[LMB] Thor Power Tools, yet again

[Paula Lieberman]

----- Original Message ----- 
From: "D Echelbarger" <bujoldjunkie at tds.net>


> Ed Burkhead wrote:
>> But my bookstore owner just thought the tax law had changed.  He didn't 
>> say
>> that the publishers were *taxed* on their inventory.
>>
>> Could it be that they just don't get the tax deduction from depreciating
>> them to nothing until they DO dispose of them?
>>
>> Or, could they get a tax hit in some way by depreciating them, then 
>> selling
>> them for full price?
>
> Put bluntly, until the Thor Powertools provision, publishers
> were double-dipping.
>
> They'd take a tax write-off on "unsold inventory", keep the
> unsold inventory around, and then *sell* the books they'd
> already taken a deduction for *not* selling.
>
> The Supreme Court ruled that they couldn't get the tax
> write-off unless they'd actually disposed of the inventory
> they were writing off.
>
> So now they dump the books on the remaindered book market so
> they can take a tax deduction.
>
>> The downside is that, whether it's from being too dumb to understand tax 
>> law
>> or from a real change, publishers seem to have changed their warehousing
>> behavior for backlist book.
>
> Yes, but it's not because of an Evil Government Plot. It's
> because they're too greedy to be willing to hold those books
> in inventory when they can get a quick tax break by dumping
> them.

I think you're leaving out the part regarding inventory carrying costs.... 
shelf space and inventory control are expensive.  Warehouse expenses 
including power, light, heat, other utilities, airconditioning; building 
repairs so the merchandise stays dry, doesn't freeze, doesn't spontaneously 
combust (grain elevators have that problem); taxes, the inventory control 
system and the computers and operators, the staff, security systems and 
personnel, inventory takers who check that the list of what's there matches 
what's there, spoilage (some stuff does get wet, etc.), rent if the facility 
is rented....

When the  businesses depreciated the merchandise, their "carrying costs" 
were lower and it was economical for them to continue to store the 
merchandise despite the expenses of holding it.  When they stopped getting 
the writeoff, though, it became prohibitively expensive in terms of possible 
return on investment, for them to hold onto merchandise indefinitely, and so 
they dumped the merchandise, cutting their expenses in the process.