Tax Considerations for Good Corporate Citizens

Charles Maniace
April 1, 2020

The COVID-19 pandemic has fundamentally changed the business landscape of our country in a matter of weeks. The demand for products such as paper products and hand sanitizers have overridden the ability of suppliers to fulfill orders. And perhaps most alarmingly, we have learned that our critical services such as hospitals, clinics and first responders are in desperate need of medical equipment and supplies. Traditional manufactures of these goods have expanded production but are still falling short of demand for many vital products such as surgical masks, hospital gowns and face shields.

To help combat these shortages, many companies have willingly stepped to the plate and begun to produce products that are in urgent need. While for some this has been a simple shift in process, others have had to completely re-fit their manufacturing operations.

One example of this is General Motors. GM is putting a once-shuttered transmission plant in Michigan back online to produce masks. The goal is to begin manufacturing on Monday, April 6, and on Wednesday, April 8, the first 20,000 face masks will roll off the line. Once production is at full-scale, GM anticipates making 50,000 masks a day, or up to 1.5 million a month.

Another example is Exeter, NH based, Bauer Hockey. The company that traditionally manufactures all types of protective gear for hockey players announced recently that it would shift from making helmet visors to start mass production on face shields to aide medical workers on the frontlines of the novel coronavirus pandemic. In its first 48 hours of producing face shields, Bauer received interest in more than 1 million medical shields. It is currently set to produce 300,000 units.

Finally, we have seen a plethora of distilleries shift from manufacturing spirits to making hand sanitizers. According to the American Craft Spirits Association, around three-quarters of all distillers, approximately 1,500, are now either producing hand sanitizer or planning to do so soon. While the process of switching from liquor to hand sanitizer was relatively simple as they both begin with the same basic formula, most distilleries report that they are being inundated with requests from the medical community and are struggling to keep pace.

Obviously, today, the most important objective for companies stepping outside their normal product mix is getting these items to where they are critically needed. However, if these items are being sold, it will also be important to consider the possible the tax ramifications of these transactions.

For example, does a medical item qualify for a state exemption that may exist for medical supplies or durable medical equipment?  If selling to a hospital, nursing home, non-profit, or government entity, are you collecting and save any necessary exemption documentation?

We commend these companies for what they are doing and stepping up when needed. At Sovos, we are here to help figure things out on the back end with taxes. To stay current on all of the changes in regulations due to COVID-19, please see our COVID page, which is updated daily.

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Author

Charles Maniace

Charles Maniace is Vice President – Regulatory Analysis & Design at Sovos, a leading global provider of software that safeguards businesses from the burden and risk of modern tax. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos customers continually compliant. Over his 15 year career in tax and regulatory automation, he has provided analysis to the Wall Street Journal, NBC and more.
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