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 sales for an IC-DISC, the export property sold must pass the Foreign Content test stating 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 to 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.
McGuire Sponsel analyzed the company’s sales detail 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.