Forum: Manufacturers can save money with tax incentives

By - Last modified: November 8, 2013 at 11:58 AM

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Manufacturers looking to save money learned how to do just that at the third Greater Lehigh Valley Manufacturers Summit.
Manufacturers looking to save money learned how to do just that at the third Greater Lehigh Valley Manufacturers Summit. - (Photo By Brian Pedersen)

Manufacturers looking to save money learned how to do just that at the third Greater Lehigh Valley Manufacturers Summit.

The event on Thursday offered advice from experts on how to use tax credits and incentives to boost revenue and maximize tax benefits for manufacturing companies. Held at ArtsQuest Center in Bethlehem, it was hosted by the Manufacturers Resource Center and the Manufacturing Council of the Greater Lehigh Valley Chamber of Commerce.

Touting the efforts of a group that supports manufacturing interests, state Rep. Eli Evankovich, co-chairman of the Pennsylvania House of Representatives manufacturing caucus, spoke about being an advocate for elevating the presence of manufacturing throughout the state.

Anytime someone purchases a product made in another nation, 40 percent of that money is going to a bank in another country, Evankovich said.

The caucus has more than 100 members and is working to attract new manufacturing businesses to the state. It developed a program that hosts tours of small and large manufacturers, Evankovich said.

Workforce development and training tend to be the most important needs in manufacturing, and he spoke about how education should reflect this goal.

"We need to retool virtually everything we do to meet your needs," Evankovich said.

Manufacturers can apply for the Educational Improvement Tax Credit, or EITC, a state program that gives tax credits to businesses contributing to a scholarship organization, an educational improvement organization or a pre-kindergarten scholarship organization, but not career or technical schools.

However, Evankovich said, House Bill 91, which passed the house unanimously, is now in the state senate and would allow career and technical schools to receive this funding. The Senate should vote on the bill this month, he added.

Though $30 million is available in funding for this program, that money will be gone before July 1, he said, so manufacturers have to apply before that time.

"The EITC allows for taxpayers to redirect their money to a program that's going to benefit the local economy," Evankovich said.

A panel moderated by Tony Deutsch, shareholder-in-charge of tax services for Concannon Miller & Co. in Bethlehem, explored ways local manufacturers are using some of these tax credits and programs.

With the EITC program, Deutsch said, manufacturers receive a dollar for dollar deduction in their tax liability that's applied against the taxes at the business. Manufacturers earn not only a federal deduction but a state tax credit, Deutsch said.

Deutsch said it's beneficial because it promotes education and helps those schools that need it, but also it allows manufacturers to maximize their tax benefit.

A Research and Experimentation tax credit also is available for any manufacturer engaged in research and development, which includes product testing, problem solving, developing new products and new manufacturing processes, Deutsch said.

"The U.S. government understands the need to be competitive in a global environment," Deutsch said. "It's a credit against your tax liability."

Dan Loikits, founder and chairman of Dynalene Inc. in Whitehall, said he has used this tax credit and said it helps to have a tax expert with experience in this area.

For manufacturers whose products are exported, an Interest Charge Domestic International Sales Corporation is a tax-exempt paper entity that offers permanent tax savings, Deutsch said.

"It's used basically to funnel your export sales," Deutsch said. However, it is not retroactive.

"You can only use your sales from today, to the end of the year," Deutsch said.

Once a company completes the required IRS form to be qualified as an IC-DISC, it reduces the exporter's tax liability by converting a portion of the exporter's net export income, which is taxable at a maximum rate of 39.6 percent, into qualified dividends generally taxed at 20 percent.

Follett Corp., a manufacturer in Forks Township, has expanded over the years and now does a substantial amount of international sales, said Rich Hooper, chief financial officer of Follett.

In 2009, Hooper said, Follett established an IC-DISC and each year, the company performs the calculations. Anyone in the company can own the IC-DISC, he added.

"It does require an expert; it's complicated," Hooper said. "You just have to find a good partner."

Manufacturers should have at least $1 million in export sales before moving forward with an IC-DISC, Deutsch said.

Dan Meuser, secretary for the Pennsylvania Department of Revenue, said Gov. Tom Corbett's administration is working to improve the economic environment so manufacturers can grow in the state.

"Allocating your tax dollars properly, that's one of the goals of our administration," Meuser said, whose job is to administer the tax laws.

"Manufacturing is just so critical to the state," he said.

For more information about tax credits and incentives, visit www.newpa.com.

Brian Pedersen

Brian Pedersen

Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it. Brian also has a strong interest in health and fitness. He works part-time as a personal trainer at Steel Fitness Riverport in Bethlehem and earned his personal fitness trainer certification from World Instructor Training Schools. He loves to run and will be competing in his first half-marathon on Nov. 23 to raise funds for the Leukemia & Lymphoma Society.

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