McGuire Sponsel identified a Tennessee-based hardwood manufacturer using the 4% of qualified export sales method to calculate its IC-DISC commission. The C Corporation had approximately $47 million in annual revenues, including $32 million in international sales.
For an export sale test to qualify for the IC-DISC, the product must be manufactured, produced, grown and/or extracted in the United States, which requires that at least 20% of the total cost of goods sold to be labor and factory burden. Similar to other hardwood manufacturers, this client utilizes a series of processes including stacking lumber on fluted air-drying sticks, kiln drying, inspections, milling operations, and dry storage. After processing, the client satisfies the destination test by selling the product for ultimate consumption outside the United States. The destination requirement can be corroborated with proof of the hardwood product leaving the U.S. within 12 months of being manufactured.
McGuire Sponsel informed the client we provide a more analytical method to calculate a commission: a Transaction-by-Transaction (TxT) calculation paired with our comprehensive cost analysis. Our analysis examines each transaction to illustrate export sales and profitability in a favorable light, maximizing the value received from the IC-DISC by optimizing Full and Marginal Costing calculation methods.
The TxT calculation paired with McGuire Sponsel’s analysis produced a commission nearly $1.2 million dollars higher than using 4% of qualified export sales, resulting in a tax savings of over $375,000 in 2017. Moving forward, with tax reform causing a reduction of the arbitrage between the marginal rate and capital gains rate, the tax savings passed on to shareholders would still total nearly $138,000.