Hulling and Drying Equipment Design

Client Profile & Process
McGuire Sponsel identified an opportunity for a California-based plant that specializes in designing, manufacturing, and installing farm equipment for different edible nut industries domestically and internationally. The S-Corporation had approximately $21.3 million in annual revenue, including about $6.5 million in international sales.

To qualify for sales for an IC-DISC, the exported property sold must pass the Foreign Content test, which states that no more than 50% of the fair market value of the export property can be attributable to imported content. This is achieved by demonstrating the cost of foreign materials does not exceed half of the exporter’s sales price.

The company develops its hulling, sorting, and drying equipment completely from scratch using primarily domestic materials and components to satisfy the manufacturing test, which requires that at least 20% of the total cost of goods sold be labor and factory burden. The company then exports its products directly to foreign countries within one year of sale, qualifying the sales under the destination test.

The Results
McGuire Sponsel analyzed the company’s sales details and financials to produce a commission of nearly $1.1 million. Prior to tax reform, this resulted in over $219,000 in tax savings passed on to the supplier. After new tax regulation reduces the difference between marginal and capital gains rates, the client will still see a tax savings of over $80,000.