It is tax filing day here in the United States, an annual ritual where you add and subtract numbers, gather and attach forms and receipts, all in the hopes of getting some money back from the government (or in the fear of knowing you owe them a lot of money).
Taxes have sparked countless riots throughout history, and it’s a topic that every politician must learn to dance around, especially if you’re a cabinet appointee and owe back taxes (see Tim Geithner, Tom Daschle, Hilda Solis, Ron Kirk, Nancy Killefer, and Kathleen Sebelius).
But what about supply chain managers? What role do taxes play in supply chain decisions?
My colleague Steve Banker wrote an in-depth article called “The Tax Efficient Supply Chain” published in this month’s Supply Chain Management Review. It’s impossible to summarize such a meaty topic in a short blog posting, but a key objective is for companies to consider their effective tax rate (ETR) when designing and optimizing their supply chain. As Steve states in the article, “A key challenge is to combine a corporate structure that allows for a low effective tax rate with the optimal physical supply chain. These two goals are not mutually exclusive; in fact, they have considerable areas of overlap. Any supply chain transformation typically requires a degree of centralization as a way of creating new global or regional synergies. The same holds true for achieving a low ETR. The overarching objective is to structure the business in a way that minimizes the tax exposure without damaging the physical supply chain.”
A topic that’s getting a lot of attention these days, which would influence the ability to create a tax-efficient supply chain, is President Obama’s proposal to raise taxes on overseas profits. According to a recent article in the Wall Street Journal, the issue is a policy known as deferral, where multinational companies do not have to pay U.S. taxes on much of their overseas earnings, as long as the money remains invested overseas. Like so many other topics in Washington, this policy will be much debated in the weeks and months to come, but it’s likely that some changes in tax laws will occur. Keep this item on your Washington watch list.
I’ve written several postings this year related to potential new taxes and fees (see “Carbon Tax, VMT Fee, and Future Transportation Costs” and “Taxes vs. Incentives at the Port of Long Beach“).
Now do you see why it’s so difficult, if not impossible, to accurately calculate total landed costs?
I’ve always argued that supply chain managers need to become better versed in finance, so that they can communicate more effectively with the CFO. If you want a seat at the executive boardroom table, and get support and funding for supply chain initiatives, you better learn how to speak their language! And these days, there’s no better topic to discuss with the CFO than taxes, but only if you know how to save the company some money.
