I am not kidding when I say you missed a hell of a program September 19th. We had a nice mix of attendees, in super facilities provided by Wintrust Bank, listened to two presentations by Dave Baiocchi, and finished out the day with our cast of characters in the Rapid-Fire segment of the program. This program was fast moving, had active audience participation and provided a timely list of ISSUES to deal with within the next two or three months. Heck, we even continued the program during lunch.
Dave covered two topics. First, how to “get” the maintenance and service business related to the sale of a unit. Second, how to improve parts and service turnover generating a higher percentage of parts and service sales per tech via better management of parts inventory and anticipation of required work. Follow his advice and you are guaranteed more parts and service business with higher margins.
The hit of the program was Jim Margner, the state and local tax expert who has been working with me to assist both dealers and rental co. I can hear you now “State and local taxes, who cares?” Well, you better care because there is a new tax in town that is going to generate king size headaches for you from here on out. This new tax is referred to as Wayfair, which results from a Supreme Court decision that states if you sell in a state you have to collect sales tax and remit to the state even if you don’t think you have nexus in the state. As it turns out states seeing a windfall in tax dollars are setting up nexus guidelines you now need to consider determining if you must collect and remit the tax. Furthermore, the states see this as an opportunity to have you register to do biz in the state and at some point, I anticipate you will be asked to file income tax returns for the states you do “business” in.
As you can guess the questions were numerous. For example, “I sell into many states, but which ones do I have to collect tax for, and for what type of transactions”. You may be selling on-line, you may be selling via brokers, you may be selling at auctions. What if you sell to A who delivers it to B or C.? Plus, many more examples. The bottom line here is you need a new level of expertise to help decide if you owe tax, at what rate, and to what state. Also, to answer the question whether you need to register to collect tax in that state? Will you need to file income tax returns in that state? And I can tell you the fees and penalties for not filing and remitting can be an eye opener. In fact, this whole issue is insane, and won’t your customers be thrilled that they are now paying tax and ask you to explain why. The answer to their question is “Ask Jim, he will tell you why.”
There are customers, however, who are not end users of what you are selling and thus should not have to pay sales tax. In fact, when they initiate a sale, they are required to collect the tax and remit to the state in question. Boy, that sounds simple and gets you off the hook. Right? Not so fast, Mr. Dealer. That is true if you have exemption certificates from them, properly filled and available for inspection by state tax auditors. If you don’t have these forms and did not collect tax you will be assessed the tax (when it is not your tax but your customers) along with penalties and interest.
In the end, the purpose of this process will be to help mitigate sales tax exposure. If you think you have potential exposure you get the same answer as before…..ask Jim if you do, and how you might reduce that exposure.
Enough about Jim….I suggest you contact him if you need help. He knows your business and the types of transactions you are involved with. And I have seen him work his magic on tax assessments. I think we can safely say “Keep your friends close but your state and local tax person closer”. At least for the next couple of years. Jim can be found at Jmargner@comcast.net or 312 636-1155.
After Jim finished up Michael Ploskonka CPA reviewed the new GAAP changes regarding revenue recognition and lease accounting. Again, two technical topics where I see lift truck dealers coming up with 10,000 different approaches trying to apply this new GAAP.
When thinking about revenue recognition the new GAAP wants to match revenue earned and matched to what a customer receives according the terms of your contract with that customer. Knowing the dealer business, I didn’t come up with many examples of where this could apply, but there are a few:
- RPO transactions
- Maintenance contract revenues being collected monthly as part of a lease payment.
- Warranty issues
- Internal Billing.
- Others (let me know what they are)
As far as the lease accounting is concerned it is pretty simple. Any contracts over 12 months in length must be considered as part of this new GAAP and need to be recorded as a liability along with a “right to use” asset that basically offsets the liability you are adding to your balance sheet. But adding liabilities on your balance sheet will cause your debt/equity ratio to change negatively which then may cause problems with bank covenants.
Neither of these new GAAP pronouncements impact cash flow. They are only moving the numbers around for better reporting (they say). You can expect questions from customers who need to address the same GAAP issues. One major lease issue concerns a lease with maintenance. Maintenance contracts do NOT have to be capitalized on the balance sheet and as a result your customers will be asking for a breakdown between lease payment and maintenance payment. Yikes!
Steve Pierson then reviewed Federal Tax issues of importance for the group. Four stood out.
- The C-corp vs S-corp decision now that the C tax rate is 21%.
- The final Bonus Depreciation regs re: Building Improvements.
- Cash method of accounting.
- Revenue recognition changes reported for tax purposes.
To summarize, the switch to a C-corp is not as beneficial as you might think, especially if you plan on exiting the business within next five years.
The Bonus depreciation for building improvements originally put forth has been removed from the regs. You can however use Sec 179 for this purpose.
The cash method for companies with revenues under $26 million could be very beneficial and you may want to review this. If you have AR well in excess of AP and accrued expense the cash method could be for you.
These new accounting method changes will be reflected in your tax returns. ….so taxable income could increase even though your top line remained the same.
Steve knows your business and the rental business very well. We have been working together on your type of tax problems for over 20 years. He can be reached at firstname.lastname@example.org. Number is 630 954 1400. Your CFO should discuss these options with him.
And we finalized the day with our company valuation and exit planning panel containing an ESOP expert (Nate Perkins), Wintrust ESOP banker (Pat Stoltz) and lending specialist (John Czyzyzki), Steve Pierson to discuss exit strategies and related tax positions and myself since I have been coaching dealers and rental company owners about exit planning as well as ESOP considerations for dealers that qualify for that type of transaction. Some do and some don’t.
There are many exit strategies with the trick being to find one that you can work with to maximize the net proceeds in your pocket. And that is net of tax.
A question regarding ESOP’s centered around dealer agreements and OEM’s acceptance of the program. I believe that any issues can be worked out with the ESOP trustee if they know what sections of the dealer agreements they need to agree to. If we are talking dealer fair market values, it should work.
Finally, Tal Diekvoss reviewed “real” fiduciary responsibility issues dealers face, where personal liability is a possibility. And Michael Krogenmeier of Creditsafe outlined a method to use credit reports to check current credit standing with the ability to drill down to obtain marketing knowledge.
Think that was enough for a one day that brought attendees up to date on a numerous methods and issues to reduce risk and increase ownership value? I do, because the quality of the panelists and discussion leaders are all top of the range players who know your business.
And to top off the event, Wintrust has a very classy bar right next door to our training room. Heck, you feel like you are downtown during party time. Nice way to close a very busy, informative day.
Next time ….BE THERE!
My closing remark is you can work on these issues with advisors who only have one lift truck dealer in their portfolio, or you can have your CFO discuss a plan of attack with our presenters and save themselves both time and money.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail Networkeditorial@wcinet.com to contact Garry.