Health Savings Accounts
By John Satagaj, WMMA Legislative Counsel, email@jslaw.com
Congress has passed H.R. 4520, the "American Jobs Creation Act of 2004." The President has signed the bill into law. The principal purpose of the law is to repeal the export tax benefit programs known as the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) programs. The World Trade Organization (WTO) had ruled the programs to be illegal subsidies. The European Union (EU) was given the right to impose retaliatory tariffs until the United States repealed the FSC/ETI provisions. The EU did impose tariffs and the EU has increased the tariffs each month by one percentage point. The tariffs, which began at three percent, are currently at 12 percent. It is still up to the EU to decide when to repeal the tariffs. The FSC/ETI programs will be phased out over time. As a result, the EU has announced it will "suspend" the tariffs as of January 1, 2005 and will ask the WTO to rule on whether the new law meets the conditions set forth by the WTO.
As part of H.R. 4520, Congress has created a new deduction for United States "production activities." This is a great win for WMMA as we supported this provision. The relief constitutes slightly more than half ($76 billion) of the law's total tax relief ($136 billion). The law provides the equivalent of a tax rate cut of three percent (when fully implemented) for taxpayers engaged in United States based production. While there are several significant aspects, three are most notable. First, the provision achieves the tax cut not by lowering the tax rate but by reducing the amount of taxable income with a new deduction. (This also means a taxpayer receives the benefit regardless of their tax rate bracket.) Second, the deduction is not limited to "traditional" manufacturers. Third, the deduction is available to taxpayers regardless of how the business is organized for tax purposes.
The new law provides a deduction from taxable income (or, in the case of an individual, adjusted gross income) for a portion of the lesser of the taxpayer's qualified production activities income (QPAI) or taxable income. For taxable years beginning in 2005 and 2006, the deduction is three percent of income and, for taxable years beginning in 2007, 2008, and 2009, the deduction is six percent of income. For taxable years beginning after 2009, the deduction is nine percent of such income. However, the deduction for a taxable year is limited to 50 percent of the wages paid by the taxpayer during the calendar year that ends in such taxable year.
The first step is to determine "domestic production gross receipts" (DPGR). These generally are gross receipts of a taxpayer that are derived from: (1) any sale, exchange, or other disposition, or any lease, rental, or license of qualifying production property that was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States. "Qualifying production property" generally includes any tangible personal property, computer software, or sound recordings.
The next step is to determine "qualified production activities income" (QPAI). QPAI is equal to domestic production gross receipts, reduced by the sum of: (1) the costs of goods sold that are allocable to such receipts; (2) other deductions, expenses, or losses that are directly allocable to such receipts; and (3) a proper share of other deductions, expenses, and losses that are not directly allocable to such receipts or another class of income. (Look for extensive regulations by the IRS and Treasury on the allocation of expenses. This is a complicated area.)
For purposes of determining costs, any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented items where the lease or rental gives rise to domestic production gross receipts. In the case of any item that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis shall not exceed the difference between the value of the item when exported and the value of the item when brought back into the United States, after the further manufacture.
With respect to domestic production activities of an S corporation, partnership, estate, trust, or other pass-through entity, the deduction under the law generally is determined at the shareholder, partner, or similar level by taking into account at such level the proportionate share of qualified production activities income of the entity.
Under the alternative minimum tax (AMT) structure certain deductions, credits, allowances, and so forth, taken from regular taxable income, are added back into the calculation of taxable income. The new law provides that whether one calculates tax liability based on the regular structure or the AMT, this new production activity deduction is allowed.
Congress also addressed one of WMMA's other priorities in H.R. 4520. For taxable years beginning in 2003 through 2005, the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003 increased to $100,000 (up from $25,000) the amount a taxpayer may deduct of the cost of qualifying property placed in service for the taxable year. The $100,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $400,000 (increased from $200,000). The $100,000 and $400,000 deduction limits are indexed for inflation. The increased expensing allowance and the investment ceiling both revert back to their original levels in 2006. The new law extends the increased amount that a taxpayer may deduct, and other changes that were made by JGTRRA, for an additional two years for taxable years beginning before 2008.
It was great to end the Congress on a good note for WMMA.
See you in Washington February 14-16, 2005!
Woodworking Equipment and Wood Product Global Trade Flows
By Harold Zassenhaus, WMMA Export Director, zemg@erols.com
In addition to the ability to track US imports and exports of woodworking machinery, cutting tools and parts and accessories, the WMMA now has access to the official import and export statistics of 47 of our major trading partners. The 47 countries account for virtually all trade in woodworking machinery and over 90% of trade in furniture, wood products, lumber and veneer. For a complete listing of the 47 countries, click here. For a complete listing and description of imported and exported products covered click here. You will need your user name and password to access the linked tables. If you don't have one or forgot it, contact WMMA Headquarters at 215-564-3484 or email wmma@fernley.com).
The data from the 47 countries is comparable and based on a universally accepted 6-digit Harmonized System (HS) of customs classification codes. If there is a downside to the expanded data subscription it is that 6-digit HS codes for woodworking equipment in particular do not differentiate between machinery used for working wood, cork, rubber or hard plastic. Nor does it allow us to identify trade flows of woodworking cutting tools, parts or accessories.
What follows is a basic albeit lengthy report on trade flows of woodworking machinery, furniture, builders' joinery (mostly windows and doors), continuously shaped wood (mostly moulding and flooring) and lumber and veneer. Members can visit the International Business Development Committee site for detailed trade flow tables on each of these product groupings going back to 1998. Members can also ask me for more detailed information (e.g., Brazil's exports of mouldings) and I can provide them with customized spreadsheets.
Also included below is a summary of US export and import trends of woodworking equipment. This report is in the same format as previous quarterly reports and, as in the past, members can go to the Members Only area on the WMMA website, for more detailed US import and export statistics.
- 2004 Quarter 3 Equipment by Type
- 2004 Quarter 3 Equipment by Country
- 2004 Quarter 3 Machines by Country
- 2004 Quarter 3 Cutting Tools by Country
As a final comment, the information now available is extensive. The review that follows is only my assessment of what should be provided to all members and readers of The Cutting Edge. Please let me know what you think of it and please suggest other or additional data you would like to see on a periodic basis. I can be reached at phone (301) 652 0693; fax (301) 986 1389; email zemg@erols.com.
Woodworking Machinery
Global exports of woodworking machinery reached $5.4 billion in 2003, an increase of 13% over 2002. Germany exported $1.6 billion, followed by Italy with $1.1 billion. Behind Italy in descending order were Taiwan, Japan, China, Austria and the US.
In the 1st quarter of 2004 exports increased 27% with major suppliers Japan and China reporting significant increases of 55% and 31%, respectively.
Just as importantly is the destination of the $5.4 billion exported in 2003. Clearly, the US was the largest destination of the 47 reporting countries with 16% of total shipments or $839 million. Surprisingly, according to export statistics of the major country producers of woodworking machinery, China was the 2nd largest destination. Exports to China reached $484 million, a 57% increase over the 2002. From January-March 2004 China was the magnet of an increasing amount of machinery; $155 million worth, a 60% increase period over period.
The following is a listing of major woodworking machinery importers for the 1st quarter of 2004:
For more detailed spreadsheets
on woodworking machinery trade flows:
- 2003 Woodworking Machinery Exports - http://www.wmma.org/members/secureDocument.cfm?docID=210
- 2004 1st Qtr Wood Furniture Imports - http://www.wmma.org/members/secureDocument.cfm?docID=213
US Woodworking Equipment Trade Trends
The following is a summary of major trends of US exports and imports for January - September 2004. Statistics are reported for all woodworking equipment and its three component parts: machines, cutting tools and, accessories and parts.
To view
detailed tables on US imports and exports of machinery, cutting tools and
parts and accessories:
- 2004 Quarter 3 Equipment by Type - http://www.wmma.org/members/secureDocument.cfm?docID=203
- 2004 Quarter 3 Equipment by Country - http://www.wmma.org/members/secureDocument.cfm?docID=202
- 2004 Quarter 3 Machines by Country - http://www.wmma.org/members/secureDocument.cfm?docID=204
- 2004 Quarter 3 Cutting Tools by Country - http://www.wmma.org/members/secureDocument.cfm?docID=201
Exports of woodworking equipment (machines, cutting tools plus parts and accessories) grew 7% to $220 million, continuing the trend began last year. Shipments to Canada, our largest customer, remained constant ($94 million) but grew by 85% to Australia ($16 million), 121% to Chile ($10 million), 43% to China ($7 million), 72% to New Zealand ($4 million) and 89% to Singapore ($4 million).
This is a strong indication that members are taking advantage of international opportunities in less traditional markets. As shown by the analysis in the section above, there are other markets in which our members should be competitive and could grow revenues as well.
Imports
Total imports for the first nine months rose 10% over the same period last year to $1.1 billion. Imports from Taiwan and China accounted for 50% of imports with China's shipments increasing 33%. To date, China has not been able to significantly crack into industrial or heavy commercial equipment. The majority of shipments are made up of small miter saws, band saws, table saws, scroll saws and routers.
Wood Furniture Trade Trends
In 2003, wood furniture imports from the 47 reporting countries (accounting for over 90% of global furniture imports) totaled over $32 billion, an increase of 18% over the previous year, with China supplying over 21% of the global market. The trend continued in 2004 as imports grew by 20% to reach $9.1 billion for the 1st quarter. Visit http://www.wmma.org/members/secureDocument.cfm?docID=184 for more detailed spreadsheets.
The following table shows those countries whose shipments increased greater than the global average for the 1st quarter of 2004:
As you can see, the list is large but of particular note are Vietnam, Brazil, India, Russia and the majority of Eastern Europe nations.
Vietnam. From almost nothing five years ago, the tiny country is now one of the top 15 wood furniture supplying nations in the world. According to a report from the Vietnam's Forest Development Department, there are more than 1,500 enterprises involved in wood processing and trading. About 450 companies are active furniture exporters, with about 120 companies focusing on outdoor furniture, while 330 manufacture indoor furniture. The WMMA is planning to organize a pavilion in Vietnamwood, Vietnam's largest woodworking equipment fair to take place October 19-22, 2005. Stay tuned for more details shortly.
Brazil. Like Chile and New Zealand, Brazil has large reserves of Radiata pine and Eucalyptus. Unlike the other two, it also has huge reserves of tropical timber and a diverse and growing wood products industry. While competition from domestic manufacturers, ever changing customs regulations, and inconsistent enforcement make trade difficult, the country offers significant opportunities to many of our members.
China. The largest exporter of wood furniture has become a powerhouse and will continue to be one for quite some time. Whether it can continue to increase output by double digits is dependent upon a number of factors many of which will come under increased pressure in the next 1-2 years. These factors include:
Russia and Eastern Europe. There are a host of East European countries which are now supplying the needs not only of West Europe but of the US as well. Russia has the world's largest forest reserves and infrastructure improvements and economic growth over the past five years or so make it a solid developing market. Many European furniture manufacturers have shifted production to the east and the results are there to see. While WMMA members face significant challenges in entering the market, there are good opportunities in the region. The WMMA is planning to organize a pavilion in Russia's most significant woodworking equipment trade fair, Lestechprodukzia/Woodex October 11-14, 2005 in Moscow; stay posted for details.
India. A growing industry base, a growing and "liberating" economy along with relatively low wages and high productivity rates makes India a good potential market. To add to the mix, language is not an issue and most producers have experience in dealing with Americans.
Windows, Doors and Other Types of Builders' Joinery
In 2003 and again for the first six months of 2004, the largest suppliers to the 47 reporting countries were Canada, Germany, Denmark, China, Austria, Sweden, Indonesia, Poland and Brazil, in addition to the US. Together the 10 countries accounted for 58% of reporting country imports. Canada's share, for the first time dropped below 20%. Particularly fast growing major supplier countries included the following:
For more detailed spreadsheets on shipments of builders' joinery visit http://www.wmma.org/members/secureDocument.cfm?docID=211.
Mouldings, Flooring and Other Continuously Shaped Wood
The 47 countries on which we are tracking shipments (comprising over 90% of the world's wood product producers and users) continue to increase their sources of supply. The combined 2003 imports amounted to $3.3 billion, 16% over 2002. For the 1st quarter 2004, imports expanded by 22% year over year period to reach $900 million.
The biggest surprise in the last two years is the phenomenal growth in imports from China. Shipments from China to the other 46 countries increased four-fold during the 1998-2003 period, and in the first quarter 2004 grew again by 52%. China is now the largest shipper of continuously shaped wood to the world and has a 12% market share.
Other notable high growth suppliers are noted below
For a detailed spreadsheets on moulding and flooring imports visit http://www.wmma.org/members/secureDocument.cfm?docID=212.
Lumber and Veneer (Sawn wood)
Trade in lumber and veneer approximated $22 billion in 2003, a 7% increase over the previous year. For the first six months of 2004 exports by the 47 reporting countries (estimated to be about 90% of the world's total) approached $13 billion, largely due to a 39% increase in shipments by Canada.
The following larger supplying countries witnessed significant export growth since 2002. For additional detailed spreadsheets on exports by reporting country of sawn wood, please visit http://www.wmma.org/members/secureDocument.cfm?docID=214.
Take a look at the upcoming opportunities to expand your exporting knowledge and experience. Break out your calendar and make a note of the international trade fairs and exporting tools that will be available to you over the next 12 months…
This article contains International Market Insight (IMI) that WMMA exporting
members may find pertinent. The IMI says that a European standard for electricity
companies allows them to put a huge surge through the power lines, while the
standard for the equipment manufacturers says to build to withstand less than
half the amount. Members should be aware of problems that could arise with
product liability because of this situation.
High transient spikes can cause significant problems for variable frequency
drives, programmable controllers, computers, and other sensitive electronic
equipment. Makers of this type of equipment are most likely providing or requiring
the end user to provide line chokes or constant voltage power supplies to protect
from such problems...but members should be certain they are providing proper
warnings in their warrantee to be protected from claims of failure due to high
voltage spikes.
See the article for more details visit http://buyusainfo.net/info.cfm?id=127068&keyx=E676252A39FFD63234E4787992CA55DD.
Who Prints Your Hazard Warning Labels?
Surely all of the machinery you manufacture and ship to customers and tradeshows is clearly marked with safety warning labels. This is the industry standard! But your label supplier or the tools used to make your own labels differ from company to company.
The Research & Engineering Committee would like to know YOUR label sources.
What printer do you use? If you print safety warning labels in-house, what
supplies are needed? Where do you get your graphics?
Please respond to jconey@fernley.com by November 30th with the answers to these
questions. Your responses will help the Committee in promoting the importance
and ease of using safety warning labels on woodworking machinery and cutting
tools. Thank you for your feedback.
International Conferences in 2005 - Sponsored by Wood Machining Institute
The Wood Machining Institute, a member of WMMA, is an independent, international center organized to collect, evaluate and disseminate information about wood machining equipment and cutting tools (saws and knives, etc.). The Wood Machining Institute organizes conferences and workshops that are invaluable sources of the latest information in the field. The following conferences are taking place in 2005:
Save the Date for the January 14th Continuous Improvement Workshop
Those members in attendance at the November 18th Manufacturing Workshop can
attest to the value packed into this one-day event. Members not in attendance
will have another opportunity to participate in the same Continuous Improvement
Workshop, presented by the Greater Boston Manufacturing Partnership (GMBP),
on Friday, January 14th, in a city TBA. Save the Date!
This is an exciting one-day course including instruction in the philosophies
of continuous improvement, the seven wastes, “reliable methods” and
techniques for combating waste. It includes a comprehensive, hands-on classroom
simulation that shows a factory in transition from batch production (push)
to one-piece flow (using pull). The class provides an excellent foundation
for companies just starting out and contains many specific improvement ideas
that attendees can take away. This course is designed to both inform and inspire
individuals about the benefits of unleashing the power of continuous improvement
within their organization.
After taking this class attendees should be able to:
Qualified Sales Leads Generated by WMMA Marketing
WMMA members can access an updated listing of contact information from end users who have expressed interest in American-made machinery and supplies. These qualified buyers have supplied their contact information to WMMA and have received a copy of the 2005 Buyer's Guide.
You are encouraged to use this Excel spreadsheet to send your product literature to these buyers. Check back each month for names recently added to this cumulative list. This is another benefit of membership in WMMA!