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Focus on Banking & Finance

Central Mass. firms praise GOP tax savings

February 5, 2018
Worcester's Table Talk Pies, pictured here, is hoping for a big bump from a new federal tax law, but owner Harry Kokkinis is more worried about what his customers can afford.

Federal tax reform is coming at the perfect time for Wormtown Brewery in Worcester, which is in the midst of a $1.1-million capacity expansion.

Although all the ramifications are yet to be realized, the Tax Cuts and Jobs Act, the Republican-backed tax overhaul Congress passed almost entirely along party lines in December, is designed to lower tax rates for business. Included in the bill – and a big bonus for Wormtown – was cutting the federal excise tax on beer in half, from $7 per barrel to $3.50 per barrel.

That will result in a savings of about $70,000 for the Shrewsbury Street brewery, said Managing Partner David Fields. The brewery's growth has exploded of late, including a new canning line, quality control lab and plans to hire at least four new employees.

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The new tax law "came at a great time for us," Fields said. "There are a few pieces of equipment we've been on the fence about. Now, we know how we're going to pay for them."

Still figuring it out

National and local businesses have praised the new federal tax law and expect to realize savings immediately and over the long term, but a number of companies declined to comment for this story, citing the proximity to year-end earnings reports and the infancy of the new tax laws that advisors and accountants have yet to pour through.

Mary Duncan, a tax manager with Worcester's Shepherd & Goldstein, said many companies don't know what they'll be saving because they're waiting for the Internal Revenue Service to issue new regulations and guidances due to how hastily the bill was passed.

"The big story of tax reform is not that the bill was just passed, but how it unfolds through regulations and procedural advice from the IRS over the next year or two," Duncan said.

The bill was proposed on Nov. 2 and signed into law by President Donald Trump on Dec. 22, hardly enough time for a substantial piece of legislation to be considered.

"There are a lot of holes that really need to be clarified," Duncan said.

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Good for business, bad for customers?

Table Talk Pies, a 94-year-old Worcester manufacturer of desserts, is one of those companies still working out the numbers.

The company just completed a 50,000-square-foot manufacturing facility in the South Worcester Industrial Park, and the equipment alone was $4 million, said owner Harry Kokkinis said. A second line at the facility would be another $4 million, and extra cash from the new tax law would undoubtedly ease some stress from making such a large expenditure.

"Reinvesting in the company has always been something we've done," Kokkinis said.

The company has historically been taxed to the limit – about 35 percent. Tax reform will help fund the $4-million production line, but it's how the tax cuts will be paid for that bothers Kokkinis.

He's worried food stamps and other federal welfare benefits – programs long eyed for cuts by the GOP – will be targeted next. Around the first of each month when welfare benefits are distributed, supermarkets report a bump in sales, as do Kokkinis' pies.

"Those are the people I'd like to see have more disposable income, so they can be spending more at supermarkets and stores," he said.

Net gains

Looking strictly at their bottom lines, several Central Massachusetts companies praised the tax bill in quarterly earnings reports, saying they are reinvesting in their operations stateside thanks to the new 21-percent corporate tax rate, down from 35 percent.

In a conference call with investors about the company's fourth-quarter earnings, Milford medical supplier company Waters Corp. Chairman and CEO Chris O'Connell said the lower tax rates will allow more money to be reinvested into the company, enhance the company's balance sheet and return capital to shareholders.

O'Connell highlighted the revamped repatriation tax, which provides for a one-time tax to encourage companies to bring back foreign earnings at a clip of between 8 and 15.5 percent. After that one-time tax, companies with foreign subsidiaries will no longer pay 35 percent in taxes on all foreign earnings. Instead, companies will be taxed at the rates in which it does business.

That would result in the Waters paying about $550 million, most of which is linked bringing the company's foreign earnings back to the the U.S. Once that tax is paid, Waters will have access to extra cash due to a lower tax rate.

That's big for the company, which does about 70 percent of its business outside of the U.S., O'Connell said.

According to its full-year earnings report, Waters did about $809 million in sales last year in the Americas, while taking in $862 million from Asian sales and $636 million in European sales.

Crediting the new tax law, companies like Walmart, AT&T, CVS, National Grid, Eversource Energy and Exxon Mobil have grabbed headlines by announcing changes to their financials, such as reducing prices for customers and offering raises to employees.

Westford-based 1A Auto, an online auto parts retailer, announced raises for employees due to the new tax policy, though the company did not say how much the raises would be.

Waltham-based weapons and defense manufacturer Raytheon is predicting an effective tax rate – the average tax rate of a company's pre-taxed profits – of about 19 percent, down from 35.8 percent in 2017.

Hologic, a Marlborough-based medical device maker, announced it expects its effective tax rate to be about 23 percent, down from last year's 31 percent.

Worcester tech company Cinch IT is planning to hire additional employees this year, said owner Rick Porter.

"Everything looks positive for small businesses like ours," Porter said.