Just Peachy, Inc.

November 2, 2013

Nathan Hawks
April Crawford
Regina Chowdhury

NHawks@Deloitte.com
(972) 946-6377

Sam Teichelman
Melissa Chan

Agenda
o TuFFPeach Joint Venture
LLC vs. Corporation
o State Expansion
Subsidiary vs. DRE
State A vs. State B
o ASC 740
o Corporate Tax Reform Proposals
Proposal 1
Proposal 2
o Summary
Agenda

Joint
Venture

State
Expansion

ASC 740

Reform
Proposals

Summary

TuFFPeach Joint Venture

o Formation
Tax Consequences
Tax Basis of Assets
Entity
Owners/Members

Agenda

Joint
Venture

State
Expansion

ASC 740

Reform
Proposals

Summary

TuFFPeach Joint Venture

o Initial Expenses
Treatment
Recovery of
Capitalized Expenses

Agenda

Joint
Venture

State
Expansion

ASC 740

Reform
Proposals

Summary

TuFFPeach Joint Venture

TuFFPeach's Projected Income and Losses
(In Thousands)
Year 1
Sales Revenues
Total Expenses
Net Income from Operations

Other Income, Deductions, and Credits:

Qualified Dividend Income
Domestic Production Activities Deduction
Depreciation Deductions
Amortization of Startup Expenses
Research & Development Expense
Software Development Expense
Net Operating Loss
Total Other Income and Expenses
Taxable Income

48,000
40,500
7,500

(6,270) $

(1,320) $
-

(420)
$

State
Expansion

$
(360)
(2,080)
(110)
(6,270)
(8,820)

Tax Due

Year 3 - Corp

$
(360)
(2,800)
(110)
(4,000)
(3,000)
(10,270)

Research & Development Credit/Carryforward

Joint
Venture

38,000
34,000
4,000

Year 3 - LLC

Tax Before Credits

Agenda

Year 2

ASC 740

(420)
$

Reform
Proposals

50,000
45,000
5,000

50,000
45,000
5,000

1,000 $
(360)
(1,248)
(110)
(1,320)
(2,038)

300
(360)
(1,248)
(110)
(1,320)
(2,738)

2,962

2,262

1,007

769

(420)
Allocated

Summary

(420)
$

349

TuFFPeach Joint Venture

o
o
o
o

Agenda

Small Business Stock Provisions

Allocations to Members
Distributions
Liquidation

Joint
Venture

State
Expansion

ASC 740

Reform
Proposals

Summary

DRE vs. Subsidiary

DECISION WORKSHEET: DISREGARDED ENTITY V. SUBSIDIARY
(In Thousands)
Subsidiary (Separate entity)
State A
$

Taxable income within state (estimated)

State B

62,000 $

60,000

6%

Tax Rate
Tax Payment Per Year, If Subsidiary

3,720

5%
$

3,000

200,000 $

198,000

Disregarded Entity (DRE or Branch)

Peachy's estimated U.S. taxable income from all sources

Apportionment Factors for States A and B:

State A

State B

Peachy Total

(Estimated) (Estimated) (Estimated)

Property
Payroll
Sales

Percent

Percent

144,420

600,000

23.700%

24.070%

76,110

77,145

400,000

19.028%

19.286%

580,000

580,000

1,200,000

48.333%

48.333%

34.849%

35.006%

Tax Payment Per Year, If DRE

Joint
Venture

State B

142,200

Apportionment of income using a double-weighted sales factor:

Agenda

State A

State
Expansion

ASC 740

Reform
Proposals

4,182

Summary

3,466

Tax Credits and Incentives

Tax Credit

State A

State B

Job Tax Credit

$1.2/ new job

Offset 50% tax liability
Carried up to 5 years

$5/ new job

Offset 50% tax liability
Carried up to 15 years

10% of manufacturing equipment

Offset 50% liability
Carried up to 5 years
Cannot be claimed w/ Job Tax on
same project

10% of manufacturing equipment

Offset 100% liability
Carried up to 15 years
Can double-dip with Job Tax Credit

50% reduction
15 year period

Investment Tax

Credit

Real Property
Tax Abatement

50% reduction of real property taxes

10 year period

R&D Credit

10% R&D expenditures

10 years

---

Training Credit

$.50/ new full time employee trained

---

Agenda

Joint
Venture

---

Cash Grant

State
Expansion

ASC 740

$10/new job
Can exceed tax liability

Reform
Proposals

Summary

State A Expansion
STATE A - NET INCOME TAX CALCULATION
(In Thousands)
Investment

Research &

Jobs Tax

Tax

Development

Training

Total

Net State A

Credit (1)

Credit (2)

Credit (3)

Credit (4)

Credits

Tax Liability

Liability
Before Credits
Year

1 $

3,700

Year

Year

348 $

1,502

3,700

1,850

3,700

648

Year

3,700

Year

3,700

Year

3,700

Year
Year
Year

20

Joint
Venture

1,850

1,850

1,850

1,850

1,202

1,850

1,850

798

570

1,368

2,332

3,700

3,700

3,700

3,700

3,700

3,700

3,700

3,700

Total

Agenda

State
Expansion

348 $

4,000 $

ASC 740

2,000

Reform
Proposals

570 $

6,918

Summary

63,382

10

State B Expansion
STATE B - NET INCOME TAX CALCULATION
(In Thousands)
Liability Before

Jobs Tax Credit Investment Tax

Credits
2

3,000

1,500

1,500

1,500

Year

3,000

1,500

1,500

1,500

Year

3,000

1,200

300

1,500

1,500

Year

3,000

1,500

1,500

1,500

Year

3,000

1,500

1,500

1,500

Year

3,000

900

900

2,100

Year

3,000

3,000

Year

3,000

3,000

Year

3,000

3,000

3,000

3,000

Joint
Venture

State
Expansion

5,700

ASC 740

4,200

Reform
Proposals

1,500

1,500

Year

3,000

Total

1,500

Liability

1 $

20

Credit (2)

Net State B Tax

Year

Year

Agenda

(1)

Total Credits

9,900

Summary

50,100

11

State Expansion Summary

Property Investment

State A Total Cost

State B Total Cost

(20 Years)

(20 Years)

142,200 $

144,420

(2,220)

1,522,200

1,542,900

Property Taxes

64,000

60,000

4,000

(16,000)

(22,500)

6,500

State Income Tax

67,082

50,100

16,982

State Cash Grant

(8,500)

8,500

Total Expenses

1,779,482

1,766,420

Net Benefit of State B Over State A - 20 Years

Joint
Venture

Wages
Property Tax Abatement

Agenda

Difference

State
Expansion

ASC 740

Reform
Proposals

Summary

(20,700)

13,062

13,062

12

ASC 740
o Provision for Income Taxes
Book: $140,300
Tax Return: $72,400

Agenda

Joint
Venture

State
Expansion

ASC 740

Reform
Proposals

Summary

13

ASC 740
o Income Tax Receivable
o Deferred Taxes

Accrued Liabilities & Reserves

Basis of Assets and Investments
Deferred Financial Revenues

Income Tax Receivable

$ 12,500

Deferred Tax Assets

$ 25,830

21,010
$ 4,470
$ 10,950

Deferred Income Taxes

Unremitted Foreign Earnings
Net Deferred Tax Liabilities
Agenda

Joint
Venture

$
$

147,120
(108,680)

State
Expansion

ASC 740

Reform
Proposals

Summary

$ 134,510

14

ASC 740
o Reinvested Foreign Earnings
Temporarily vs. Indefinitely
o Rate Reconciliation
Marginal vs. Effective Rate

Agenda

Joint
Venture

State
Expansion

ASC 740

Reform
Proposals

Summary

15

Tax Proposal 1
o
o
o
o
o

Agenda

Tax Rate:
Depreciation:
DPAD:
R&D Credit:
Foreign Earnings:

Joint
Venture

State
Expansion

25%
No 179 Deduction
No 199 Deduction
Repealed
All Taxed in U.S.

ASC 740

Reform
Proposals

Summary

16

Tax Proposal 2
o
o
o
o
o

Agenda

Tax Rate:
Depreciation:
DPAD:
R&D Credit:
Foreign Earnings:

Joint
Venture

State
Expansion

34%
Changed to Straight Line
Allowed at 6%
Reduced by 50%
None Taxed in U.S.

ASC 740

Reform
Proposals

Summary

17

Impact of Proposals
2013:

Proposal 1

Before
Earnings Before Taxes $

557,630 $ 557,630

Year 5 +
$ 557,630

Year 1
$

Year 2 +

557,630

$ 557,630

Expected Tax

195,171

139,408

139,408

189,594

189,594

State Taxes

6,769

6,769

6,769

6,769

6,769

(58,950)

(66,080)

34,500

Research and Development Credit

(1,030)

(515)

(515)

Domestic Production Activities Deduction

(3,280)

(2,187)

(2,187)

Other, Including Meals & Entertainment

1,620

1,620

1,620

1,620

1,620

Provision for Income Taxes

140,300

182,297

147,797

129,202

195,282

Indefinitely Reinvested Foreign Earnings

Repatriated Earnings of Foreign Subsidiaries

Net income $
Effective Tax Rate
Total Tax Burden, Five Years $

Agenda

Years 1 - 4

Proposal 2

Joint
Venture

State
Expansion

ASC 740

417,330 $ 375,334 $ 409,834 $

25.16%
32.69%
26.50%
701,500

Reform
Proposals

876,983

Summary

428,428 $ 362,348
23.17%
35.02%
910,328

18

Summary
o TuFFPeach Joint Venture
LLC

Corporation

o State Expansion

Agenda

Joint
Venture

Subsidiary

DRE

State A

State B

State
Expansion

ASC 740

Reform
Proposals

Summary

Questions?