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134 THE DISTRIBUTOR’S LINK
BART BASI THE DOMESTIC PRODUCTION ACTIVITIES DEDUCTION: FINALLY, SOME GUIDELINES ON THE LIMITS from page 56
And Finally Some Limits!
It’s been over 10 years since The American Jobs
Creation Act of 2004 was enacted, altering the
Manufacturing Deduction. Since then, practitioners have
been working hard to find limits on where Section 199 of the
Internal Revenue Code stops with not a lot of guidance
regarding where that might be. In the pharmacy case
mentioned above, that same pharmacy that was allowed the
deduction for the photographs was not allowed the deduction
for transferring images to CD’s and DVDs. This is significant
in two ways: 1) the case shows that two separate products,
though connected in origin and following a similar process,
are not necessarily qualifying activity or non-qualifying activity
when the final sale is made. And 2) the ruling shows and
distinguishes what is a manufactured item and when a sale
is actually a service.
In a directive (published in March of 2015) the IRS
distinguished the activities that do not qualify: Cutting blank
keys to customer specification, Mixing paint and paint
coloring agents, Applying garnishments to a cake that is not
baked where it is sold, Sorting agricultural products in a
controlled environment to extend shelf life, and Maintaining
plants and seedlings.
The Deduction
The deduction is equal to a phased in percentage of
the lesser of the following amounts: 1) Taxable Income or
2) Qualified Production Activities Income. Taxable income
is self-explanatory, no adjustment must be made.
Qualified Production Activities Income (QPAI) has been
defined as being a manufacturer’s domestic gross
receipts reduced by A) cost of goods sold allocable to
QPAI receipts, B) other deductions, and expenses
allocable to QPAI receipts, and C) Indirect costs
associated with QPAI.
Initially, the deduction started at 3% for 2005 and
2006. For 2007, 2008, and 2009, the deduction
percentage was doubled to 6%. In 2010 AND
THEREAFTER, the deduction percentage is 9%.
Conclusion
You will notice that this deduction does not sunset as
many other tax credits and deductions have. This law
provides for uninterrupted, low taxes in future years. If you
think you have an operation that may qualify or would like
to save on taxes, contact the professionals at The Center
for a determination and strategy.
BART BASI
YOUNG FASTENER PROFESSIONALS - SPEED
NETWORKING EVENT, NIFMSE - OCTOBER 21, 2015
more photos on page 164