Understanding the new overhead capitalization rules

Article Abstract:

Under the Tax Reform Act of 1986, overhead and other costs previously expensed by corporations must be capitalized into inventory, thus increasing the corporate tax base. In addition to overhead expenses, costs that can no longer be expensed (and must be capitalized) include: taxes paid (other than state and local taxes); depreciation expenses reported in financial statements; costs related to manufacturers' rework, scrap, and spoilage; administrative and employee benefit expenses; production officers' wages; costs related to bidding on contracts; expenses related to purchases on inventory; shipping costs; off-site inventory storage expenses; data processing expenses; expenses related to obtaining company security; and certain legal costs. These capitalization rules will not be reflected on filed corporate tax returns until 1988; however, management accountants must begin complying with the rules now to facilitate preparation of the tax returns and ensure business decisions made during 1987 are financially advisable. The new capitalization rules are discussed in three categories: manufacturing rules, rules affecting company-built assets, and costs incurred by wholesalers and retailers. In addition, the effect of the new rules in terms of additional accounting costs, changes to computerized accounting systems, and inventory valuation methods used are discussed.

Taxation, Accounting, Real estate, Valuation, Real property, Real estate appraisal, Assets (Accounting), Cost accounting

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Understanding the unitary tax; the courts say its legal, but many businesses still find the unitary tax unfair

Article Abstract:

Even though the Supreme Court has ruled that unitary taxes are legal, there has been a lot of protest from the business world. A unitary tax is a state tax on corporations which do business within its boundaries, even when it is not based there. Some arguments against the tax are that the amounts collected are small in proportion to the collection efforts, sometimes double taxation occurs, and the approach is often arbitrary. A point in favor of unitary taxation is the prevention of the shifting of taxable income from one country or state to another to lower taxes. Research on the effect of such taxes on a company's decision on where to locate has shown that it would not greatly influence such decisions. Some states tax corporations' foreign activities while others use the unitary approach only with companies doing business in the continental United States.

Interpretation and construction, Tax law, Corporate income taxes

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