Denice Gierach

Gierach Law Firm

Denice Gierach is an attorney, CPA, Northwestern University business master's graduate, and has owned several businesses from real estate to manufacturing. She is the lead attorney at Gierach Law Firm in the Chicago area. With more than 30 years of experience, she has been a respected and sought-after resource for businesses looking to grow, sell, solve problems, and succeed long term. Her insights across business areas gives a fuller lens to business issues and solutions, and helps businesses grow and succeed with less time spent on legal issues and other time-consuming problems.

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