Manufacturing Odds & Ends

State must refund $265 million to businesses
The state Supreme Court today ruled last week that the state was improperly collecting sales taxes on customized computer software sales. The ruling means that the state must return $265 million in improperly collected taxes to businesses. Another $28 million in taxes that was planned to be collected this year won’t have to be paid by businesses. The court’s ruling also means the state now has a $265 million hole in its budget.

The ruling upheld a Court of Appeals decision that said that Neenah-based Menasha Corp. does not owe the state use tax for the license and installation of its SAP enterprise-wide software System. Menasha Corp purchased the SAP software and then made some 3,000 changes to it.

"Any company using SAP software should not have to pay use taxes within certain guidelines because of the fact that SAP software is a customized software application for every company that uses it," said Chris Carter, chief executive officer of Milwaukee based CCI, a company that specializes in the sale and support of SAP/ERP systems. "Trying to find a tax, based on IT expenditures that the state legislature clearly does not understand is a bit shameful."

The Menasha case has been in litigation since 1998, said Nancy Whitton, director of corporate communications at Menasha Corp. "We are all really pleased that the decision has finally been made," she said. "It really clarifies the state’s tax ruling for some companies." Menasha Corporation expects to receive a $275,000 refund from the state, plus an amount almost equal to that in interest, Whitton said.

Fears of inflation grow among small-business owners
For the first time in 27 years, the top concern of American small-business owners is inflation. The National Federation of Independent Business (NFIB) monthly Index of Small Business Optimism was basically unchanged in June, falling 0.1 points to a recession-level reading of 89.2. "The top concern of small business owners today is inflation – the first time since January 1981," said NFIB chief economist William Dunkelberg.

Since 1983, the average percent of owners citing inflation as a top problem has been 3 percent.  In February 2008, 8 percent cited inflation as their top problem. By May, 17 percent said inflation was their top concern, and in June that number rocketed to 20 percent.

However, employers’ plans for hiring and capital spending, as well as job openings, inventory investment plans and expected credit conditions, are all stronger than in most past recessions, Dunkelberg said. Still, employers’ expectations for real sales gains and improvements in business conditions are as bad as they were in 1980-82, the worst recession in recent years.

The net percent of owners reporting higher average selling prices rose another six points to a net 29 percent in June. Plans to raise prices rose four points to a net 36 percent of all owners – up 15 points from last September, when the Federal Reserve Board declared the existence of a credit crunch. "The inflation problem is getting worse, not better, as the economy weakens," Dunkelberg said. Unadjusted, 41 percent reported raising average selling prices, up four points, and 13 percent reported lower selling prices, unchanged from May.

Job creation among small business owners was down sharply in June – a decline of .5 workers per firm. Six percent of the owners increased employment by an average of 4.3 workers per firm, but 18 percent reduced employment an average of 4.6 workers per firm.

The frequency of reported capital outlays over the past six months drifted lower to 52 percent of all firms (down two points). Spending activity has declined eight points since last September and, adjusted for leasing activity, spending has fallen to early 1980s levels, Dunkelberg said.

The net percent of owners reporting earnings improvements declined in June.  Seasonally adjusted, those reporting declining earnings outnumbered those with gains by 33 percentage points, five points worse than May.

"Profits are under fire," Dunkelberg said. "Lower (interest) rates clearly are not stimulating capital spending, which has drifted lower as the Fed has cut rates. Unfortunately, the rate paid to savers has also declined as the Fed cut rates. Ordinary savers are being forced to help out the big Wall Street banks by Fed policy."

Regal Ware donates water distillers for flooding relief
Regal Ware Worldwide, a Kewaskum manufacturer of stainless steel cookware, recently donated 100 of its factory reconditioned AquaVie Healthy Water System units to the Salvation Army for distribution to residences, schools and shelters most affected by the recent flooding. The units will be distributed by the Salvation Army’s Midwest Offices based in Fond du Lac and Milwaukee. The AquaVie unit removes 99.9% of all contaminants from water using distillation, the company said. It does not require plumbing.

"We are happy to provide our AquaVie™ products to help supply safe drinking water so that people can remain in their local communities as they recover and rebuild from this unprecedented flooding," according to Jeff Reigle, President & CEO of Regal Ware Worldwide. "It is a long-term, affordable solution that by-passes the need to ship in and dispose of water bottles, thereby eliminating additional expenses to the affected areas."

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