14 minute read
OUTLOOK
CARES ACT PROVIDES RELIEF TO MOLD BUILDERS
By Michael J. Devereux II, CPA, CMP, Mueller Prost O n March 27, 2020, President Trump signed the Coronavirus Aid,
Relief and Economic Security (CARES) Act – the largest relief package ever passed by Congress almost three times over – into law, thereby ushering a host of new lending and tax provisions available to mold builders.
The CARES Act made several taxpayer-favorable changes to the tax code that impact mold builders, some of which should provide much needed cash during the COVID-19 pandemic. The following provides a brief overview of the business tax provisions of the CARES Act.
EMPLOYEE RETENTION CREDIT The CARES Act provides for a refundable payroll tax credit for 50% of the wages paid by eligible mold shops to certain employees during the COVID-19 pandemic. The credit is available to mold shops whose operations have been fully or partially suspended as a result of a government order or mold shops that experienced a greater than 50% reduction of quarterly receipts, measured on a year-over-year basis.
The credit is equal to 50% of the qualified wages paid to employees from March 13, 2020, through December 31, 2020. The definition of qualified wages depends upon the number of average full-time employees in 2019. For mold shops that had more than 100 average number of full-time employees in 2019, only the wages of employees who are paid during a shutdown or face reduced hours as a result of the plant’s closure or reduced gross receipts are qualified wages. However, for employers with 100 or fewer full-time employees in 2019, qualified wages also include amounts paid to all employees due to the reduced gross receipts.
Qualified wages include amounts paid or incurred to provide and maintain a group health plan (on a pro-rata basis) and are capped at $10,000, making the maximum amount of FICA payroll tax credit $5,000 per employee. Mold shops receiving Small Business Interruption loans are not eligible for the Employee Retention Credit.
EMPLOYER FICA DEFERRAL This provision of the CARES Act allows mold builders to defer payment of their employer share of the Social Security tax (FICA at 6.2%) for payroll tax deposits required to be made between March 27, 2020, and December 31, 2020. The amounts otherwise due during this period will be due in two installments – the first on December 31, 2021, with the remainder due on December 31, 2022. Mold shops receiving loan forgiveness through the Paycheck Protection Program, however, are not eligible for the deferral for amounts due after they receive notification of forgiveness.
NET OPERATING AND EXCESS BUSINESS LOSSES The CARES Act made two significant changes in the Net Operating Loss (NOL) rules and temporarily removed a limitation on business losses enacted by the Tax Cuts and Jobs Act of 2017 (TCJA).
First, the CARES Act removes the 80% of taxable income limitation that was enacted as part of the TCJA. Losses generated in any tax year beginning after December 31, 2017, and before January 1, 2021, (tax years 2018, 2019 and 2020 for calendar-year taxpayers) may offset 100% of the taxable income to which the loss is carried. The 80% of taxable income limitation is reinstated for tax year beginning after December 31, 2020.
Second, the CARES Act allows mold builders to carry their NOLs back to each of the five taxable years preceding any losses generated in tax years beginning after December 31, 2017, and before January 1, 2021, (2018, 2019 and 2020 calendar-year taxpayers).
The IRS issued special guidance for taxpayers who have already filed their 2018 or 2019 tax returns and would like to avail themselves of the modified rules for NOLs.
The CARES Act also delayed a provision originally enacted by the TCJA that limited “excess business losses for noncorporate taxpayers.” The TCJA had enacted a new limitation for owners of flow-through businesses (S Corporations, Partnerships or Sole Proprietorships). This provision, as enacted by the TCJA to be effective for tax years 2018 through 2025, limited business losses exceeding $250,000 ($500,000 in the case of married taxpayers filing a joint return) and were not eligible for carryback.
The CARES Act allows excess business losses for tax years 2018 through 2020 and, if net operating losses are generated, allows for a five-year carryback period.
claim any ordinary loss. Further, passive shareholders may only offset passive income with passive losses.
CREDIT FOR PRIOR YEAR MINIMUM TAX (AMT CREDITS) The TCJA repealed the corporate alternative minimum tax (AMT). Taxpayers that had previously paid the AMT received Minimum Tax Credits (AMT Credits). The TCJA made those credits refundable over four years (2018 to 2021). The CARES Act accelerated the refundability of this credit, allowing the refundable amount in 2018, but making it fully refundable in tax year 2019. However, the CARES Act also provides for an election to take the entire refundable credit amount in tax year 2018.
BUSINESS INTEREST LIMITATION The CARES Act temporarily increases the limitation on business interest expense for those subject to the limitation. The TCJA had introduced a new limitation for tax years beginning after December 31, 2017, whose average annual gross receipts exceeded $25 million, a limitation that is subject to inflation (the limitation applied to companies with average annual gross receipts of $25 million and $26 million in 2018 and 2019, respectively). Any business interest expense that exceeds the sum of interest income and 30% of adjusted taxable income is not allowed as a deduction in the year paid or incurred, and the excess amount is carried forward as an interest expense to future tax years (indefinitely).
The CARES Act temporarily increases the limitation on the deductibility of net interest expense to 50% of adjusted taxable income for any tax years beginning in 2019 or 2020. Mold shops concerned that their adjusted taxable income will be minimal or zero are allotted some relief in computing their 2020 adjusted taxable income limitation. At the election of the mold builder, the 2020 interest expense limitation will be 50% of its 2019 adjusted taxable income.
QUALIFIED IMPROVEMENT PROPERTY The TCJA modified both the bonus depreciation rules and the definition of qualified improvement property. The TCJA increased the bonus depreciation percentage to 100%, retroactively, for property placed in service after September 27, 2017, through
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December 31, 2022. Beginning in 2023, the bonus depreciation percentage is phased down by 20% each year, with the accelerated “bonus” depreciation phased out by 2027.
In addition, the TCJA consolidated three types of improvement category assets into a new category called Qualified Improvement Property (QIP). For mold shops, QIP includes any improvements made to the interior of your facility that are placed in service after the date your facility was first placed in service. Improvements do not include enlargement of the building, elevators or internal structural framework.
In writing the TCJA, a general 15-year recovery period was intended to have been provided for QIP. However, due to a drafting error, that specific recovery period did not make it into the final statutory language of the bill. As such, under the TCJA, QIP fell into the 39- year recovery period for nonresidential real property, and therefore is ineligible for 100% bonus depreciation.
The CARES Act provided a technical correction to the TCJA and specifically identifies QIP as 15-year property for depreciation purposes. This also makes QIP eligible for 100% bonus depreciation. Given that it is a technical correction, the provision is retroactive, and mold shops can write off any QIP placed in service after December 31, 2017.
CONCLUDING THOUGHTS Numerous other provisions, including the Paycheck Protection Program, the Economic Injury Disaster Loans and Emergency Grants, and individual tax relief, were enacted as part of the CARES Act; and Treasury seems to be issuing new guidance as quickly as issues or ambiguities arise. As you may suspect, these provisions don’t exist within a vacuum. Many provisions impact others, as well as existing tax incentives. As such, careful planning is advisable. n
Michael J. Devereux II, CPA, CMP, is a partner and director of Manufacturing, Distribution & Plastics Industry Services for Mueller Prost. Devereux’s primary focus is on tax incentives and succession planning for the manufacturing sector. He regularly speaks at manufacturing conferences around the country on tax issues facing the manufacturing sector. For more information, visit www.muellerprost.com.
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[2] ROLLOMATIC APPOINTS COO The Rollomatic Group, maker of precision CNC tool grinding machines with North American headquarters in Mundelein, Illinois, has announced the appointment of Joe Kane as COO for both Rollomatic Inc. and Strausak Inc. Kane will remain president of Strausak Inc. The combined companies will further fill out their global presence in providing top solutions for precision tool grinding. Kane will remain in the company’s Mundelein office and will oversee all areas related to the operation of the two companies. He will manage the combined team of applications engineers and will provide leadership and training to the field service manager, parts and logistics manager and the customer solutions manager and their teams. Day-to-day operations, IT/IS and facility also will be Kane’s responsibility. For more information, visit www.rollomaticusa.com.
34 the american MOLD BUILDER | Issue 2 2020 TOOLING TECH GROUP ANNOUNCES EXPANSION OF FT. LORAMIE FACILITY Tooling and automated systems producer Tooling Tech Group, Macomb, Michigan, has announced that it has broken ground on a 10,000 sq. ft. expansion of its thermoforming and compression moldmaking facility in Ft. Loramie, Ohio. The expansion, expected to be completed in the third quarter of 2020, will bring the total manufacturing space to 100,000 sq. ft. at this location. This addition will accommodate two new COMI LaborShape 5-axis machining centers, specifically designed for high-speed machining on aluminum and light alloys. Recognized for their high accuracy and finishing ability, these machines will add metalworking capacity, improve speed and efficiency, and provide the ability to complete complex part geometries. Additionally, the space will be large enough to accommodate additional machining centers. For more information, visit www.toolingtechgroup.com.
HASCO INDIA RECEIVES AWARD FOR BEST PLASTICS & POLYMERS BRAND 2020 At the presentation of The Economic Times’ brand awards in February, HASCO India, a supplier of modular standardized components and accessories in Bangalore, received the award for Best Plastics & Polymers Brand 2020. This prize is of special significance in India because The Economic Times, with its head office in Mumbai, is the second most widely read English-language business newspaper in the world. The criteria for the Best Plastics & Polymers Brand Awards are cost-efficiency, excellence, technology and sustainability. HASCO India was able to convince the jury on all four counts. The company’s success derives from the HASCO brand values of agility, innovation, simplicity and performance. As an internationally leading standard-component specialist, HASCO has been active in India since 1998. For more information, visit www.hasco.com.
TST OFFERS VISI LICENSES FOR ONLINE WEB TRAINING Tooling Software Technology, LLC, Clarkston, Michigan, a provider of CAD/CAM/CAE software and North American Master Distributor for VISI and PEPS, offers virtual training. VISI Modeling: True Hybrid Modeling is the foundation of all VISI products and provides a robust, powerful solid and surface modeling system. VISI Modeling offers extensive CAD interfaces; an easy to learn interface; solid, surface wireframe and mesh geometry deformation;
blending; associative tool detailing; surface repair and analysis; and combined wireframe, solid and surface modeling. A Modeling Seat includes advanced freeform CAD, 3D modeling, hardware dongle and unlimited Help Desk support. For more information, call 248.922.9293, email Sales@tst-software.com or visit www.tstsoftware.com.
US DEPT OF LABOR ANNOUNCES NEARLY $100 MILLION IN APPRENTICESHIP GRANTS The US Department of Labor announced the awarding of grants to 28 public-private apprenticeship partnerships totaling nearly $100 million through the Apprenticeship: Closing the Skills Gap grant program. Grants will support large-scale expansions of apprenticeships in industries including advanced manufacturing, healthcare and information technology. President Trump’s Executive Order on Expanding Apprenticeships in America called for increasing the number of apprentices in the US across all industries. There are more than 6.4 million job openings reported in the US and expanding apprenticeships will help individuals gain the skills necessary to fill these vacancies. The program supports apprenticeships that include a paid, work-based learning component and a required educational or instructional component that results in the issuance of an industry-recognized credential and that meet appropriate quality assurance standards. For more information, visit www.dol.gov.
[3] COMAU PARTNERS WITH EXECHON TO DEVELOP NEW MACHINING SOLUTIONS Turin, Italy-based Comau, an advanced industrial automation products and solutions provider, and Exechon – a joint venture between Lockheed Martin, Tecgrant AB (formerly Exechon AB), a Sweden-based technology company, and Abu Dhabi-based Injaz National that offers parallel kinematic machine technology – have joined forces. Comau and Exechon will design and produce a new Comau machining center able to handle lightweight framing and structural components for multiple sectors, with a particular focus on automotive, aerospace and electrification. To spearhead a new machining paradigm able to handle large, complex aluminum parts, the companies have started a strategic cooperation. They will leverage their respective competencies to develop a concrete solution for customers that can cost-effectively meet key drivers within the evolving machining market. For more information, visit www.comau.com.
CGTECH ANNOUNCES NORTH AMERICAN VERICUT USERS' EXCHANGE EVENTS Software provider CGTech kicked off the first of its 2020 North American VERICUT Users’ Exchange (VUE) events on March 2 in Irvine, California. Each year, CGTech hosts VUE events for its customers worldwide. At VUE 2020, CGTech staff will provide a firsthand look at the new features in the latest release of VERICUT, version 9.0. Attendees also will learn what is already in the works for version 9.1, will see tips and tricks for improving manufacturing efficiency and will have the opportunity to express ideas about the future direction of the software. New features in VERICUT 9.0 include several enhancements designed to increase power and improve efficiency, including a new graphics engine. For more information, visit www.cgtech.com.
EXACT METROLOGY SET TO OPEN NEW CENTER IN MOLINE, ILLINOIS Exact Metrology, Inc., Brookfield, Wisconsin, a comprehensive metrology services provider, has added a new facility in Moline, Illinois. The location will serve as a training, support, contract measurement and sales center. Training will be provided on software packages such as PolyWorks ® , Geomagic and PC-DMIS. Hardware classes will be offered for Romer, Leica Tracker, Surphaser ® and Leica RTC 360. Exact Metrology also will offer a complete range of portable Coordinate Measuring Machines (CMM) and custom classes for any measurement needed. Day classes and half-day classes will be available. Contract services that will be offered include CMM measurement, custom programming, inspection and reverse engineering. For more information, visit www.exactmetrology.com. n
