Monthly Archives: August 2012

PPAI’s Washington Report

Through our legislative contacts and lobbyists, PPAI has access to information, insight and analysis that you won’t see published anywhere else. Information that will help you better understand how what happens in D.C. can affect your business and employees at home—information that will help you become more aware and better prepared to advocate for your business, profession and industry.

This edition of the report highlights the very recent work of the Securities and Exchange Commission (SEC) on the Dodd-Frank Reform’s conflict-minerals provision and the possible impact of the shortened Congressional session on several expiring tax provisions.

I hope you find this information beneficial to your business.

CONFLICT MINERALS
The Securities and Exchange Commission (SEC) has issued a final rule providing guidance on what had become a very confusing issue—tracking “conflict minerals.” It started when Congress passed and the President signed into law the Dodd-Frank Wall Street Reform And Consumer Protection Act in 2010. Public Law 111-203 includes a provision that will require some businesses already required to file reports to the SEC under other laws (the SEC calls them “issuers”) to disclose the source of certain conflict minerals. According to the Conference Report issued by Congress, the provision of the new law “requires disclosure to the SEC by all persons otherwise required to file with the SEC for whom minerals originating in the Democratic Republic of Congo and adjoining countries are necessary to the functionality or production of a product manufactured by such person. Such a public disclosure report by the person must describe the measures taken to exercise due diligence on the source and chain of custody of such materials, the products manufactured, and other matters; requires an independent audit of the report.” The term “conflict mineral” means columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives; or any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country.

Most businesses in the promotional products industry do not file reports with the SEC and therefore do not have a direct conflict mineral reporting requirement under the law. The earlier confusion about this law resulted from the fact that businesses that do file reports with the SEC (some of our end buyers) were asking all of their suppliers and vendors to supply information about the vendors and suppliers’ products. The SEC has confirmed the law applies only to the products that the company required to file SEC reports manufactures or contracts to have manufactured for them. In other words, the reporting and supply chain tracking is confined to their (the end buyer) products only, not your products. This is not like the situation created by the Consumer Product Safety Improvement Act (CPSIA) that created a potential liability for the end buyer for your products.

 SHORT SEMESTER
Congress returns after Labor Day and will attempt to get out of town by mid-October. Unless you have been vacationing in Antarctica, you probably are already acutely aware that the entire House of Representatives is up for re-election, as is one-third of the Senate. Their desire to campaign drives their interest in a short session of Congress before the November elections.

The House will only be in session for 13 days before the congressional elections–not a lot of time to turn the car around before we come to the fiscal cliff you have heard about. All kinds of tax relief provisions expire at the end of the year (some have already!), automatic across-the-board-spending cuts in the federal budget take effect in January, and we will probably bump up against our federal debt ceiling again. Only the most optimistic fans of Congress still think they will do something before the election. Most observers have long been convinced we will hear the quacking call of a lame duck session after the election. As a result, the 13 workings days are probably 12 more than they will need unless they want to get serious about the fiscal cliff. There is certainly plenty of evidence that we would be better off if they got serious sooner than later. The Congressional Budget Office recently told Congress: “In CBO’s judgment, the sharp increases in federal taxes and reductions in federal spending that, under current law, are scheduled to begin in calendar year 2013 are likely to interrupt the recent economic progress, resulting in what would probably be considered a recession.” If they wanted to deal with tax issues, there is a short list of important items. The following are some we have identified.

The latest extension of the temporary increases in the income levels for which the Alternative Minimum Tax (AMT) is waived expired at the end of 2011, so technically many of us are already at risk. This “rolling” extension is referred to as the AMT “patch.” The law provided that the individual AMT exemption amounts for taxable years beginning in 2011 were $74,450, in the case of married couples filing a joint return and surviving spouses and $48,450 in the case of individuals. In 2012, the exemption amounts have reverted to $45,000 for married couples filing jointly and $33,750 for individuals.

The top individual marginal income tax rate has been sitting at the reduced rate of 35 percent for the past decade-plus. It will return to its pre-2001 level of 39.6 percent in 2013.

For the past decade, the maximum rate of tax on net capital gain of a non-corporate taxpayer has been 15 percent. In addition, any net capital gain which otherwise would have been taxed at a 10 or 15 percent rate generally has been taxed at a zero-percent rate. For taxable years beginning after December 31, 2012, generally the rates on net capital gain will be 20 percent and 10 percent, respectively.

For the past decade, dividends received by a noncorporate shareholder from domestic corporations and qualified foreign corporations generally have been taxed at the same rates that apply to net capital gain. Thus, dividends received by an individual, estate, or trust have been taxed at rates of zero and 15 percent. For taxable years beginning after December 31, 2012, dividends received by a non-corporate shareholder will be taxed at the same rates as ordinary income.

The estate tax exemption is currently $5 million per person and $10 million per couple and the top estate tax rate is 35 percent. The exemption amount is indexed beginning in 2012 and is $5,120,000. Under prior law, couples had to do complicated estate planning to claim their entire exemption. A recent temporary change allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without such planning, effective for estates of decedents dying after December 31, 2010. The system will revert to pre-2001 status at the end of 2012. This means we are going back to a single graduated rate schedule with a top rate of 55 percent and a single effective exemption amount of $1 million.

The depreciation bonus sits at 50 percent for most assets acquired in 2012. It disappears at the end of 2012. The adjusted direct expensing allowance for capital assets acquired in 2012 is $139,000 and the phase-out cap on purchases for the year is $560,000. At the beginning of 2013, the amounts revert to pre-2003 levels of $25,000 and $200,000 without inflation indexing.

Earlier this year, Congress passed and the President signed into law the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA). It extended the temporary two-percentage-point payroll tax “holiday” for employees (and to the same extent, to the self-employed) through the end of 2012.

Promotional Products Work! Week – You’re Invited!

Next year, February 25 through March 1, we will celebrate Promotional Products Work! Week, and for good reason: Promotional products have a yearly economic impact of more than $17.7 billion nationwide, and the nation’s promotional products professionals account for more than 432,000 U.S. jobs. When you dig deeper into these numbers, you see that nearly 96 percent of these of these companies are small businesses. Mom-and-pop businesses represent a highly visible part of our industry. Promotional Products Work! Week is a way for us to join together to demonstrate the power of promotional products.

Join us for an event that is designed to help the promotional products industry grow! Promotional Products Work! Week (February 25 – March 1, 2013) recognizes the impact promotional products companies and professionals have on each and every community.

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PPAI Introduces Promotional Products Work!TM Week

PPAI launches Promotional Products Work! Week, February 25 – March 1, 2013, a first of its kind promotional products industry event aimed at demonstrating the effectiveness of promotional products.

NEW ORLEANS, La., (August 14, 2012) – Promotional Products Association International (PPAI; ppai.org), the not-for-profit association serving more than 432,000 industry professionals—including 10,600 corporate members—who help make up the $17.7 billion promotional products industry, today introduced the Promotional Products Work! Week to take place February 25 through March 1, 2013.

“The first event of its kind, Promotional Products Work! Week unites the industry with one mission, one purpose and one voice to celebrate the crucial role of promotional products and highly skilled promotional products professionals in all aspects of advertising and communications,” said Paul Bellantone, CAE, PPAI president and CEO.

Promotional Products Work! Week is an industry-wide event dedicated to demonstrating the importance of promotional products as an effective advertising medium and communications tool, as well as working with promotional products experts to design and implement creative and successful campaigns. To be celebrated annually, the week-long event is designed for the entire industry – large and small companies, regional associations, distributors and suppliers, business services providers and multi-line representatives – to get behind an industry-wide movement in support of demonstrating the power, value and effectiveness of promotional products.

Promotional Products Work! Week Goals

  • Ensure that the promotional products industry remains vibrant and dynamic
  • Empower promotional products professionals to educate current and prospective clients about the power of promotional products
  • Work with regional associations to energize and localize campaign penetration into all markets
  • Recognize businesses that creatively use promotional products in successful marketing communications campaigns
  • Reach national and local legislators to share the strength of the industry and its impact on the U.S. and global economies
  • Inform colleges and universities
  • Unite the industry, boost morale and motivation
  • Raise awareness, educate, inform and recognize
  • Increase the use of promotional products

Promotional Products Work! Week will be targeted to reach key audiences and feature a variety of activities such as: open houses, factory tours and hospitality events; new client prospecting and lead generation; ADvocate day focusing on community, colleges and business groups; legislative action and advocacy and customer appreciation.

“This annual event will serve as a cornerstone for recognizing the importance of working with promotional products professionals while creating awareness for the promotional products industry and the power and effectiveness of the medium,” said Steven Meyer, MAS, PPAI chair of the board.

Businesses, now more than ever, can look to promotional products as the most cost-effective way to reach a targeted audience in a tangible, long-lasting and memorable manner. In fact, 82.6 percent of people can recall the company and brand on their promotional product and 50 percent have a favorable impression of the advertiser, while 83 percent of people like promotional products and 58 percent keep them for one year or longer.

Over the next few weeks, PPAI will provide participants with Promotional Products Work! Week event information, outreach tools and support materials to empower and facilitate large-scale industry participation.

PPAI invites the entire industry to join in the celebration of Promotional Products Work! Week in support of the viability, visibility, credibility and community of the promotional products industry. More information on Promotional Products Work! Week can be found here.

PPAI’s Washington Report

Through our legislative contacts and lobbyists, PPAI has access to information, insight and analysis that you won’t see published anywhere else. Information that will help you better understand how what happens in D.C. can affect your business and employees at home—information that will help you become more aware and better prepared to advocate for your business, profession and industry. I hope you find this information beneficial to your business.

While the upcoming election dominates headlines across the country, legislators and federal agency staffs are busy implementing legislation and regulation that will impact how you go to business. This week’s Washington Report highlights the work of two efforts on the Hill—implementation of the Dodd-Frank Reform and revisions to the Lacey Act:

 

CONFLICT MINERALS

We are expecting the Securities and Exchange Commission (SEC) to issue final rules later this month providing guidance on what has already become a very confusing issue—tracking “conflict minerals.”

It started when Congress passed and the President signed into law the Dodd-Frank Wall Street Reform And Consumer Protection Act in 2010. Public Law 111-203 includes a provision that will require some businesses that are already required to file reports to the SEC by other laws to disclose the source of certain conflict minerals.

According to the Conference Report, H. Rept. 111-517, the provision of the new law “requires disclosure to the SEC by all persons otherwise required to file with the SEC for whom minerals originating in the Democratic Republic of Congo and adjoining countries are necessary to the functionality or production of a product manufactured by such person. Such a public disclosure report by the person must describe the measures taken to exercise due diligence on the source and chain of custody of such materials, the products manufactured, and other matters; requires an independent audit of the report.” The term “conflict mineral” refers to columbite-tantalite (coltan), cassiterite, gold, wolframite or their derivatives; or any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country.

The SEC had 270 days after enactment (July 21, 2010) to promulgate the regulations to implement this new disclosure requirement, with the first report to be due for the company’s first full fiscal year that begins after the date of the promulgation of the regulations. The SEC missed the July 21 deadline.

While most businesses do not file reports with the SEC and therefore do not have a direct conflict-mineral reporting requirement under the law, this law is all about “sourcing” so other businesses including those in the promotional products industry, may be asked by companies that do have the reporting requirement, to provide information.

As the General Accounting Office (GAO) has observed: “The anticipated disclosure rule could impact any U.S. or foreign company that is a supplier to those covered companies that produce products containing conflict minerals, because covered companies required to disclose the use of conflict minerals in their products will need to obtain conflict minerals sourcing information from their suppliers. Consequently, U.S. and foreign companies across the conflict minerals supply chains may also need to conduct due diligence and trace their supply chains to provide sourcing information to covered companies.

“In practice, a company’s supply chain for products containing tin, tantalum, tungsten and gold can be complex and can vary considerably. For example, a company’s conflict minerals supply chains may involve several different entities taking different actions to help develop products and move them through the supply chain. In addition, the supply chains for some companies’ products may contain a small number of component parts, whereas the supply chains for other companies’ products may contain thousands of component parts, which may be sourced from hundreds of different suppliers.”

Needless to say, there is a lot of confusion and hopefully the SEC guidance will help clear things up. PPAI will report on it when information is made available by the SEC.

LACEY ACT REVISIONS

The Lacey Act was enacted in 1900 as the United States’ first wildlife protection statute. The Act controls “illegal” wildlife, fish and plant trafficking. In 2008 it was amended to curb illegal logging of exotic woods. The amendment actually expanded the Lacey Act protections to a broader range of plants and plant products. The Lacey Act now makes it unlawful to import, export, transport, sell, receive, acquire or purchase in interstate or foreign commerce any plant, with some limited exceptions, taken in violation of any federal, state, tribal or foreign law that protects plants. The Lacey Act also now makes it unlawful to make or submit any false record, account or label for, or any false identification of, any plant covered by the act.

The amendment attempts to curb illegal activity through the customs process by requiring an import declaration that must contain, among other things, the scientific name of the plant, value of the importation, quantity of the plant and name of the country from which the plant was harvested. There are no exceptions and, as a result, many products that have a minimal amount of wood or wood products in them are covered. Violations can result in forfeiture of the products without recourse.

The questions, which even the government has been pondering since enactment, include:

  • Whether an exception from the declaration requirement for products containing minimal amounts of plant material could be developed that would be less burdensome while still carrying out the intent of the Lacey Act amendments;
  • How importers may comply with the declaration requirement when importing composite plant products whose genus, species and country of harvest of some or all of the plant material may be extremely difficult or prohibitively expensive to determine;
  • How to accommodate products made of re-used plant materials, or plant materials harvested or manufactured prior to the 2008 Lacey Act amendments, and for which identifying country of harvest, and possibly species, would be difficult if not impossible; and
  • Whether groups of species commonly used in commercial production, could be given a separate name that could be entered on the declaration form as a type of shorthand identification of genus and species, such as the currently recognized “SPF” acronym for spruce, pine and fir.

Congress may consider legislation this fall to provide at least some relief from the more onerous aspects of the law. In particular, there is a bill that makes it clear the law does not apply to products before the 2008 revision; it provides some relief from the forfeiture provision for innocent infringement; and, it provides composite product relief.