3D printing classified as a manufacturing process means some retailers are liable for IPI excise tax
The International Tax Review reports that a tax ruling issued by the Brazilian Federal Revenue Service on whether 3D printing should be classified as a manufacturing process for a business could mean retailers are liable for excise taxes. These are indirect taxes on the sale of a particular good or service such as fuel, tobacco and alcohol. Indirect means the tax is not directly paid by an individual consumer — instead, the Internal Revenue Service (IRS) levies the tax on the producer or merchant, who passes it onto the consumer by including it in the product’s price.
The growth of the digital economy is the result of transformative processes brought about by information and communication technology (ICT) and is changing business models. This is very important from a tax perspective. and can have implications all over the world. In fact, Because of this, the OECD issued BEPS (Base Erosion and Profit Shifting) Action 1, which deals with the tax challenges of the digital economy. The Organisation for Economic Co-operation and Development (OECD) promotes policies that seek to improve the economic and social well-being of people around the world. It provides a forum in which governments can work together to share experiences and seek solutions to common problems.
Entrepreneurs, including many of EY’s Entrepreneur Of The Year finalists, are disrupting traditional models, often with new technologies, to develop their businesses and drive growth. But for an entrepreneur, there is nothing worse than discovering the ultimate cost of doing business will erode your profit margin and return, or that your business is not operationally organised to handle its growing complexity.
Tax is one area where this can occur.
Entrepreneurs need to think about how they respond to, and apply, the implications of technological disruption on products and services, as well as the tax implications of digital change on business operations. Companies must understand the complex questions around taxation in a digital world, such as 3D printing of goods in the supply chain or digital customer platforms that replace the physical “sale”.
With the growing introduction and use of 3D printing, the jewelry industry has seized the opportunity to produce quality and customizable designs at more affordable prices. According to the National Jeweler, 956 retail jewelers, wholesalers, and manufacturers closed in 2015. This number increased to 1,564 in 2016, marking a 64% decline in jewelers throughout North America. 3D printing can benefit the changing industry, since the technology enables jewelers, manufacturers, and designers to test with patterns, colors, and designs, which, in the past, was a more timely process. 3D printing offers a new way to produce jewelry that is not as expensive or time-consuming, but that still maintains a high level of quality. With substantially reduced retail distributors, new 3D printer-based jewelry can sell directly to consumers via the internet.
The Research & Development Tax Credit
Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- New or improved products, processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On December 18, 2015 President Obama signed the bill making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum Tax and startup businesses can utilize the credit against $250,000 per year in payroll taxes.
Most hearing aids in the U.S. are now custom-made on 3D printers. The U.S. Food and Drug Administration recently approved the first 3D-printed pills. Carmakers have started using 3D technology to produce parts. And last year saw the first demonstration of a digital printer producing multilayer, standards-based circuit boards. Imagine the changes afoot in the pharmaceutical, medical device, automotive, and consumer electronics industries.
3D printing is poised to redefine global manufacturing and distribution. It could upend supply chains, business models, customer relationships, and even entrepreneurship itself. It may do to physical goods what cloud computing is now doing to digital services; what the PC, internet, and smart mobility have done to personal computing; and what outsourcing did to software development and business processing — take mass distribution and innovation to the next level while realigning the very geography of work and trade.