Does our company qualify the section 199 - Domestic Production Deduction?

wrote

It sounds like you will have - or may have - split income, from manufacturing as well as services. Much like McDonalds isn't manufacturing hamburgers for it's customers, it's hard to look at printing business cards as a manufacturing activity. That being said, there probably are many products you do manufacture, even if they have additional service processing like specialty printing, so segregating the income by source could generate some tax break. Starbucks would have to do this, if they manufacture their own beans and grind for sale, as well as sell brewed coffee (a service). This is new enough that you'll have to make a lot of judgment calls and tweak it along the line as you hear of regulations and court cases that favor you, as well as those that do not.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Now what kind of "services" would a printing manufacturer provide that are not built into the price of the products sold? Unless the company also provides design services I would say all activities are domestic production activities. A similar question came up elsewhere, the questioner wanting to know whether or not to send a 1099-misc to the printer since what he bought were "custom" printed. One factor I mentioned there and perhaps would pertain here is whether or not sales tax is applied on all invoices. ChEAr$, Harlan Lunsford, EA n LA

Are you implying that the retail store in the mall, that will custom embroider the shirt you pull from the rack is a manufacturer for the credit? Kinkos doesn't qualify for the manufacturing credit on a huge part of their income. But there may be something they do that qualifies as domestic manufacturing. The applicability of sales tax to the bill is not any indication of a manufacturing activity.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Nope. Because the shirt is already manufacturer and this embroidering is a service. Although I just bet you store will charge sales tax on it; and everything of course.

We agree then, to disagree. Sales tax being charged is not THE only indicator I admit, but one factor in several perhaps. ChEAr$, Harlan

If I bring in my shirt and they embroider something on it, then sure, they're providing a service. But if they sell embroidered shirts, and I specify the underlying shirt and the pattern, don't they then _manufacture_ the embroidered shirt? If I go to a tailor to make me a suit, he already has the cloth, he just cuts and sews; is that manufacturing? Where do you draw the line between that and embroidery?

If I go to Kinkos with a CD and tell them to print and bind a book from its contents, I'd consider that manufacturing. If I go with a tax form and have them copy it, that isn't. Seth

"Seth Breidbart" wrote

The way I see it, yes, and sales tax is due on the entire sales price. This as opposed to a simple hemming of sleves or pantlegs.

I'd wager it'll come down to the degree that the underlying goods and materials are modified in their use. Cloth can be used for may purposes. It can be manufactured into many different products. The act of embroidering initials on a set of towles is vastly different from the act of manufacturing the towel itself. The shirt is already made, and embroidering it doesn't change it's use.

Then would you be willing to argue in tax court that I manufacture tax returns? After all, there's more work involved in creating a tax return than printing from a disk.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

As far as sales tax goes (at least here in CA) the theory is that in one case you parimarily want to end up with something tangible as opposed to ending up with the result of services. It's not always an easy line to draw. I remember one case concerning a keypunch operation. They provided primarily services (punched cards) - the cost of the cards was insignificant or they may have given them away at no extra charge. But since the client's interest was to end up with punched cards that he didn't have before, it was held to be the sale of goods and the entire amount taxed. Now if the client had obtained the cards elsewhere or at a different time and then brought them in for punching, they would have given him nothing he didn't have before, but his goods would have been altered by the services. In that case no sales tax.

I suppose you do in some respect manufacture tax forms. And if the client's primary purpose for having you do so would be to put it on the wall and show it off to all his friends, I'd think it would be more reasonable to call it manufacturing. But your client's primary purpose is the effects of the return and your services, not the return itself. Should a university charge sales tax because, at the end of the day, the student is really just buying a diploma? Stu