While the questions include inquiries on activities that are commonly associated with manufacturing, you should still complete the inquiries. For companies with no association to the manufacturing industries, most responses will be ‘No’.
There is a growing need for information on the production of goods sold in the United States. These questions are seeking to identify the extent to which companies in this country have royalty income and have products manufactured abroad.
For companies with no foreign subsidiaries, this should correspond to the total revenue figure included in your annual report, financial statement, or tax return. For companies with foreign subsidiaries, it should be your total revenues less the sales of foreign subsidiaries plus transfer billings (intercompany sales) from domestic locations to the foreign subsidiaries.
For retail, wholesale, and taxable service companies, report the cash and credit sales of merchandise and receipts for motor vehicle rental, delivery, maintenance, repair, service contracts, alteration, storage, and other services provided in 2012 whether or not payment was received in 2012. For these companies, excise taxes (such as those on gasoline, liquor, and tobacco) paid by manufacturer or wholesaler should be included but other sales and excise taxes should be excluded.
For manufacturing and mining companies, report the value of products shipped from establishments in the company during 2012, receipts for services rendered, value of re-sales, and other miscellaneous receipts. Do not include freight, excise taxes, or non-operating income such as interest, dividends, or the sale of fixed assets.
For financial, real estate, and insurance institutions, report the gross revenues from receipts for interest; dividends; royalties; commissions and fees for exchanging currency, selling money orders, and cashing checks; and net realized capital gains (losses). Real estate institutions should include the net gains (losses) on the sale of real estate owned by this company, gross sales of real property developed or buildings built by this company for sale, and gross rents from real property owned by the company and leased to others.
For tax-exempt organizations, include gross receipts from services provided, merchandise sold, interest, dividend, gross rents, royalties, gross contributions, gifts, grants, member dues and assessments, and gross receipts from fundraising activities.
For advertising agencies, travel industries, and other service companies operating on a commission basis, include commissions, fees, and other operating income; not gross billings or sales.
For hospitals, include the net patient revenue, not the gross patient revenue
These are sales or billings between domestic reporting units of your company. Most companies make adjustments to eliminate these in consolidated reporting.
Operating Revenues and Net Sales should exclude sales and other taxes collected directly from customers and paid directly to a state, local, or federal tax agency. Excise taxes (such as those on gasoline, liquor, or tobacco) paid by the manufacturer or wholesaler and included in the cost of goods purchased by this company should be included.
Taxable companies should not include these types of receipts in Operating Revenues and Net Sales.
Tax-exempt companies should include these receipts in Operating Revenue and Net Sales.
Management fees collected from establishments of your own company (if covered by the form’s reporting units) should be excluded as they represent intercompany revenues. These billings / transfers between locations of the company should be excluded when the revenue for the locations is consolidated for the total company.
For wholesalers or retailers selling on a commission basis, revenue should be reported on a gross basis rather than as commissions plus the sales of any goods sold on your own account net of sales taxes and allowances. For real estate offices and brokers, you should report the commissions and fees received for arranging the sale of real property owned by others.
Trademark use is often included as part of the license of a patent or a franchise and should be reported on line 3.C.3.a. or 3.C.3.d., as appropriate. If the Trademark royalties are not an integral part of the use of the patent or franchise, please report the value in Line 3.C.3.e “Other – Specify”. Entries should include a brief description of any specifics regarding the trademark royalties.
Yes, franchise fees should be included. If your records do not include these fees as intellectual property fees, make sure you adjust the value you report in Item 3C. part B. to include both the royalty and license fees and the franchise fees.
No, franchise fees should only include the fees for the use of the franchise not the sale of the goods associated with the franchise. This should be reported as cost of goods sold for the franchisee and as net sales for the franchisor.
The sale of custom software and programming services should not be included in the computer software category. This should include only the fees received for the right to reproduce, distribute or use computer software protected by copyright owned by your company.
Item 3C part B should include all revenue received from others for the use of intellectual property owned by your company. Intellectual Property includes industrial property, which includes inventions (patents), trademarks, brand names, industrial designs, trade secrets, franchises, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of their recordings, and those of broadcasters in their radio and television programs.
Please make your best effort to estimate any data for which company records are not readily available based on your experience with your company’s operations. It would be help us understand the data if you indicate how any estimates were developed.
While franchise fees are not always considered royalties or license fees, they are related in that they are initial fees paid by a franchisee for the use of the franchisors names or branding. This line of the inquiry also includes continuing fees paid to maintain the franchise that are referred to as advertising fees, management service fees, marketing fees, fixed service fees, etc.
An arrangement wherein a manufacturer provides services to the owner of the design, specifications and output produced. Manufacturing involves the mechanical, physical or chemical transformation of materials, substances, or components into new products. The products can be prototypes, semi-finished goods or finished goods.
The contracting company dictates the specifications, designs, or formulas that the contract manufacturer must use in the production of goods. In addition, the contracting company usually controls or limits the production of goods by performing quality control on the input materials or finished goods; reviewing the contracted companies facilities and processes; and approving the primary suppliers and may provide selected input materials.
The contract manufacturer provides the facilities and labor and assembles or produces the good but also may purchase input materials and deliver finished products to customers under the direction of the contractor. The manufacturer can be an unaffiliated company (either domestic or foreign) or a foreign subsidiary of the contracting company. In semiconductor companies, the term for the contracting company is a fabless manufacturer while the contracted company is sometimes referred to as an electronics foundry. In industries such as pharmaceuticals, chemicals, minerals, metals, photographic, paper coatings, ink and paint, and cosmetics may use the terms toll manufacturing, toll processing, tolling, toll conversion, or custom manufacturing. Related terms for this activity include outsourcing, electronic manufacturing services (EMS), Contract Manufacturing Organization (CMO), Contract Development and Manufacturing Organization (CDMO), and Original Design Manufacturer (ODM).
The following activities are included as manufacturing: (These are shown as these come from the NAICS description for manufacturing. Should some of these be deleted because there are no contract manufacturers engaged in the specified activity?)
Milk bottling and pasteurizing
Water bottling and processing
Fresh fish packaging (oyster shucking, fish filleting)
Apparel jobbing (assigning of materials for contract factories or shops for fabrication or other contract operations)
Printing and related activities
Ready-mixed concrete production
Grinding of lenses to prescription
Electroplating, plating, metal heat treating, polishing for the trade
Lapidary work for the trade
Fabricating signs and advertising displays
Rebuilding or remanufacturing machinery (i.e., automotive parts)
Ship repair and renovation
The following are not included as manufacturing:
Beneficiating (using processes to separate the minerals from the gangue) of ores and other minerals
Construction of structures and fabricating operations performed at the site of construction by contractors
Breaking of bulk and redistribution in smaller lots including packaging, repackaging, or bottling such as liquors or chemicals; the customized assembly of computers, sorting of scrap, mixing paints to customer order, and cutting metals to customer order
Publishing and the combined activity of publishing and printing
Following are additional activities that have been addressed during respondent interviews / telephone calls as to whether they are considered contract manufacturing for ESP purposes:
Refurbishing ships and railroad locomotives – This is not considered contract manufacturing service even though the activity is considered manufacturing because the contracting company provides no design or specifications for the process.
Dress design with contract manufacturing – This is considered a contract manufacturing service since the contracting company typically provides specifications on the design, material, or other details required for the manufacture of the garment.
Machine shops producing custom parts – This is not considered a contract manufacturing activity.
Development and prototype – Companies that are developing prototypes for other companies are considered to be a contract manufacturing provider and should be classified as Manufacturing Service Providers.