SHELTER

November/December 2002

 

Innovative Deductions
Receive Deductions for Your Excess Inventory
by Samantha Carpenter

GRAB BAG
This area of NAEIR’s warehouse is referred to as the Grab Bag, where bulkier items like windows and doors are picked up from representatives of nonprofit organizations. 

Many of you as distributors and manufacturers of millwork products have excess inventory that you are looking to reduce. If you are looking for a company to help reduce your inventory for a good cause, the National Association for the Exchange of Industrial Resources (NAEIR), a nonprofit corporation, is one company to which to donate your products. 

Nobert C. Smith, a former aircraft parts executive, founded NAEIR in 1977 in the Chicago area. While working as a consultant, Smith discovered that businesses have millions of dollars worth of excess, nonmoving inventory sitting in warehouses. He started NAEIR to collect those goods for schools and nonprofit organizations throughout the United States. Because the company continued to outgrow warehouses in Chicago, it relocated to its current location, a 10-acre donated building, in Galesburg, Ill., in 1986.

In the first three months of NAEIR’s 2002-2003 fiscal year (starting July 1), the company had received about $20 million worth of donated merchandise. The 2001-2002 fiscal year was the company’s record in 25 years: $147 million worth of products.

Becoming a Donor
NAEIR refers to companies as donors and recipient groups as members. There is no charge to companies for NAEIR’s service. A company may donate only once or often, depending on its excess inventory situation. NAEIR solicits donors through direct mail, personal visits to company headquarters, its website (http://www.naeir.org) and through articles in trade publications. “One of the most gratifying ways we get donations is when a donor tells one of its subsidiaries about NAEIR or when a contact switches positions and donates from his new company,” said Jack Zavada, communications director at NAEIR.

During the initial phone call to NAEIR’s corporate relations department, the company representative gets the details on the donation process. Donors are required to submit a written proposal on the goods they wish to donate, which may be mailed, faxed or e-mailed to NAEIR. A Donation Review Committee meets at NAEIR every other day, so proposals are usually approved within 48 hours. Once the committee approves the donation, NAEIR calls the donor company and gives further instructions and shipping labels. Donated goods can be out of the donor company’s warehouse and on the road to NAEIR in as little as a week after the initial phone call, said Zavada.
Donors are required to pay the shipping costs from their facility to NAEIR’s warehouse in Galesburg; however, that expense may be deductible as part of the donation process. NAEIR frequently can provide lower shipping rates through its traffic department, which has arrangements with truck lines covering the entire United States.

Why should a company donate to NAEIR instead of a charitable organization in the company’s area? “That’s a question we get asked frequently,” said Zavada. “There are several reasons many company choose NAEIR over local charities. Distributors may not want to hurt their local or regional markets. Products donated to NAEIR are distributed nationally, so windows donated from a distributor in Pennsylvania may end up with a nonprofit in Wisconsin.”

“Sometimes companies have large quantities of product to donate—several semi-trailer loads. When that much is donated locally or drop-shipped to a local site, it may be more than local charities can absorb, and it can increase the potential for misuse of the product. The tax code says these donated items may not be bartered, sold or traded and are to be used for the care of the ill, needy or minors. They are not to go to nonprofit staff for their personal use,” explained Zavada.

KOLBE
Kolbe & Kolbe Millwork donated these windows and doors which will be used in a new community recreation center in Summit, Ill.

Distributor & Manufacturer Benefits
Wondering how your distributorship would benefit from donating to NAEIR? “NAEIR works with a number of distributors and wholesalers in many different industries. Distributors may accumulate discontinued models, styles or colors of products; may have short quantities left; undamaged returns; or slow sellers. Sometimes they’ll want to refresh their product offering and will have leftover items they don’t want to carry anymore. Besides clearing nonmoving inventory, distributors can earn a federal income tax deduction on these goods,” said Zavada.

Manufacturers can realize the same benefits as distributors. “If they are a regular or (C) corporation, they can earn an above-cost federal income tax deduction. In addition to freeing up warehouse space and helping schools and charities that have tight budgets, manufacturers can also avoid sending nonmoving inventory to the landfill, which is good for everybody,” said Zavada.

Federal Income Tax Deduction
According to Zavada, a federal income tax deduction is claimed under Section 170 (e)(3) of the U.S. Internal Revenue Code. Regular (C) corporations may deduct the cost of the inventory donated, plus half of the difference between cost and fair market value. Deductions may be up to twice the cost. S corporations, partnerships and sole proprietorships earn a straight cost deduction.
Within 14 days after receiving a company’s donated products, NAEIR sends the donor a letter containing all the information the IRS requires to substantiate this deduction. The donor company decides the fair-market value on the products donated. The donor company attaches that documentation to its corporate tax forms when claiming this deduction.

Redistributing Products Donated
After products are donated to NAEIR, the company redistributes donated goods to 5,000 schools and nonprofit organizations throughout the United States. Recipient groups or members pay $575 annual dues, plus shipping and handling, but the merchandise itself is free. The goods are offered in a 200-page catalog that comes out five times a year, bi-weekly fliers, on a website named NAEIR Express and in a special section of the warehouse called the Grab Bag. “Heavy, bulkier items, like windows and doors, are frequently offered in Grab Bag, where they are picked up by representatives from churches, camps, schools or other nonprofits that are doing construction or remodeling their facilities,” said Zavada.

How NAEIR Stacks Up
TRAILER 
Because NAEIR has a large building, it is able to accept multiple trailer-load donations.

One company that has made more than 35 separate inventory donations to NAEIR since 1993 is Kolbe & Kolbe Millwork Co. Inc. of Wausau, Wis. 

According to Mike Tomsyck, vice president of finance, Kolbe & Kolbe found out about NAEIR through an article that he had read about other companies’ successes with NAEIR. 

Tomsyck said the reason Kolbe & Kolbe uses NAEIR is because his company believes in NAEIR’s mission, plus they like their location because his company doesn’t incur huge shipping costs.

Tomsyck also said NAEIR is extremely easy to work with. “We just fax down a list of what we propose to donate, and they let us know what they can’t take. The list of ‘can’t take’ has been pretty small.”

Asked what he would say to other companies thinking of donating products to NAEIR, he said, “It is certainly a streamlined way to get rid of factory seconds/returns. A business can’t afford to spend a lot of time on these items. NAEIR does the distribution to good nonprofits that can use the items.” 

 


Samantha Carpenter is the editor of SHELTER.

 


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