SDCExec.com Classic: The Tax Efficient Supply Chain

The ability to learn faster than your competitors is the only truly sustainable competitive advantage, as companies learning to apply tax planning best practices to the supply chain are finding out


  • In many states, intangible assets are not subject to property tax. As such, warranty cost included in and capitalized on as a part of certain asset purchases will unnecessarily increase a company's property tax base;

  • In several states, software electronically downloaded is not subject to sales tax. The ability to facilitate this type of delivery to the ultimate end-user may determine whether or not the software is subject to sales tax;

  • Many companies often disconnect vendor volume or contract inducement payments from the purchase of the underlying tangible personal property. As such, they overstate income, sales or property tax values of such assets;

  • The ability to value the importance of this function within the organization and charge related entities for its services may produce a more state income tax-efficient profile.

  • Planning pertaining to the importations of goods can often lead to a reduction in the customs and duties paid..

  • In situations with rapid vendor turnover, it's important to manage the related escheat (unclaimed property) exposure.


Further, owning the tax-determination piece of a transaction allows companies to reduce the exposure created by mis-compliance.

Brand Management
For many companies, brand management is "the" essential value driver of the organization. The ability to control the "look and feel" of the customer experience is essential to maintaining the company's position within the marketplace. The tax implications of branding include:

  • The determination within the supply chain of when goods are "branded" and therefore where the value is added. This, in part, determines the situs of taxability and the value of the goods for income and property tax purposes.

  • The ability to license and protect intellectual property associated with the brand, such as copyrights, patents, trademarks and trade names, will often impact the jurisdiction of income taxation.;

  • The ability to attach the value of certain intellectual property may impact the customs and duties charges on the importation of products.

  • The situs of where such intellectual property is held will impact the tax costs of dispositions when a business unit, and its related intellectual property, is sold.


Merchandising and Marketing
The merchandising function determines what merchandise is carried and where such merchandise is displayed. Often, it also determines the overall store layout or design. These are critical factors in retail operations, as convenience and functionality are essential in retaining customers in today's fast-paced society.
There are many tax implications, including:

  • The property tax implications of the capitalization of site selection and store design costs; and

  • The state income tax implications of valuing and properly sourcing the services associated with the merchandising and marketing functions.


Finance
The structure of a company's internal financing can also impact its overall tax profile.

  • The capital structure of a legal entity can often impact its franchise tax profile.

  • Efficient internal leveraging can, in some jurisdictions, serve to reduce an operation's state income taxes.


Customer Relationship Management (CRM)
Increasingly, companies are seeking to manage the data collected from a myriad of contact points with customers. Contact points include data gathered in surveys, interactions with customer service representatives, orders placed online, dealings with warranty personnel and the usage of coupons. This information is critical to companies because it tells them, from a customer perspective, the relevance of their products or services in the marketplace, the effectiveness of their marketing efforts and the efficiency of their delivery system. The tax implications of building the infrastructure to compile and store this data include:

  • Due to the extremely high value of customer data, there are state income tax implications as to where CRM data is stored and maintained.

  • The ability to license and protect intellectual property associated with the brand, such as copyrights, patents, trademarks and trade names, will often impact the jurisdiction of income taxation.;

  • Property tax implications as to where CRM software is capitalized.

  • Since CRM is a communication-intensive function, a review of the excise tax amounts on telecommunications charges may lead to certain excise tax refunds.

 

Distribution and Asset Management
In an era of just-in-time replenishment, distribution is a critical function. Efficient management of distribution center (DC) functions and of the related transportation and merchandise handling equipment is a key component of creating a cost-efficient supply chain. There are significant tax impacts on these functions as well, for example:

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