Truck Parts and Service | Heavy Duty Trucking, Aftermarket, Service Info
Issue link: http://read.dmtmag.com/i/795141
18 "The income tax portion of the distributions, however, is subject to a 10 percent penalty if made before normal retirement age." And that's just the tip of the tax- benefi t iceberg. NCEO says sellers in a C corporation can receive a tax deferral once an ESOP owns 30 percent of shares in a company through the reinvestment of the proceeds of the sale in other securities, and then defer any tax on the gain. In S corpora- tions, NCEO says the percentage of own- ership held by an ESOP is not subject to income tax at the Federal level, which means, for instance, that "there is no in- come tax on 30 percent of the profi ts of an S corporation with an ESOP holding 30 percent of the stock, and no income tax at all on the profi ts of an S corpora- tion wholly owned by its ESOP." Finally, NCEO adds that "reason- able dividends used to repay an ESOP loan, passed through to employees, or reinvested by employees in company stock are tax-deductible." Bazzano says the tax benefi ts are so advantageous that some sellers can ulti- mately net a higher bottom-line return selling to an ESOP than making a deal with another person or business for a higher initial price. Bill Dudek says he discovered that when he started considering ESOPs before selling his company, Acme Truck Brake & Supply. With exit planning goals to maximize his earnings while position- ing the business and people for long- term prosperity, Dudek says it didn't take long to see that an ESOP was the way to go. He sold 40 percent of his company in 2011, and then the remaining 60 percent to his employees last year. Early returns have been tremendous. "When I sold the fi rst part I still had the majority interest so I knew I could reverse [the ESOP] if it became prob- lematic," says Dudek, who still serves as president. "But when we got that 40 per- cent paid off [a year ahead of schedule] it became pretty clear that it was going to work out." And Dudek says employee response to the ESOP has been incredible. "There is a personal commitment from everybody in the company," he says. "Ev- eryone is accountable to everyone else." Klein agrees, noting that at Inland, the company's pride in its ESOP has become a way of life. "A couple years ago we held a vote to pick slogans for the company. My favor- ite one and the one we started using was 'We act like we own the place. Because we do.' "I think that really epitomizes the value" of the ESOP, he says. "Employees here aren't as tolerant of other employ- ees not living up to our work ethic and standards because they feel it refl ects on them as well." Yet ESOPs aren't perfect for everyone. The complicated fi nancial management of such a program requires an expert understanding of tax law and stock man- agement far beyond what is required in most aftermarket businesses. Klein, Goostree and Dudek each rely on outside fi rms to properly operate their ownership programs. Bazzano T R U C K P A R T S & S E R V I C E | M a r c h 2 0 1 7 Cover Story The people at Inland Truck Parts have created a slogan that demonstrates their commitment to their business and employee ownership. Reasonable dividends used to repay an ESOP loan, passed through to employees, or reinvested by employees in company stock are tax-deductible. – National Center of Employee Ownership