Of the 297,000 distribution companies in the U.S., only 1,500 are large companies. Most are small, and many are family-owned. And those family-owned distributors may be forced to sell their businesses. Why? Changes to the estate tax may create heavy tax burdens.
A post on the Modern Distribution Management website shares the story of the owner of a 40-year-old distribution business owner in Chicago who testified about the tax to Congress. Her father bought the company in the ’70s and, today, it nets $40 million in sales and employs nine family members. But because of changes in the estate tax law, the family may be forced to sell the business just to pay those taxes.
Many who are pursuing their own American dream are facing this issue. How do you pass the business down through generations without losing some of it to the IRS?
At debate is whether the tax rate should jump to 55 percent (with the exemption falling to $1 million) by 2013.
Distributors want the tax repealed because they say it’s unfair to family businesses. They say the misconception is that family businesses just distribute money to owners when, in reality, money is invested in inventory. As the Modern Distribution Management article points out, it’s one of a distributor’s largest assets.
This law will be scrutinized as it continues to get debated in Congress after the November presidential election. The problem will become pervasive as it becomes one more reason why families feel the need to liquidate when an owner is ready to retire.
Source: Modern Distribution Management, June 2012