Webcast recap: 2015 tax changes affecting consumer products companies
INSIGHT ARTICLE |
The following provides highlights from RSM’s recent webcast on 2015 tax changes affecting consumer products companies as well as updates related to the recently passed tax extenders package. The webcast is part of the Consumer products issues and insights series.
There were a variety of industry trends impacting consumer products companies in 2015 which we believe will continue into 2016, including:
- Leveraging increased consumer spending power due to lower gas prices and an improving job market
- Implementing early discounting before the traditional Black Friday retail push
- Nurturing meaningful relationships with consumers to establish and maintain customer loyalty
- Understanding the unique needs and wishes of the millennial consumer
- Deploying omnichannel strategies to increase market reach to customers
- Establishing further information technology security and privacy measures to protect the business and customers
- Making major capital investments in the business to remain competitive and fulfill the preferences of customer
- Exploring mergers and acquisitions avenues for the business
- Seeking international opportunities, and understanding the challenges of this endeavor
Many of these trends were important to consumer products companies in advancing growth and meeting the needs of customers; however, some provided even further tax challenges, as well as opportunities, for businesses. Webcast presenters explored these specific trends a bit further to uncover key tax implications, changes and ways to address them.
While the idea of increased consumer spending may seem like a tremendous opportunity to enhance sales and revenue, there are also important tax implications to consider. Many of the strategies to promote spending like discounting, gift cards, coupons, deals of the day, special loyalty programs and other incentives create new sales tax considerations for companies. In addition, states continue to be aggressive in pursuing sales tax on these types of programs. With this in mind, it’s essential for companies to be aware of current sales tax rules in jurisdictions where they do business. Taking a fresh look at sales tax through a nexus study may be appropriate if the business expanded recently.
Another tax consideration related to section 199 domestic production activity deduction is how to handle discount pricing offered to customers on purchased goods. Mishandling this tax deduction could reduce the benefit, while overstating the deduction could increase a business’ exposure to an IRS audit.
Indeed, increased consumer spending may seem like a plus, but how the business manages increased sales and the resulting tax obligations could be a challenge. For a more in-depth discussion, please see our article, What is the tax impact on retailers’ response to consumer spending trends?
An omnichannel strategy allows businesses to engage with their customers via multiple platforms establishing a more personal shopping experience. To implement this strategy, companies may have built out their websites, developed special customer apps to increase mobility efforts, and expanded their technology operations to manage increased data and to extend outreach to consumers through social media strategies. These development and expansion efforts could create research and development tax credits for the company; however, other efforts under omnichannel, like special customer gift cards or convenient return programs, could generate unclaimed property scenarios. Understanding the rules around this strategy could be key to a successful contribution to overall business growth. For a more in depth discussion, please see our article entitled Tax considerations in an omnichannel environment.
At the time of our webcast, tax extenders, including some permanent provisions, many providing tax relief to consumer products companies, had not been signed into law by the president. However, as of Dec. 18, 2015, these provisions are now in place and could provide tax benefits toward capital investment efforts, particularly around location, technology and people expansion costs. Learn more by reading Generous tax extenders package enacted, with many provisions made permanent.
The most significant news for consumer products companies included the provisions allowing for research and development tax credits, 50 percent bonus depreciation, enhanced section 179 deductions, shorter depreciable lives for certain retail and restaurant leasehold improvements as well as the five-year extension of the Work Opportunity Tax Credit.
Mergers and acquisitions (M&A)
M&A is a vital growth strategy enabling companies to expand their business and products, break into new geographies, extend brands and more. However, thoughtful planning is needed and a thorough understanding of tax implications is key for a successful transaction and transition. In particular, careful sell-side due diligence is important to understand tax obligations around income, sales, payroll and property. In addition, understanding what tax attributes will be carried over from an acquired business is essential. For instance, is it tax advantageous for a business with carryover tax losses to claim bonus depreciation or should it allow the acquirer the ability to claim more future depreciation? Considering structure and doing proper diligence early in a company’s life cycle continues to be a focus for owners and executives of companies.
Global expansion allows companies to broaden economic opportunities and attract new customers, but it also exposes businesses to domestic and international regulations, more complex tax legislation, Base Erosion and Profit Shifting, transfer pricing challenges, withholding taxes and more. Understanding the international tax complexities of your specific business, and staying on top of ever-changing legislation impacting the business is critical.
Other tax topics
Other highlights from the webcast included a federal tax update touching on:
- Industry issue resolution
- De minimis safe harbor for capital acquisitions
- Depreciation guidance for taxpayers failing to claim 2014 bonus depreciation
- Uniform Capitalization updates
A state and local tax update covering:
- Various state and local tax reform changes
- Nexus, income tax factor presence, click-through and affiliate nexus updates
- Marketplace Fairness Act highlights and current alternatives
To learn more, listen to the entire 2015 tax changes affecting consumer products companies webcast. Scroll down the page for the recording and a link to download the slides.