Katz, Sapper & Miller

Recently, Katz, Sapper & Miller, LLP, and KSM Consulting, LLC, partnered with TechPoint to present the KSM Executive Roundtable discussion on "Post-Election Prospects for Growth & Technology: A 2013 Business Climate Forecast." The roundtable featured Bret Swanson, a technology business consultant and president of Entropy Economics as well as Entropy Capital.

As part of the roundtable discussion, Bret discussed the new "App Economy" and how it's affecting technology development. In the current technology market, the development of application software has generated billions of dollars in revenue since the Apple App Store opened in 2008. Smart mobile devices are facilitiating the growth of apps to todays' staggering 1.425 million apps in the marketplace.  

The "App Economy" encourages entrepreneurship and job creation around the world. And, as Indiana continues to house and attract some of the top innovative technology companies and entrepreneurs, we have seen the growth of the new American software industry impact our local economy as well.

Please visit Entropy Economics' website to read Bret's full article, Soft Power: Zero to 60 Billion in Four Years.

Erin Eberly is a director in Katz, Sapper & Miller's Technology Services Group. For more information, contact Erin at 317.580.2186 or eeberly@ksmcpa.com.

Indiana is one of 27 states in the United States whose economic health improved during 2012 due to growth in its manufacturing sector. According to the Bloomberg Economic Evaluation of States Index, Indiana was in the top eight for biggest gains in economic health. The Midwest states of Indiana, Ohio, Illinois and Michigan have an average manufacturing employment level of 13%, which is 4.1% above the national average of 8.9%. This shows the importance of manufacturing growth to each of these states. To learn more, read Bloomberg's article, States Gaining in Economic Health as Manufacturing Grows.

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

Reuters released a recent reading of the U.S. Manufacturing Purchasing Managers Index, which showed an increase from 52.8 in November to 54.0 in December. December’s reading on the index is the highest reading since May 2012 and presents an indication that the manufacturing sector was growing at the end of 2012.  Any reading on the index above 50 is considered to be an indication of growth/expansion of the sector.

Additionally, a recent reading of the Institute for Supply Management’s index of national factory activity rose during December. The index increased from 49.5 in November to 50.7 in December. The November reading had been a 40-month low for the index, so the increase in December is considered to be a good indication that manufacturing is coming back.

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

One of the most crucial aspects of manufacturing operations centers on how organizations structure their distribution activities. The ability to effectively integrate company objectives with these distribution activities are vital to the overall success of manufacturing firms.

In a recent Modern Distribution Management article, distribution expert Brent Grover’s new book, The Little Black Book of Strategic Planning for Distributors, is highlighted. In his book, Grover notes that companies can ensure successful distribution channels by taking the following steps:

• Assess the internal environment of the firm
• Develop strategic goals that are specific, measurable, and realistic
• Gain a better understanding of the key profit drivers behind operations
• Define customer base so as to focus sales efforts on a committed target market
• Align business processes with elements of a firm’s distribution plan

For more information on Grover’s book, visit strategicplanningfordistributors.com.  

Brent Lee is a staff accountant in the Audit and Assurance Services Department at Katz, Sapper & Miller. For more information, contact Brent at blee@ksmcpa.com or 317.452.1386.

On Jan. 1, 2013, the Senate and then the House passed the American Taxpayer Relief Act of 2012 (Act). President Obama signed the bill into law Jan. 2, 2013. This law averts some of the fiscal cliff tax consequences that were set to expire at the end of 2012.

Learn more about the various tax provisions in the legislation.

While the U.S. economy as a whole has struggled the past few years, manufacturing in the United States is starting to see some gains. Most of these gains are as a result of re-shoring jobs back to the United States that had previously been moved overseas for cheaper labor. 

Research by the Boston Consulting Group shows that increased cost of labor, increased natural gas costs, and increased electric costs have companies considering moving or actually moving production from Europe and Japan back to the United States.

Research conducted by Capital Business Credit shows that half of respondents polled are considering moving jobs back to the United States that had been moved over to China in prior years, with 30% of those respondents noting the United States as their top choice for relocation. The top reason sighted for the potential moves was the increase in labor costs in China. The increase in transportation costs to ship products back to the United States once completed was sighted as the second reason.

Additionally, a survey report from the Council of Supply Chain Management Professionals show that 40% of the companies they surveyed planned to move production from China and India back to the United States. This report noted that increases in energy costs, labor costs and transportation costs were driving factors. The report also noted that companies had concerns over the political stability of these countries, as well as product quality and their ability to protect their intellectual property.

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

Walmart announced in early November 2012 that they had developed a prototype 60 foot tractor-trailer unit. The prototype has almost 30 percent more capacity than a traditional 53 foot trailer and can carry 40 percent more freight when a “drome” or belly box (that fills the wasted space between the trailer’s wheels) is included. Walmart obtained a permit to operate the prototype in Ontario, Canada and it may be rolled out in the United States and other areas if this unit is successful. 

"Innovative and efficient transportation solutions are essential to achieving Walmart's sustainability goals," said Andy Ellis, senior vice president of supply chain and logistics for Walmart Canada. "This new trailer allows us to deliver more products to our stores, using fewer trucks, thereby reducing our impact on the environment."  Walmart has been long considered an innovator in creating efficiencies throughout their supply chain as technological advances occur that allow them to continue their success as a global retail and distribution powerhouse.

As a follow up to Part II of our Trucking Owners Business Roundtable summary, below are highlights from Jim Spolyar and Chris Eckhart's presentations, both of Scopelitis, Garvin, Light, Hanson & Feary, P.C. Jim’s presentation covered driver application practices and restrictive covenants; and Chris’  presentation covered wage/hour issues and class/collective actions.

Highlights from Jim Spolyar and Chris Eckhart’s presentations:

• The Fair Credit Reporting Act (FCRA) governs the use of driving records and background checks. As such, companies need to obtain written authorization to obtain reports and confirm that those reports will be used for employment purposes.
• Motor carriers have an exception, where the applicant may provide oral consent if the only contact the motor carrier has had with the applicant is via mail, telephone, computer or similar means (a “remote applicant”). If a company decides not to hire/contract an applicant, they must provide a pre-adverse action notice including a copy of the background/driving record report to the applicant, a copy of the applicant’s FCRA rights, then wait a reasonable period of time before sending the final adverse action notice. The company must give the applicant an opportunity to object to the information in the report. Proper protocol for the company is to document the entire process. 
• The use of arrest and conviction records cannot have blanket exclusions where an applicant is disqualified based on arrests/convictions that are not related to the job for which they are applying. Each applicant should be given an individualized assessment, including the facts or circumstances surrounding the offense or conduct (number of convictions, age, etc.) and the applicant must be given a chance to provide evidence the record is incorrect or that the exclusion should not apply.
• Restrictive covenants are state specific and enforcement can be difficult when they are not tailored to a specific state or used based on categories. Depending on the state, a court may strike or modify unenforceable provisions, the results of which may be unexpected for both parties. Tailor agreements to avoid broad restrictions. Specify range of conduct, time restrictions and geographic areas.
• Employees must receive at least $7.25 per hour (based on current law) when considering total compensation (not including per diem reimbursements) divided by total hours worked (under FLSA standards).

Click here to view or download their presentations.

The Trucking Owners Business Roundtable is hosted by Katz, Sapper & Miller, LLP (KSM), KSM Transport Advisors, LLC, and Scopelitis, Garvin, Light, Hanson & Feary, P.C.

Employer-sponsored health insurance rates are on the rise - at a lower rate! And that is great news!

The Kaiser Family Foundation, a non-profit reporting agency on healthcare issues, recently published the findings of their Employer Health Benefits 2012 Annual Survey, a survey on employer-sponsored health insurance costs.

The findings show modest increases in the average single and family insurance premium rates, and minimal change in the cost sharing (of those premiums) with their employees. 

We all know that health insurance costs are outpacing inflation, significantly. The Kaiser report shows the change in overall premiums for the past 10 years. In 2002, the average annual premium for family coverage was $8,003. In 2012, that same family coverage has a total premium of $15,745. Employee contributions in 2002 were averaging $2,137, and in 2012 were averaging $4,316. In summary, these two components of premium payment are moving parallel based on percentages, but the overall cost to the employer is significant. There are also significant changes coming under the Affordable Care Act. 

If your company would like help sorting all of this out, this might just be your call to action. We can help meet your needs and the needs of your employees, all without breaking the bank. 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

Manufacturing the future: The next era of global growth and innovation, a major report from the McKinsey Global Institute, sheds some light on the direction the manufacturing industry is heading. The study points out the following:

• Manufacturing is vital to the global economy. It helps to drive growth in local economies and helps to improve the standard of living across the global. However, the nature of manufacturing is changing. As an economy matures, the role of manufacturing in that economy must change as well. In an advanced economy, manufacturing must shift from focusing solely on job growth and GDP growth, to promoting innovation, productivity, and trade amongst other economies.
• Manufacturing is no monolithic. McKinsey has identified five board segments that manufacturers can be divided into: 1) Global innovation for local markets; 2) Regional Processing; 3) Energy/resource-intensive commodities; 4) Global technologies/innovators; and 5) Labor-intensive tradable
• The line between manufacturers and service providers is becoming more blurred with technology and advanced manufacturing.
• The role of manufacturing in job creation is changing as the industry shifts away from low-skilled workers to high-skilled works that can drive advanced manufacturing to a new level.
• As manufacturing shifts new opportunities will arise, but they will not be the same opportunities that have come in the past. Manufacturers must position themselves to look for and take on these new opportunities in a more complex and uncertain environment than the past.

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

In today’s healthcare world, both providers and patients have probably heard the term electronic medical records, or EMRs. What is an EMR? What does it mean for physicians and their patients? How will it affect the future of healthcare?

Essentially, an electronic medical record is a patient chart that is in an electronic format instead of paper. Patient information is entered into a computer or PDA and can be retrieved by these devices when needed. The advantages of EMRs include:

• Decreasing the need for physical storage space
• Decreasing staff time in retrieving files
• Allowing information to be accessed and shared in a matter of seconds
• Making records more legible than ones that were handwritten
• Expediting the billing and inquiry process

All of these benefits should result in improved patient care decisions and the resulting patient experience.

To help shift the healthcare industry into the digital age, the government has provided incentives for providers that are using EMRs. By meeting certain “meaningful use” criteria, providers can earn incentive payments of up to $44,000 (Medicare) and $63,750 (Medicaid) per provider. Meaningful use will be measured in three stages over a five-year period. The purpose of meaningful use is to establish criteria that medical providers must meet in order to prove they are using the EMR as an effective tool in their practice. Stage 1 of meaningful use is a two-year stage and will be ending on Dec. 31, 2012.

The main goal of Stage 1 was for medical practices to demonstrate they were capable of performing certain tasks with their EMR. There are 15 core requirements, such as recording demographics, vitals, active medication lists, and patient clinical visitation summaries. In addition to these core requirements, there is an a la carte menu of 10 additional requirements of which five must be achieved. Examples include drug-formulary checks, structured lab results and sending patient-specific education.

Stage 2, which begins January 2014, will require practices to actually perform those tasks. Patient care coordination through data exchange is the focus in Stage 2. Providers are not only required to be capable of providing electronic records to patients, but must also provide online access to records and ensure that at least 5 percent of their patients review them.

Incentive money is rewarded to providers who successfully implement and use an EMR. However, there are also penalties involved for those who do not. For providers who either have not adopted certified EMR systems or cannot demonstrate “meaningful use” by the 2015 deadline, Medicare reimbursements will be reduced across the board by 1 percent. The reduction rate penalty increases in subsequent years to 2 percent in 2016, 3 percent in 2017 and so on, depending on future adjustments.

As the end of the first two years of Stage 1 draws near, it is important for providers to understand two things:

• Electronic medical records are inevitable.
• It is not too late to benefit from government incentive payments.

The implementation of EMRs in healthcare systems around the world should allow for the seamless flow of data across multiple platforms and between various physicians, healthcare facilities and patients. There is a demonstrated correlation between physician/ patient communication and improved patient care. Patient charts can be sent by referring physicians with a few clicks of a mouse; patients can have access to their own records; and the on-call physicians can have immediate access to a patient’s records.

Electronic medical records are coming whether or not providers and patients are ready. There will be some growing pains, but the benefit to both the providers and the patients should be worth it.

Lisa Curry is a director in Katz, Sapper & Miller's Healthcare Resources Group. For more information, contact Lisa at 317.580.2033 or lcurry@ksmcpa.com.

The certified public accounting firm of Katz, Sapper & Miller LLP today released the results of their annual Indiana manufacturing survey. This study of small- to medium-size manufacturing companies was commissioned by Katz, Sapper & Miller and developed in partnership with Indiana University's Kelley School of Business – Indianapolis, Conexus Indiana, and the Indiana Manufacturers Association.

The results from this year’s survey, 2012 Indiana Manufacturing Survey: “Halftime” for Indiana Manufacturing, indicate that Hoosier manufacturers are stronger this year than at any point since the Great Recession, and are well positioned to compete in the coming years.

“Fundamental changes are continuing to take place across manufacturing in all kinds of capabilities,” said Scott Brown, partner-in-charge of Katz, Sapper & Miller’s Manufacturing and Distribution Services Group. “Businesses are starting to invest for growth, including facilities and automation, with an eye toward providing customers increasing quality at lower prices. While many Hoosier manufacturers have managed to survive the effects of the recession, challenges remain. Of course, not all manufacturers have found the perfect winning strategy, but many are heading in the right direction and some are excelling during these challenging times."

Other key findings reveal:

• Hoosier manufacturers have largely shaken off the effects of the Great Recession and have stabilized their businesses. A significant majority of Indiana's manufacturers now report that their business is either "healthy" or "stable” with tougher times behind them.
• Survey results indicate that the past's relentless rounds of downsizing are over, and while that approach worked well when mere survival was paramount, it is hardly a winning strategy for the future.
• Many Hoosier manufacturers now recognize that the winning strategy is targeted investment aimed at growth. Over 70% of respondents reported that their goals were increasing investment in areas either essential for revenue growth, or across the entire business.
• Indiana remains well positioned to lead American manufacturing. Hoosier manufacturers are highly competitive in a broad variety of industries and products, and, in fact, one in 10 of the companies in this survey are planning to open a new facility in Indiana in the near future.
• A significant number of respondents report that they are onshoring manufacturing back to the United States. Indiana’s competitive advantage remains the fact that nowhere else in America allows manufacturers to position themselves closer to their customers and markets, or offers greater advantages in terms of suppliers and workforce quality.
• Successful manufacturers are continuing to rely on process improvement programs such as "Lean" and "Six Sigma" for implementing change, as well as increasingly taking advantage of advanced automation or smart manufacturing technologies to remain competitive.

Download the complete results of the 2012 Indiana Manufacturing Survey: “Halftime” for Indiana Manufacturing.

In these ever-changing times, trucking companies should consider forming a board of advisors, which can provide the CEO and senior management team with unbiased advice and guidance. An advisory board does not have formal legal authority over a company or fiduciary duties to the company’s shareholders associated with a board of directors. They are formed for the purpose of providing advice and guidance. Below are some items to consider when exploring the formation of an advisory board.

Board Make-Up

Advisory boards can vary in size, depending on the company’s size, complexity, goals and management skill sets. For most privately held companies, three to five outside members is recommended. In selecting potential members, the company should seek talented, honest and objective individuals who have a sincere interest in seeing your company succeed. These should be individuals who have been where you want the company to go. For example, if a company wants to double in size, it should seek someone who has helped grow a company. This individual would have real life experience to help the company reach its goal. 

It is important to select individuals who have good chemistry with the CEO and senior management, but also make sure that they are willing to state their opinion, even if it may be unpopular. Avoid “yes” men and women. Generally, it is not recommended to include a company’s attorney, accountant or insurance agent on the advisory board if they have a vested interest in the company, which may impair their objectivity. It is also not advisable to ask family or friends to join the advisory board as they may lack objectivity as well.

Board Meetings

It is recommended that the advisory board meet with the CEO and senior management quarterly at an offsite location (to reduce distractions). Each meeting should have an agenda, which helps guide the meeting’s goals and objectives. Example agenda items could include: business update by functional area, new business opportunities, current and future business challenges and long-range planning. The meetings should be a platform to keep the CEO and senior management on task and accountable.

Benefits of an Advisory Board

Some of the potential benefits of an advisory board include:

• The CEO and senior management receive unbiased, objective advice and guidance.
• The advisory board keeps the management team accountable for its objectives and goals.
• The management team will be surrounded by individuals who are successful and who have achieved the goals of the company (assuming the board was assembled properly and in line with the company’s objectives and goals).
• If there are certain skill sets lacking in the management team, the advisory board can help fill in these gaps.
• The advisory board provides a sounding board to discuss new business opportunities as well as strategic planning.
• In a family-owned business, an advisory board can provide objective, unbiased advice when discussing succession planning.

Forming an advisory board can have a positive impact on an organization and provide an advantage over competition. Understanding company objectives and goals is the first step. Once goals and objectives have been established, seek individuals who will provide the most value to your organization and help the company reach its goals.

Jason Miller is a director in KSM’s Transportation Services Group. For more information, contact Jason at 317.580.2045 or jmiller@ksmcpa.com.

The trucking industry is one of the most highly regulated industries in America. When someone in the industry references compliance, most commonly think of the Federal Motor Carrier Safety Administration, the United States Department of Transportation, or a variety of other federal and state government agencies. Employees who are responsible for the administration of the company’s 401(k) retirement plan are also likely aware of the complexity of the rules and regulations specified by the Department of Labor (DOL) and Internal Revenue Service (IRS) related to these plans. 

It is important for a plan administrator to stay informed of these rules and regulations and be familiar with plan documents and operation. It is equally important to work with third-party service providers that are knowledgeable in this area. During the conducting of audits or performing of 401(k) plan administration of trucking companies, the three issues addressed below are frequently noted:

Eligibility

A 401(k) plan document will specify the eligibility requirements for the plan. These are the requirements that must be met for an employee to participate in the plan. They could be based on age, number of hours worked in a 12-month period, or other criteria. Mistakes in applying the eligibility criteria could result in an ineligible employee being enrolled in the plan or an eligible employee being excluded from enrolling in the plan. It is important that the employer have a clear understanding of the definition of eligibility for plan enrollment and the related plan entry dates.

Failure to Use the Correct Eligible Plan Compensation for Employee Contributions

A 401(k) plan document will specify a definition of eligible plan compensation. This is the amount that is used as the base to calculate employee contributions. This may or may not include overtime, safety or fuel efficiency bonuses, vacation and holiday pay, or taxable fringe benefits. If employee contributions are calculated using an incorrect definition of eligible compensation, then a corrective contribution may be required by the employer to put the participant’s account in the position it would have been if the error was not made. Generally an employer would be required to make a contribution equal to 50 percent of the amount that the employee would have contributed if calculated correctly, 100 percent of any employer matching contribution that would have been matched, and an amount of lost earnings, which is what the amount would have earned if invested in the plan. It is not allowable for the employer to go back and withhold additional amounts from the employee to obtain the correct amount that should have been withheld.

Failure to Timely Remit Amounts Withheld from Employees’ Paychecks to the Plan

If a 401(k) plan allows for employee contributions, employers are required to remit those amounts to the plan as soon as administratively feasible. This also applies to participant loan repayments. The general consensus is that as soon as an employer can remit payroll taxes that they should be able to remit amounts withheld from employees’ paychecks. The DOL has established a safe harbor for small plans (those defined as having less than 100 participants), which indicates that remittances within seven business days of the payroll date will not be considered late. However, this does not apply to large plans. If remittances are made late then generally an employer would be required to make a contribution for lost earnings based on the delay in the remittance to the plan and pay a 15 percent excise tax penalty on the amount of the lost earnings. 

Many human resource professionals believe that competitive base pay, insurance, and a 401(k) retirement plan are key components of a compensation package to attract and retain competent employees. An effective recruiting and retention strategy, which is critical today given the shortage of qualified truck drivers and heavy-duty mechanics, should include these components.

Chris Felger is a director in KSM's Transportation Services Group. For more information, contact Chris at 317.580.2136 or cfelger@ksmcpa.com.

As a follow up to Part I of our Trucking Owners Business Roundtable summary, below are highlights from Troy Hogan’s presentation on the potential for savings by implementing per diem plans. In addition, Mark Flinchum provided an income tax update.

Highlights from Troy Hogan’s presentation:

• Carriers carve out a portion of the cents per mile they pay drivers as per diem not subject to tax.
• There can be significant savings to the company and to the drivers in additional take home pay.
• There is more administrative work required as the per diems have to be tested to make sure they don’t exceed the IRS maximums allowed per day each driver is away from home overnight.
• Companies should consult their advisor regarding implementation of per diems and how different scenarios (increases or decreases to overall rates per mile paid in combination with a per diem plan) will affect your company’s profitability and drivers’ take home pay.

Highlights from Mark Flinchum’s presentation:

• It was projected that 2013 dividend rates would return to ordinary income rates and that rates for each tax bracket would increase in 2013. 
• Currently, the Bush-era rates in effect for 2012 are scheduled to expire Dec. 31, 2012 and are not expected to be extended. 
• Now may be a good time to consider accelerating income into 2012 to shield that income from higher rates in the future. 
• Estate/gift exemptions are set to revert to $1 million in 2013 and individuals should consider gifting in 2012 to take advantage of those exemptions before they are potentially reduced. Stay tuned for future updates from KSM on tax law changes as they occur.

Click here to view or download their presentations.

Troy and Mark are members of Katz, Sapper & Miller’s Transportation Services Group. For more information contact them at 317.580.2000.

Congress will likely be busy in the closing months of 2012 as multiple tax laws have expired, or will expire at year end. It is unknown what, if any, action will be taken by Congress. Lack of action could negatively affect millions of taxpayers. Among the tax benefits affected are bonus depreciation, Sec. 179, Alternative Minimum Tax (AMT) exemptions, and estate law changes.

Bonus Depreciation, Sec. 179 and AMT Exemptions

Effective Jan. 1, 2012, the highly favored 100 percent bonus depreciation was reduced to 50 percent. The 50 percent bonus depreciation will expire at year end. Likewise, Sec. 179 has been reduced from $500,000 in 2011 to $139,000 for 2012, with a limit of $560,000 in additions before the deduction begins to phase out.

In 2012, the AMT exemption has been reduced to $33,750 for single filers and $45,000 for married taxpayers filing jointly. This exemption is down from $48,450 and $74,450 for single and married filers, respectively. Since 2000, Congress has passed an annual “AMT patch” that adjusted the exemption to a higher amount. Congress has been unwilling to pass a permanent fix that would annually adjust the exemption for inflation. The tax revenue lost with a permanent fix is estimated to cost in excess of one trillion dollars through 2022.

Trucking Implications

With the end of bonus depreciation, asset intensive industries such as trucking will face higher amounts of taxable income over the next few years as tax depreciation drops significantly. The cause is two-fold: (1) depreciation of new purchases will be spread over multiple years; and (2) little or no depreciation will be available from assets purchased in the past because the benefit has already been received via bonus depreciation and increased Sec. 179.

An estimated four million taxpayers paid AMT tax in 2011. Assuming no patch for 2012, roughly 30 million taxpayers would be subject to AMT. Both bonus depreciation and Sec. 179 are allowed under AMT, resulting in lower AMT taxable income in recent years. Compounding the reduction in depreciation with the reduction in the AMT exemption increases the likelihood of taxpayers with taxable income being subject to AMT tax.

Estate Tax Updates

Beginning on Jan. 1, 2012, an individual making a gift or leaving an estate worth $5.12 million ($5 million in 2011) was exempt from paying gift or estate tax, depending on lifetime transfers. Absent a law change, effective Jan. 1, 2013, the gift and estate tax exemptions are scheduled to revert back to the 2002 exemptions of $1 million.

Also expiring on Dec. 31, 2012, is the transferability of a decedent’s unused gift/estate exemption to a surviving spouse. Transferability of the exemption is accomplished by making an election on a timely filed estate tax return (IRS Form 706). A married couple can shield a total of $10.24 million from estate tax. Without this transferability feature, married couples will be required to carefully draft estate documents and title assets so as not to potentially waste the exemption of the first spouse to die.

Daniel Larson is a manager in Katz, Sapper & Miller's Transportation Services Group. For more information, contact Daniel at dlarson@ksmcpa.com or 317.452.1066.

Recently Katz, Sapper & Miller, LLP (KSM), KSM Transport Advisors, LLC, and Scopelitis, Garvin, Light, Hanson & Feary, P.C. hosted our semi-annual Trucking Owners Business Roundtable. Gordon Klemp, managing partner of the National Transportation Institute, discussed driver supply and demand, company driver pay and contractor pay, and average mileage rate trends and expectations. Troy Hogan and Mark Flinchum of KSM spoke on the potential for savings by implementing per diem plans and provided an income tax update. And Jim Spolyar and Chris Eckhart of Scopelitis provided a legal update on wage and hour issues, class action and collective actions, driver application do’s and don’ts, and tips on using restrictive covenants. Below is the first of three messages summarizing the roundtable.

Highlights from Gordon Klemp’s presentation include:

1. Driver supply/demand:
   1. Currently there is an industry shortage of 20,000 – 30,000 drivers.
   2. Approximately 1/3 of the drivers on the road in 2003 will have retired by the end of 2013.
   3. No new drivers were brought into the industry between April 2007 and September 2013 and a significant portion of displaced drivers during that time have chosen not to return to trucking.
   4. The majority of drivers are within the 35-54 age range.
   5. Driver supply will not likely improve in the near future due to CSA regulations; and mandatory EOBR use may negatively affect the number of employable drivers and driver productivity.
   6. Proposed hours of service (HOS) could reduce productivity by 6-8 percent. 
   7. A significant number of drivers will have to make dramatic lifestyle changes to remain “fit to drive” based on the current driver population demographic.
   8. Hair follicle testing is being adopted by carriers because it provides a longer time horizon. Carriers using the program report disqualification rates of more than 10 percent when they implement the program, dropping to 3-5 percent as the candidates learn the carrier uses hair follicle testing.
   9. The industry has not been successful in attracting enough high quality entry level candidates to cover existing driver retirements, and targeting nontraditional demographic groups has not been very successful.
2. Driver pay averages are staying the same or increasing. Current average company driver rates are dry van - $.365, refrigerated – $.347, flatbed - $.387.
3. Based on percentiles (25^th percentile vs. 75^th percentile), dry van rates are between $.88 and $.97, refrigerated rates are between $.85 and $.90, and flatbed rates are between $.91 and $.96.
4. Over the last 18 months, sign on bonuses have become increasingly popular (from 11 percent of carriers to 47 percent of carriers). Bonuses for individuals range from $250 - $2,500 with a median rate of $1,000. Team bonuses range from $2,000 - $12,000.
5. The outlook for the next 24 months indicates that company driver pay will increase by $.03 to $.05 per mile, owner operators will increase by $.04 to $.06 per mile, sign on bonuses will continue to grow, driver pay will become regionalized, productivity pay schemes will continue to grow, and carriers will begin to find ways to reach drivers from nontraditional demographic groups.

Click here to view or download Gordon’s presentation.

Daniel Larson is a manager in Katz, Sapper & Miller's Transportation Services Group. For more information, contact Daniel at dlarson@ksmcpa.com or 317.452.1066.

Due to shrinking budgets and deficit spending, state departments of revenue are actively searching for interstate carriers that should be filing income tax returns in their state. Some states, such as New Jersey, are impounding tractors during routine traffic stops if the officer cannot verify that the company is current on their income tax filings. Other states are reviewing fuel tax filings and cross referencing them to income tax rolls. Once a company has been flagged as a non-filer, many states will request returns be prepared for the last three to six years and the tax be paid with the potential for large interest and penalty assessments.       

It is recommended that interstate carriers take time annually to meet with tax advisors and legal counsel to review which states the company is driving through and each state’s required tax filings. Generally, nexus is created in each state that the company passes through, though some states do have a de minimis exception. Many interstate carriers are willing to accept some risk and therefore choose to use some reasonable threshold of state miles to total miles to determine if a return will be filed in a certain state. Beware there are certain states that interstate carriers should file in regardless of miles. Examples of these states are New Jersey, New York, and any state that the company has real property or employees. These guidelines apply even if the company is in a loss position as many states have franchise taxes that are based on gross receipts, not taxable income. Once a determination has been made as to which states an interstate carrier will be filing, research must be done to determine how that particular state apportions transportation revenue.    

States generally apportion transportation revenue in one of four ways:

1. Straight percentage of state revenue miles divided by total revenue miles.
2. Standard “three-factor” apportionment consisting of sales, payroll, and property in the state.
3. Percentage of intrastate revenue or intrastate miles to total revenue.
4. Two-part calculation consisting of both an intrastate and interstate portion.

There is no particular reason a state chooses to adopt one of the above methods, and furthermore many states change their methods frequently. The method that a state uses can have significant impact on a company’s state tax expense. For example if the company has terminals in states other than their home state, the “three-factor” apportionment will result in a higher apportionment percentage in the state the real property is located. The states that only use intrastate revenue generally result in the lowest apportionment percentage for interstate carriers because most are not delivering to the same state the load originated.

Troy Hogan is a director in KSM's Transportation Services Group. For more information, contact Troy at 317.580.2193 or thogan@ksmcpa.com.

A recent study conducted by the Council of Supply Chain Management Professionals and Michigan State’s Department of Supply Chain Management shows that 40% of manufacturers surveyed perceive a trend of moving production back to the U.S. from off-shore sites such as China and India. Of the 319 total respondents, 38% reported that their direct competitors have already reshored operations back to the United States. The study also found that this trend is strongest in certain sectors of manufacturing, including aerospace and defense, industrial parts and equipment, and electronics.

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

On November 1, 2012, the American Institute of Certified Public Accountants (AICPA) released for public comment the exposure draft Proposed Financial Reporting Framework for Small- and Medium-Sized Entities. The proposed Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) is designed for privately owned, for-profit entities that are not required to produce financial statements in accordance with U.S. GAAP.

The proposed FRF for SMEs is a special purpose framework (formerly referred to as other comprehensive basis of accounting) intended for use by privately-held small- to medium-sized entities in preparing their financial statements. The proposed FRF for SMEs follows the general principal that historical cost is the most useful measurement basis for the users of SME financial statements and the most cost-beneficial approach for management.

Some of the key features of the proposed framework include the following:

• Historical cost is the primary measurement basis
• Closely aligned with the accrual basis of accounting
• Disclosures are reduced, while still providing users with the relevant information
• Familiar and traditional accounting methods are used
• Adjustments needed to reconcile tax return income with book income are reduced
• Principal-based framework, usable across industries by incorporated and unincorporated entities
• Only financial statement matters that are typically encountered by SMEs are addressed in the framework

The FRF for SMEs is not proposed as an authoritative document, and the AICPA would have no authority to require the use of the FRF for SMEs. Use of the FRF for SMEs would be a choice made by management of the entity after considering the users of the financial statements.

Currently, the AICPA is asking for comments on the proposed framework. The comment period ends January 30, 2013. The AICPA has a resource page that provides additional information on the proposed FRF for SMEs.

The AICPA anticipates issuing a final framework in the first half of 2013.

Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.