If You Export, Do You DISC? July 11, 2014
In April, Enterprise Florida (EFI) reported on the success of the state’s marine companies during recent international trade shows. In the preceding nine months, EFI led Florida companies to three major marine trade shows around the world where projected sales reported by 22 participating companies totaled more than $60.5 million. Export sales by Florida marine companies are likely many times that figure considering exports of yachts and other pleasure vessels measure $86 million to Canada, $41 million to Mexico, $35 million to Italy, $28 million to Spain, and $12 million in both France and the Netherlands (EFI data for 2013).
Exporters have an opportunity to establish a Domestic International Sales Corporation, or DISC, a little known provision in the U.S. tax law which subsidizes exports of U.S. made goods. A DISC is a tax-exempt, domestic “paper” corporation set up to receive commissions on a company’s export sales. It must have its own bank account, keep separate accounting records and file its own U.S. tax returns but otherwise does not need to perform any functions. The arrangement reduces tax liability by converting up to 50 percent of export income, which is taxable at ordinary income rates of 40 percent (for an S corporation exporter), into dividends taxed at 20 percent or less.
Marine businesses that could be candidates for a DISC include boat and yacht builders and manufacturers, including those who provide components that go into boats destined for export, as well as refurbishers, distributors, provisioners working in the U.S. on yachts that operate abroad a majority of the time, and possibly others providing goods and services that will end up offshore. Firms need not have significant export sales to benefit from establishing a DISC. Depending on the extent of export revenue, companies may choose to set up their own DISCs or participate with firms specializing in DISC programs that supply the framework to manage the activity by bundling revenues and sharing costs.
MIASF is investigating the interest in providing the details of DISCs to members and connecting them to firms that can determine the viability of such programs and assist in setting them up. To indicate interest or for more information, contact Glenn Kolk, The Export Sales Specialist at firstname.lastname@example.org.