As a result of the many responsibilities they occupy, professionals in the Manufacturing and Distribution Industry are regularly faced with a multitude of challenges. Talent shortages and cybersecurity are just a few of the problems facing the industry. Likewise, there is an abundance of accounting and tax hot topics currently impacting manufacturing and distribution businesses. This article evaluates some of the more impactful challenges to consider as you plan for 2019.
Sales and Use Tax
In June, 2018, the U.S. Supreme Court issued a ruling in the case of South Dakota v. Wayfair. This case has had a major impact on the manufacturing and distribution industry, in particular, as it has turned the focus for sales and use tax nexus from a physical presence standard to an economic presence standard. Companies need to closely review the states they are shipping into, as it relates to the dollar amount and number of transactions conducted, in order to review their sales and use tax nexus footprint. Repercussions may include additional registration requirements, additional compliance filings, and potentially expanded technology needs. While many manufacturing and distribution companies do not feel they will be affected by this ruling, as they don’t often collect significant sales tax dollars based on who they’re selling to, it is critical for these entities to, at a minimum, review their exemption certificates collected to ensure they are both current and easily accessible.
New Accounting Standard – Revenue Recognition
The new accounting standard for revenue recognition is finally here! This new standard is intended to provide an industry-neutral revenue recognition model to increase comparability across companies and industries. The guidance sets out a five-step approach which includes identifying the contract, separating the performance obligations, determining transaction price, allocating the transaction price, and finally, recognizing revenue. Nonpublic organizations should apply the new revenue standard to annual reporting periods beginning after December 15, 2018. This standard is expected to have a significant impact on some manufacturing and distribution companies, while, for others, it will mainly result in several more footnote disclosures.
New Accounting Standard – Leases
FASB has also implemented a new accounting standard that will change the way leases are accounted for. This standard mandates that certain assets, along with their lease payments, must be capitalized and shown on the balance sheet, not expensed when paid. It will be very important for manufacturing and distribution entities to start analyzing their current leases and accumulate the necessary information to adopt this standard. This change may have an impact on your company’s bank covenant calculations; therefore, it will be important for you to determine the impact of this standard on covenants and discuss the impact with your bank.
Tax Cuts and Jobs Act (TCJA)
In late 2017, the most significant federal tax legislation since 1986 was enacted. As a result, major changes for manufacturing and distribution companies include the following:
Kentucky House Bill 487
In response to the federal government’s Tax Cuts and Jobs Act, the Kentucky General Assembly issued House Bill 487 (HB 487), which was passed in April, 2018. As a result of this bill, some of the key changes that impact manufacturing and distribution companies are as follows:
Form I – 9 Audits on the Rise
During 2018, the federal government announced they were planning to increase I-9 audits by the Immigration and Customs Enforcement (ICE) arm of U.S. Citizenship and Immigration Services. ICE audits involve a rigorous evaluation of the form to ensure it has been filled out to their exact instructions. We recommend that employers proactively implement best practices with regard to the completion, retention and storage of their I-9 forms. Additionally, every employer should conduct regular voluntary Form I-9 self-audits.
If you have any questions about the above topics, or anything else VonLehman can assist you with, please do not hesitate to reach out to your VonLehman Manufacturing and Distribution Group today.