Supply Chain and Economy: Retailer Magazine Q1 2022

the Retailer Q1: 2022 | Quarterly magazine

SERVING AG, CONSTRUCTION AND OUTDOOR POWER EQUIPMENT DEALERS ACROSS IOWA AND NEBRASKA

SUPPLY CHAIN & ECONOMY Regardless of industry or location, every supply chain is facing vulnerability right now.

How will the disruptions affect the equipment dealer industry in 2022?

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Chris Steinkamp Iowa (402) 677-2308

Dan Takle

Iowa (515) 249-2728

Alex Bauer

Nebraska (402) 540-6921

Chris Schimke

Nebraska (605) 941-7115

AgDirect is an equipment financing program offered by participating Farm Credit System Institutions with lease financing provided by Farm Credit Leasing Services Corporation.

CONTENTS

3

5

EXECUTIVE INSIGHT

FEATURE FARM EQUIPMENT DEALER SURVEY

Regardless of industry or location, every supply chain is facing vulnerability right now. The bottleneck of transport vessels and severe logistics labor shortage is affecting the equipment dealer industry — and may continue through 2022.

100% of surveyed dealers report profit, improved gross margins, and strong forecasts for new and used equipment revenue next year. Ben Thorpe, associate research editor at Lessiter Media, breaks down the results of this year’s Farm Equipment Dealer Business Outlook and Trends survey.

14 NEBRASKA FIELD NOTES Nebraska Field Director Mark Othmer considers some the challenges that equipment dealers may face in 2022.

16 IOWA SALES/USE TAX Sales tax on extended warranties can be a confusing subject. This chart will help clarify the Iowa regulations.

18 FEATURE INFLATION Inflation has risen across the board in the U.S. in 2021. This is no secret, and the question remains — is this inflation permanent or transitory?

TABLE OF CONTENTS | 1

CONTENTS

OFFICERS: Tim Kayton Chairman

Albion, NE

Scott Raber Vice Chairman

Fremont, NE

Scott Beach Past Chairman

Grinnell, IA

EDA DIRECTOR: Ivan Dorhout

Rock Valley, IA

DIRECTORS:

20 EDUCATION ANDREW GOODMAN SCHOLARSHIP INEDA is now accepting applications for the 2022-2023 Andrew Goodman Scholarship to help train potential equipment dealership employees.

22 EDUCATION CAREER EXPLORATION The Career Exploration Event drew over 280 students to the Nebraska Ag Expo in December.

Find out how you can participate in a similar event at the Iowa Ag Expo in February.

Kevin Clark Jay Funke Kent Grosshans Brian Koonce Matt Vande Hoef

STAFF:

Mark Hennessey Tom Junge Mark Othmer Donna Miller Will Rogers Cindy Feldman Gwen Parks Sydney Upah Gretchen Burch Channon Timm David Adelman Tim Keigher

Lincoln, NE Edgewood, IA Central City, NE Marcus, IA Hull, IA

President/CEO IA Field Director NE Field Director Operations Manager Director of Gov’t. Affairs Marketing Director Controller Mktg. Comm. Designer Admin. Svcs. Assist.

Admin. Svcs. Assist.

IA Legislative Director NE Legislative Director

CONTACT INEDA: 8330 NW 54th Ave. Johnston, IA | 50131-2841 E: info@ineda.com | W: www.ineda.com P: 515.223.5119 | F: 515.223.7832 TF: 800.622.0016.

Affiliated with:

26 MARKETING VIEW There are 2.5 million skilled trade job openings expected this year and the path to reach them is shorter, more focused, and less expensive than the journey to a four-year degree.

2 | TABLE OF CONTENTS

SUBSCRIPTION INFORMATION:

Individual subscriptions are available without charge to Association members. One-year subscriptions are available to all others for $30.00 (4 issues). Contact INEDA for additional information. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered.

It is furnished with the understanding that the Iowa-Nebraska Equipment Dealers Association, the publisher, is not engaged in rendering legal, accounting, or other professional services. Changes in the law may render the information contained in this publication invalid. Legal advice or other expert assistance should be obtained from a competent professional.

Vol. 111 No. 1

executive insight The disruption of the entire supply chain is forcing many manufacturers and dealers to rethink their business models. From manufacturing products with limited raw materials or constrained subassemblies, to managing new and used inventory and parts, to labor shortages, to implement dealers managing their operations, we are facing a subset of the challenges related to the supply chain within our agriculture industry.

This past quarter as a member of the Industry Relations Task Force, I have had the opportunity to meet with major manufacturers to discuss a variety of issues. Supply chain was a key topic in all of our conversations. A few consistent themes emerged during these discussions: • The supply chain constraints will continue throughout 2022, and experts estimate supply chain disruptions will last 15 to 18+ months before returning to normal.

• Employee morale has taken a toll, too. Long hours, constant pressure, and demands from angry customers that can’t be resolved quickly due to supply chain dependencies are causing employee fatigue and burn-out.

It’s important to look beyond the agriculture industry and look broadly at this situation. Regardless of location or product, certain links in every supply chain are experiencing vulnerability. The reasons are complex – ranging from pre-pandemic tariffs to Biden Administration policies, etc. However, I want to focus on two key links in the supply chain that have an effect on all of us: the major bottleneck of transport vessels and the severe logistics labor shortage.

In October, a record-breaking 73 ships found themselves bottlenecked outside southern California ports near Los Angeles and Long Beach. However, the number of unloaded ships is much higher than the 73 vessels reported as ships have moved farther out to sea to avoid congestion. In early December, more than 60+ vessels destined for the port complex remained in waters farther out to sea, some hundreds or even thousands of miles away. In pre-pandemic years, it was rare for more than one ship to wait to be unloaded. The Port of Los Angeles handles 40% of the containers that bring finished goods, critical components, subassemblies, parts, and materials to our manufacturers.

With nearly 90% of global trade transported by ship, the employees manning these vessels are a forgotten but crucial link. Due to travel restrictions and other complications during the pandemic, those people working on ocean-going vessels have sometimes been trapped at sea for months on end. According to a July 20, 2021 Reuters’ report, approximately 100,000 individuals were stranded at sea. Experts predict that once these employees return to land, many of them will not be returning to the job.

At the port, labor shortages are rampant. Search Google for ‘L.A. dock worker jobs’ and you’ll find hundreds of open positions. With the unprecedented shipping backlog facing L.A. ports in large part due to a lack of workers available to unload goods, skeletal crews have endured unbearable circumstances with little relief. Compounded by the potential fall-out from Biden’s executive order regarding vaccine mandates for employers with greater than 100 employees, there are dock workers who will refuse to comply and simply find jobs elsewhere.

Port officials in Los Angeles and Long Beach have decided to implement a Port Congestion Surcharge (PSC). Any container that dwells more than nine days for local truck drayage and more than six days for rail moves are liable for a $100 per day surcharge, increasing by $100 per day.

Overstays of those durations previously accounted for about 40% of all containers on the terminals.

Ocean carriers have little control over the discharge of most cargo they deliver, leading to criticism that carriers were improperly targeted and concerns that carriers would try to pass the fees on to importers. This surcharge has been delayed a fourth time by the port authorities, but if it goes into effect, the cost of freight will skyrocket and compound the problem even further.

EXECUTIVE INSIGHT | 3

The supply chain congestion flows downstream from the sea to the ground. Trains are sometimes backed up for 25 miles awaiting entry into railyards, and trucks wait hours or even days to pick up and/or deliver their loads. American Trucking Associations’ Chief Economist Bob Costello said the current driver shortage has risen to 80,000 — an alltime high for the industry.

“Since we last released an estimate of the shortage, there has been tremendous pressure on the driver pool,” Costello said. “Increased demand for freight, pandemic-related challenges from early retirements, closed driving schools and DMVs, and other pressures are really pushing up demand for drivers.”

“Maybe I will think twice before placing my next order on Amazon. I never realized the impact that my online order has on everyone involved with the global supply chain, including our OEM’s and you.”

Gene Seroka, the executive director of the Port of Los Angeles, said about 30 percent of the port’s appointments for truckers went unused every day, largely because of shortages of drivers and warehouse workers to unload items from trucks.

There is not a simple fix to this problem. However, one insightful person who works on the L.A. docks provided a perspective that has been largely ignored by our media and policy makers.

“Ask anyone and they will blame online orders,” said Eli, a longshoreman at Port of L.A. “When COVID hit, you expected a drop in shipping for a long time, but that didn’t happen. Instead, more people shopped online, so shipping went up as a result. Still is, by the way. There is no single solution to this, and I’m just a dockworker, but a big way to help would be to buy more locally or within America for a while. But that is not going to happen, because we are so tied with overseas shipping right now and bringing in things from Asia.”

Wow, he nailed it. I think this dockworker said it best.

Maybe I will think twice before placing my next order on Amazon. I never realized the impact that my online order has on everyone involved with the global supply chain, including our OEM’s and you.

Chief Executive Officer

4 | EXECUTIVE INSIGHT

Profits, Gross Margins, Early Orders Improve Amid Rebounding Market BEN THORPE, Associate Research Editor, Lessiter Media [bthorpe@lessitermedia.com]

100% of surveyed dealers report making a profit, improved gross margins and strong forecasts for new and used equipment revenue next year.

This year’s Farm Equipment Dealer Business Outlook & Trends survey saw significant changes relative to last year’s survey. Projections for next year’s new and used equipment sales were up compared to the 2021 survey, as well

FEATURE FARM EQUIPMENT DEALER SURVEY | 5

as forecasts for early orders and equipment price increases.

Considering the strength of the ag equipment market at the moment, driven by a sharp economic recovery following the crash that came with the COVID-19 pandemic, the results make sense. Farmers’ government payments, coupled with struggling equipment supply chains creating an equipment shortage, have created the perfect storm for an equipment seller’s market. What remains to be seen, however, is if the increasingly positive outlook for 2022 will come to fruition.

For the moment, it seems as though the impact of the overwhelmed supply chain will continue into the foreseeable future. A September 2021 report from Ag Equipment Intelligence quoted John Deere Director of Investment Relations Josh Jepsen as saying, “As we expected a quarter ago, we noted we thought the back half of the year would be more challenging. That’s

exactly what we saw. We saw more disruptions, more impacts to production, where we were losing days of production at different facilities at different times throughout the quarter. And we think that continues; we don’t see that easing up as we get into the fourth quarter and into 2022.”

New Equipment Revenue, Prices Rise Dealers’ forecasts for 2022 new equipment revenue were much higher than either of the 2 previous years, with 53.1% of surveyed dealers expecting new equipment revenue to be up by at least 2% year-over-year. This surpassed the 42.4% who thought the same in last year’s report and the 41.7% in the 2019 report.

This year, 14.4% of dealers forecast new equipment revenue to increase 8% or more next year, well above the 8.7% who thought the same last year, while the percentage estimating new equipment revenue up 2-7% went from 33.7% last year to

6 | FEATURE FARM EQUIPMENT DEALER SURVEY

38.7% this year. The percentage of dealers forecasting at least a 2% decrease in used equipment revenue also rose from 11.6% in last year’s report to 20.7%. A little over 5% of surveyed dealers forecast new equipment revenue down 8% or more in 2022.

A little over 26% of dealers estimate there will be little to no change in new equipment revenue for next year, a 5-year low.

Broken down by country, Canadian dealers were more pessimistic than their U.S. counterparts. Some 7.1% of Canadian dealers forecast a new equipment revenue increase of 8% or more vs. 15.5% of U.S. dealers forecasting the same, though a greater percentage of Canadian dealers (42.9%) forecast an increase of 2-7% than U.S. dealers (38.1%).

Some 21.4% of Canadian dealers forecast new equipment revenue down 2% or more, above the 20.7% of surveyed U.S. dealers who forecast the same.

Some 1% of this year’s surveyed dealers expected no price increase from their OEMs in 2022, showcasing the severity of current price increases as global supply chains struggle to meet increasing demand.

Nearly 14% of surveyed dealers are forecasting a price increase of 10% or more from their OEMs next year vs. none in last year’s report and 1.3% in the 2019 report.

Nearly 30% of surveyed dealers are expecting an increase of 7-9%, far surpassing the 0% and 2% who expected the same increases in the two previous reports. With 43.5% forecasting 4-6% increases and 12% forecasting 1-3% increases, only the 1-3% category saw decreases from the two previous studies as dealers moved their forecasts higher.

Dealers Optimistic on Used Sales Positive outlook on used equipment revenue rose slightly compared to the previous study, but also saw an increase in

negative forecasts. Some 49.1% of surveyed dealers forecast at least a 2% increase in used equipment revenue for next year, up slightly from 47.2% in last year’s study. The percentage of dealers forecasting an 8% or more increase in used equipment revenue rose from 8.7% last year to 17.3%, the highest percentage recorded in the last 5 years.

The percentage of dealers forecasting no change in revenue decreased for the second year in a row to 31.8%.

A total of 19.1% of dealers forecast a decline in used equipment revenue for next year, with 7.3% forecasting a decline of 8% or more vs. none forecasting a decline that severe last year.

By country, U.S. dealers were more optimistic about the future of used equipment revenue, with 51.5% expecting an increase of at least 2% vs. 30.8% of Canadian dealers expecting an increase. Some

FEATURE FARM EQUIPMENT DEALER SURVEY | 7

17.5% of U.S. dealers forecast an increase of 8% or more vs. 15.4% of Canadian dealers. Another 34% of U.S. dealers forecast an increase of 2-7% vs. just 15.4% of Canadian dealers.

Some 31% of U.S. dealers forecast no change in used equipment revenue, while 38.4% of Canadian dealers forecast no change.

Some 30.8% of Canadian dealers are estimating used equipment revenue will fall by at least 2% or more in 2022, while 17.5% of U.S. dealers forecast the same.

Record Highs for Early Orders With the ongoing equipment shortage, early orders have become an increasingly important part of how dealers are doing business. As a result, this year’s early orders results are up significantly vs. last year.

Some 29.5% of dealers estimate their early orders are up 10% or more vs. the previous year, compared to 8.6% indicating the same in last year’s study. Overall, 70.6% of dealers say their early orders are up at least 1% vs. the previous year, compared to 32.4% who said the same in the previous study. Only 16.9% of dealers reported their early orders were unchanged from the previous year, a record low for the last 6 years.

8 | FEATURE FARM EQUIPMENT DEALER SURVEY

Some 12.5% of dealers reported their early orders were down vs. last year, with 8% indicating early orders were down 1-5%.

This is well below the 27.6% who reported a decrease of at least 1% or more in last year’s study.

Aftermarket Financials Remain Solid Overall dealer sentiment was up on parts revenue, 71.8% in this year’s report projecting a parts revenue

increase of 2% or more vs.

68.5% last year. Among them, 20.9% forecast an increase of 8% or more.

Just 1.8% of this year’s respondents forecast a decrease of 2-7% vs. 1.9% last year. U.S. dealers were notably more optimistic about parts revenue than Canadian dealers, with 76.3% of U.S. dealers forecasting an increase of 2% or more vs. 38.5% of Canadian dealers. The majority of Canadian dealers (61.5%) forecast little to no change in their 2022 parts revenue vs. 21.6% of U.S. dealers who forecast no change.

U.S. dealers were also more optimistic year-over-year, with 76.3% forecasting parts revenue increases vs. 71.4% who forecast the same last year. This included an increase in those forecasting a parts revenue increase of 8% or more from 9.9% last year to 23.7%. Canadian dealers, on the other hand, were notably

less optimistic, with only 38.5% forecasting an increase in parts revenue compared to 50% in last year’s study.

Some 70.9% of dealers forecast an increase in service revenues for 2022, including 17.3% who forecast an increase of 8% or more. This represents an increase vs. the 69.2% of dealers who forecast an increase in last year’s study, among whom 11.5% forecast an increase of 8% or more.

U.S. dealers were once again more optimistic than their Canadian counterparts, with 75.3% forecasting service revenue increases vs. just 38.5% of Canadian dealers. Some 61.5% of Canadian dealers forecast little to no change in service revenue vs. just 23.7% of U.S. dealers.

U.S. dealers were more optimistic in this year’s compared to the previous report, with 75.3% forecasting revenue increases

FEATURE FARM EQUIPMENT DEALER SURVEY | 9

vs. 70.3% in last year’s report.

The percentage of U.S. dealers forecasting a service revenue increase of 8% or more almost doubled from 9.9% in last year’s study to 19.6%. The percentage of dealers forecasting little to no change fell from 29.7% last year to 23.7% in this year’s report.

Canadian dealers were notably

less optimistic in this report, with 38.5% forecasting used equipment revenue up vs. 61.6% in last year’s survey.

Dealers Bet on HighHorsepower Tractor, Feeders/Mixers Sales Dealers were more optimistic with their unit sales outlook for next year than they were last

10 | FEATURE FARM EQUIPMENT DEALER SURVEY

year, with all major categories showing increases aside from 4WD tractors. Combines saw the greatest increase, with the percentage of dealers forecasting a sales increase of 2% or more rising from 27.6% last year to 51.1% this year. Tractors with over 100 horsepower also saw a significant increase, from 33.7% last year to 47.1% this year. The percentage

of dealers forecasting an increase in under 40 horsepower tractors sales also rose from 42.4% to 49.5%, while the percentages for 40-100 horsepower tractors rose from 43.5% to 55%. 4WD tractor sales saw a decline in optimism, however, falling from 46.7% of dealers forecasting increases last year to 42.9% this year.

U.S. dealers were more optimistic on all sales outlooks aside from 4WD tractors, where the percentage of optimistic dealers dropped to 43.5% from 45.1% last year. 2WD 40-100 horsepower tractors had the highest percentage of optimistic dealers at 56.8%, up from 42.7% last year.

The percentage of U.S. dealers forecasting combine sales up 2% or more in the coming year more than doubled from 23.5% last year to 53.2% in this year’s report.

Canadian dealers only saw more optimism in 2WD under 40 horsepower tractors (from 30% to 41.7%) and over 100 horsepower tractors (45.5% to 50%). All other categories saw a year-overyear decrease in the percentage of Canadian dealers forecasting growth of 2% or more, with combines showing the greatest decrease from 62.5% to 36.4%.

This year’s list of dealers’ best bets for improving unit sales saw significant changes in ranking, beginning with feeders/mixers taking the top slot from fifth in last year’s report. Farm loaders, windrowers/swathers, field cultivators and forage harvesters completed the top 5 best bets.

Notable changes in this year’s lineup included field cultivators going from #8 last year to #4 in the most recent report, while

forage harvesters moved from #9 to #5. 2WD 40100 horsepower tractors saw a jump in ranking as well, going from #12 last year to #6.

Some of the largest drops in ranking came from Precision Farming Systems (#2 last year to #18), round balers (#6 to #17) and lawn/ garden equipment (#3 to #14). The lowest percentage of dealers forecasting unit sales to remain the same or better was for 2WD over 100 horsepower tractors at 88.2%, well above the lowest percentage recorded last year (combines at 80.3%).

Dealers Increase Hiring Plans for 2022 Year-over-year, dealers are looking to hire more employees going into 2022 than they were last year. Over half of all surveyed dealers are looking to add parts department employee next year vs. 42.2% saying the same last year. Some 86.1% of dealers are looking to add service technicians, a notoriously difficult category of employee to find in the industry, above the 78.1% who said the same last year. No dealerships are looking to reduce their number of technicians.

Plans for wholegoods hiring are down slightly, with 40.2% of

dealers planning to hire staff vs.

42.3% last year. More dealers are also looking to hire admin staff (18.3% planning to add vs. 13.7% last year), precision farming specialists (28.7% vs. 17.6%) and inside/internet sales (25.2% vs.

FEATURE FARM EQUIPMENT DEALER SURVEY | 11

22.3%). Corporate/administrative staff had the highest percentage of dealers looking to reduce staff in that category at 3.9% vs. 5.3% last year.

Finding and keeping staff topped dealers list of issue and concerns heading into 2022, displacing rising equipment costs from the top of last year’s list. Technician availability remained the #2 issue, while new equipment inventory concerns, likely bolstered by equipment shortages, rose to #3 from #6 last year. The increasing costs of new equipment landed at the #4 slot, with farm input costs completing the top 5 concerns.

Other notable changes to the list included used equipment inventory rising to #7 from #11 in last year’s report, energy/fuel costs rising to #10 from #18 and farm commodity prices dropping from #4 to #8. 

12 | FEATURE FARM EQUIPMENT DEALER SURVEY

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ne AROUND

NEBRASKA

NEBRASKA FIELD NOTES

A

nother successful season is complete, and from all reports it sounds as though it was a bountiful harvest.

Yields were excellent. Harvest conditions were normal, for the most part; a little rain slowed it down some, but not for long. The biggest concern I’m aware of is that soybeans were dry but the stems were green, causing tough harvesting conditions. But when yields are as high as reported, most producers will gladly put up with the inconvenience.

There was a lot of worry at the beginning of harvest season about potential parts shortages and equipment delivery delays, but it sounds as though most dealers made it through the season without any major obstacles on the supply side. Unfortunately, supply chain issues persist — affecting most brands of equipment from short lines through major manufacturers.

When I talk directly with dealers, most of them have the same problem: they are out of equipment to sell. Some manufacturers are already out of tractor allotments for 2022 and are beginning to sell 2023 equipment. This becomes a troubling game as prices are expected to increase and customers will have to be forewarned before it becomes a problem. So far, it seems customers are understanding of the price hikes — but if grain markets were to take a tumble, you can be sure that attitude would change in a hurry.

It will be a very delicate balancing act for dealers.

Salesmen pay In a previous issue of the Retailer, I mentioned that dealers were beginning to rethink their method of paying salesmen. With equipment shortages slowing down sales, it’s challenging to pay commission-

14 | NEBRASKA FIELD NOTES

MARK OTHMER, Nebraska Field Director [marko@ineda.com]

based when sales aren’t being completed. Due to this issue, many dealers are moving to a salary-based pay system. While this is probably the only option available right now, dealers should be cautious how they approach it with their salesman. Make sure your salesman understand that once equipment becomes available again — which it will — normal pay processes will be reinstated.

Is history repeating itself…..again?

I vividly remember my Dad ordering a new tractor during the fall of 1971, expecting it to arrive before planting season the next spring. If any of you are old enough to remember this slice of history, you’ll remember that there was a small ‘explosion’ going on in the ag production world at that time. Hybrids of corn were becoming much more productive and yields were growing exponentially. Drought resistance was also being bred into the hybrids, and the dryland farm I grew up on was suddenly seeing yields progress from 60 bushel per acre to 100 bushel per acre.

This increase in yield along with steady market prices was creating a huge demand for farm equipment, and manufacturers could not keep up.

The horsepower and technology race with farm tractors was also beginning, and farmers were eager to improve their crop production, both on the land they were currently farming and any extra land they could buy or rent. That tractor my Dad ordered in the fall of 1971 finally arrived in the spring of 1973, and it even wasn’t the one he originally ordered.

Another customer had backed out of a deal and the tractor was close enough to what he wanted to purchase that he accepted it. Stories just like this one were common in those years.

Unfortunately, in the late 1970s and early 1980s, Breakfast at the Capitol inflation reared its ugly head and the agriculture Since the Nebraska Capitol building is still boom came to a sudden halt. Land prices — which undergoing major renovations, our Nebraska had been escalating rapidly — suddenly turned the Legislative Breakfast will be held in a new location other direction. I remember a customer of mine this year. It will take place at the Scottish Rite in 1978 had purchased irrigated land at the crazy building in the center of Centennial Mall on January price of $3,300 per acre, only to foreclose on the 20, 2022. Watch for your invitation with directions loan and sell at auction in 1981 at $1,500 per to the facility. Hope to see everyone then!  acre. A lengthy stretch of tough farming conditions followed for “But when I look over the several years: the 1983 payment horizon, I see the old nemesis – in kind (PIK) year, followed by two inflation – raising its head and more years of depressed prices, preparing to teach the economy and finally the real dilemma a lesson one more time.”

— deflation, or as economists called it, stagflation. I lost many customers during those years, and I often wondered if my business would survive.

nebraska SALES TAX spotlight

As I look at the current economic conditions, I’m concerned that we may be headed in that direction again. Looking at today’s economy, it’s hard not to be optimistic. But when I look over the horizon, I see the old nemesis – inflation – raising its head and preparing to teach the economy a lesson one more time. I hope we are able to endure it better this time than in the 80s – and I hope we can dodge the double-digit interest rates this time.

Q. Is there an over-width exemption for hauling farm equipment?

A. Yes. A farm equipment dealer may haul over-width

equipment anywhere in the state during daylight hours as long as you are on a two-lane highway or road. The transportation of the over-width equipment must be in the normal course of a farm equipment dealer doing business. A farm equipment dealer may pass this exemption to a contract carrier with proper documentation.

www.KreamerLaw.com

(515)727-0900 Mergers & Acquisitions Business Law Succession Planning Samuel I. Kreamer, J.D., C.P.A. sikjdcpa@kreamerlaw.com

Licensed in both Iowa and Nebraska INEDA Associate Member

Wills, Trusts, & Probate 7155 Lake Drive, Suite 200 West Des Moines, IA 50266 7155 Lake Drive, Suite 200 West Des Moines, IA 50266 NEBRASKA FIELD NOTES | 15

Field Director Iowa Sales/Use Tax: TOM JUNGE, Iowa [tomj@ineda.com] Extended or Optional Warranty

With the increased usage of extended warranties to sell equipment, dealers have been asking a lot more questions about how Iowa sales tax applies to these policies. There are several components of these policies to consider for sales tax including the sale of the policy, warranty work performed, and the deductible. There are also questions about whether preventive maintenance contracts are treated the same as extended warranties. With the assistance of Will Rogers and a retired Iowa Sales Tax consultant, we put together this table to provide clarification.

Iowa Sales Tax Table

Dealer to Customer

Sale of Base/ Mandatory Warranty

The cost of the base warranty is part of the cost of the item.

It is presumed that any applicable sales tax was collected at the time the warranty was put into effect. 701 - 18.25(2) This would also be the case of a FREE extended warranty provided by the manufacturer.

Performing Base Warranty Work

Labor and parts covered under the warranty are not taxable.

Additional charges for parts (except qualifying replacement parts) furnished in addition to what is covered by a warranty or maintenance contract are taxable. Any labor not covered under the contract is also subject to tax if a taxable service is performed.

Sale of Optional/ Extended Warranty Contract

The price of the optional or extended warranty is taxable since it may furnish a taxable service (labor) and parts. IA Code 701 - 18.25(3)

Performing Optional/ Extended Warranty Work

No sales or use tax is due from the purchaser of an optional or extended warranty contract, according to Iowa Code 423.2(4) (see warranty deductible below). Additional charges for parts (except qualifying replacement parts) furnished in addition to what is covered by a warranty or maintenance contract are taxable. Any labor not covered under the contract is also subject to tax if a taxable service is performed.

Warranty Deductibles

Sales tax is collected on the deductible amount if taxable parts and/or labor are provided.

Sale of Preventative Maintenance Contract

A preventive maintenance contract is a contract that requires only the visual inspection of equipment; repair is not included.

The sale of a preventive maintenance contract is not subject to tax. IA Code 701 -18.25(4). Additional charges for parts (except qualifying replacement parts) furnished in addition to what is covered by a warranty or maintenance contract are taxable. Any labor not covered under the contract is also subject to tax if a taxable service is performed.

16 | IOWA SALES/USE TAX

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Dealer to Manufacturer

No sales tax is charged to the manufacturer for labor or parts.

No sales or use tax is due from the manufacturer or service provider providing parts or labor under the terms of an optional or extended service warranty contract, according to Iowa Code 423.2(4)

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Inflation in 2022: Permanent or Transitory?

DAVID WENTZ, J.D., LUTCF

W

Chief Executive Officer, Tax Favored Benefits, Inc.

hen the pandemic began in March 2020, very few anticipated what would follow: a months-long economic shutdown, a massive work from home initiative, and supply chain issues that would persist for 20 months and counting. While 2020 was historically volatile in market returns, 2021 has brought more stability. However, issues stemming from COVID-19 persist in the market and overall economy. While our economic recovery has been robust in most sectors of the economy, consumer spending, the labor market, credit demand and availability and consumer sentiment have all recovered since March 2020; others are still dealing with issues that stem from the COVID-19 economic shutdown. Inflation and supply chain are central topics heading into 2022 as the economy continues to recover.

Inflation has risen across the board in the United States in 2021. This is no secret, and the question remains — is inflation permanent or transitory?

Most experts agree that inflation will continue to be higher and remain elevated in 2022 as we continue to navigate issues stemming from the pandemic and new virus variants. Over the last few decades, we have seen minimal inflation, which has remained low in most categories for the average working American. In that time frame inflation has been a concern primarily for Americans entering into and actively in retirement.

18 | FEATURE INFLATION

As prices for goods and services have risen across America, consumers have grown more tense on this inflationary period and the Fed has taken notice.

The Fed has acknowledged that inflation is far above their 2% target, but have maintained their view that inflation is transitory in nature at this point in time. In simple terms, that means they view this period of higher inflation as temporary. To understand why, it is important to understand what inflation is and how it is measured. The inflation rate you see on television and in articles like this one is a measure of price changes for a basket of good and services that behave in various ways. Different segments and types of goods and services, such as food, gas, travel, and vehicles, are fluid and much more adaptive to market and economic conditions.

These types of goods and service account for 38% of the inflation measurement. Conversely, goods and services such as medical care and financial services, are less cyclical and typically don’t sway with the economic cycle. This component of the acyclical segments account for 62% of inflation measurement. In breaking down how inflation is measured and calculated, we see that price increases for goods and services from cyclical segments of the economy are much higher than those that operate somewhat independently from the economic cycle. This is an indication to the Fed that the spike in inflation in 2021 is coming from smaller segments, which has historically equated to shortterm inflationary periods.

Another driver of inflation and hot topic in 2021

is the supply chain disruptions faced by many manufacturers and industries across the world. One of the largest examples of supply chain issues is found in the auto industry. As the pandemic raged on, many people quit utilizing public transportation, opting for personal methods of transportation. The quick, and massive, rise in demand for both new and used vehicles caused supply to fall equally as fast. With manufacturing factories shut down across the world, auto-makers were left with little to no solutions. Supply chain issues have impacted other segments like lumber and other materials used in construction as shipping ports deal with pandemic restrictions and worker shortage. Now, we know that supply and demand issues and inefficiencies will correct over time. As improvements to supply shortages and labor markets continue, we should see inflation calm down.

As we continue to deal with these issues, which remain likely to persist in 2022, remember that as inflation continues to be higher than normal, it had remained at historically low levels below 2% post financial crisis. Additionally, over the past 100 years, inflation has predominantly remained below 5%.  Sources: Goldman Sachs Asset Management SAS Market Strategy. Setting the Stage: Market Know-How https://www.capitalgroup.com/advisor/insights/articles/ inflation-transitory-troublesome.html David Wentz is CEO of Tax Favored Benefits, Overland Park, Kansas. Wentz is a graduate of the University of Kansas School of Law with a Juris Doctor degree.

He frequently speaks at various seminars about profit sharing, 401(k) plans and investment programs. No compensation is received. More information is available at taxfavoredbenefits.com.

FEATURE INFLATION | 19

EDUCATION

2022-2023 Andrew Goodman Scholarship Applications Now Open

T

he Iowa-Nebraska Equipment Dealers Association (INEDA) has opened the application period for the 2022-2023 Andrew Goodman Scholarship Fund. The deadline to submit an application is April 15, 2022.

INEDA is pleased to announce the availability of a limited number of Andrew Goodman Scholarships to help train current and potential Iowa and Nebraska equipment dealership employees. INEDA will provide matching scholarships up to $1,500 for the 2022-2023 academic year, which means if a dealer commits $1,500 in funding, INEDA will match the

scholarship with $1,500, for a grand total of $3,000.

The Andrew Goodman Scholarship Program was created to address the shortage of dealership personnel and to attract and nurture homegrown talent. This dealer-driven scholarship program helps dealers financially support and train those aspiring toward management, technical, sales or administrative positions within the dealership.

Since 2008, INEDA has awarded 510 scholarships totaling $740,000 to applicants who are enrolled as full-time students in a dealer-approved higher education curriculum.

The Andrew Goodman

20 | EDUCATION ANDREW GOODMAN SCHOLARSHIP

Scholarship is available to all employees/potential employees of Iowa-Nebraska Equipment Dealers Association (INEDA) member dealerships, subject to the following conditions: • Employees/potential employees must be approved by the dealer principal for training, re-training, or professional advancement.

• The employee/potential employee must be accepted or enrolled in a higher education curriculum approved by the dealer principal as training applicable to the dealership’s needs.

• Scholarship recipients must be enrolled full-time in the

approved course of study.

Both two-and four-year programs are eligible.

• The dealer principal must be willing to provide matching scholarship funds in an amount up to $1,500 (matched by INEDA up to $1,500) and must be a current INEDA member or a member of a regional equipment dealers association in good standing.

• A minimum cumulative 2.0 GPA is required for all new applicants (3.0 GPA for renewal applicants).

The student’s most recent transcripts must be submitted with the scholarship application.

Applying for the scholarship takes less than 20 minutes.

Students can apply online at ineda.com/andrew-goodmanscholarship The following information is required to submit an application:

About the Andrew Goodman Scholarship (INEDA) The Andrew Goodman Scholarship program was created by the Iowa-Nebraska Equipment Dealers Association (INEDA) to address the shortage of dealership personnel and to attract and nurture homegrown talent. This dealerdriven scholarship program helps dealers financially support and train those aspiring toward management, technical, sales or administrative positions within the dealership. INEDA will provide matching scholarships up to $1,500 for the 2022-2023 academic year.

EQUIPMENT DEALER SCHOLARSHIP

APPLICATION DEADLINE

UP TO $1,500

APRIL 15

• Contact information for the dealership • Contact information for the financial aid office at their school • A PDF of their most recent school transcript • Contact information for their hometown newspaper If you or your applicants have any questions about the scholarship program or application process, please contact Will Rogers at 515.669.1648 or willr@ineda.com. 

APPLY ONLINE All applications must be submitted by Friday, April 15, 2022.

Scholarships will be awarded by no later than April 29, 2022 and recipients will be notified immediately thereafter.

or visit our website ineda.com/andrewgoodman-scholarship

EDUCATION ANDREW GOODMAN SCHOLARSHIP | 21

EDUCATION

CAREER EXPLORATION EVENT

I

n December, the IowaNebraska Equipment Dealers Association (INEDA) sponsored a Career Exploration Event for high school students interested in learning about job opportunities in the equipment industry. The event drew over 280 students from nine local area high schools who participated in a tour of the Nebraska Ag Expo and a briefing on the various careers that equipment dealers offer.

As part of the tour, students were joined by Nebraska equipment dealer employees who escorted them through the Nebraska Ag Expo with stops at manufacturer booths including John Deere, Case IH, New Holland, and Bobcat. In addition, students met with representatives from two ag tech companies: SWAT MAPS, a company that offers high-definition zone maps of soil potential, and Agri Spray Drones, a full-service drone sales firm that helps producers and landowners utilize unmanned aerial vehicles.

Following the tour, students also attended a 25 minute program

22 | EDUCATION CAREER EXPLORATION

WILL ROGERS, Director of Government Affairs, [willr@ineda.com]

RIGHT: Over 280 students from Nebraska area high schools attended the Career Exploration Event at the Nebraska Ag Expo.

Photo courtesty of AKRS Equipment.

BELOW: A staff member from Southeast Community College speaks to students about the Diesel-Ag Equipment Service Tech program.

Photo by Nick Lucs. moderated by INEDA President and CEO Mark Hennessey, which featured an overview of career opportunities in the equipment industry, information on the INEDA Andrew Goodman Scholarship program, and information about the Southeast Community College DieselAg Equipment Service Tech program. Students also heard about the benefits of a career in the equipment industry from industry professionals Elliot Grosshans and Mitch Merz.

The Career Exploration Event as a whole focused on four entry level career opportunities: service and repair technicians, parts sales and parts inventory management, new and used equipment sales, and administrative and support positions. Students were provided a roadmap on how an entry level position can lead to senior leadership positions within a dealership.

“The Career Exploration Event was a great opportunity to show students how agriculture plays a huge part in everyone’s life and how technology is impacting the agriculture world today.”

INEDA is following up with students, teachers, and dealers who participated in the event to determine its value and opportunities for enhancement.

INEDA is hosting a similar event at the Iowa Ag Expo on February 1-3, 2022 at the Iowa Events Center in Des Moines, IA. Please contact Will Rogers at willr@ineda.com or 515.669.1648 if you are interested in participating.

Thank you to the tour guides from the following dealerships for your attendance and support of the event: AKRS Equipment, Bobcat of Omaha, KanEquip, LandMark Implement, Mitchell Equipment, and Platte Valley Equipment. 

“Students learned about all of the different technical careers available in agriculture and how they can attend college debt free,” said AKRS Equipment HR Manager Diane Waters.

EDUCATION CAREER EXPLORATION | 23

BELOW: Governor Pete Ricketts spoke at the Nebraska Ag Expo about employment opportunities in Nebraska, specifically in the agriculture industry.

“About one-in-four jobs in Nebraska are tied back to agriculture,” Ricketts said. “That creates a lot of opportunities. In fact, the USDA says that every year we create nearly 60,000 jobs opportunities in agriculture, and agriculture related fields and its resources.”

Photo by Nick Lucs.

24 | EDUCATION CAREER EXPLORATION

EDUCATION CAREER EXPLORATION | 25

MARKETING

CINDY FELDMAN, Marketing Director [cindyf@ineda.com]

Did you know there are 2.5 million skilled trade job openings expected this year and they’re not just in construction? Skills-based career opportunities exist across many industries, and the path to reach them is shorter, more focused, and less expensive than the journey to a four-year degree.

I know it is sometimes hard to think of new ways to say the same old thing about trying to convince or educate someone to get into the trades. That’s where I come in! Read below to learn seven new ways to use as talking points when talking about open positions on social media or even when educating others at a community event. Visit https:// bit.ly/3mhj4ur to find free graphics to promote the skilled trades on your social media channels along with the talking points below.

Why a skills-based career might be a great fit for a young adult you know:

1 2 3 4

Some teens are happiest working with their hands.

Students interested in fields like automotive technology, solar energy, or respiratory therapy don’t want to spend all their time in an office or a lecture hall. Trade schools, on-the-job apprenticeships, and workforce development programs at local community colleges prioritize hands-on teaching, helping students build the skills they will use in their careers and preparing them to enter the workforce.

They can get a head start.

Community colleges, trade schools, and apprenticeships take two years or less to complete. That means they enter the workforce earlier than grads of four-year colleges — and gain experience, develop connections, and move up the career ladder sooner. While college students are amassing debt, tradespeople are earning income.

Skills-based careers offer a good bang for the buck.

Many entry-level jobs in the skilled trades pay upwards of $20 an hour, and the wages go up from there.

Given the high demand for skilled technicians, electricians, plumbers, and the like, it’s not uncommon for skilled tradespeople to open their own business — and earn six figures.

You can’t be what you can’t see.

For many of our teens, the problem isn’t the false stigma of the trades but simply that a lot of kids don’t see a clear path to these great

jobs. All of us — employers, parents, and guidance counselors — can highlight the great opportunities that exist. We rightly celebrate students with great grades or the best student-athletes. We should also celebrate those who can troubleshoot a diesel engine in the fastest time, design the best app, or install fiberoptic wiring in a competition.

5 6 7

The country needs us.

The future can’t build itself. The labor shortage of skilled workers is well-documented throughout the United States. Older generations of skilled tradespeople are entering retirement much faster than they can be replaced.

One statistic indicates that over 50% of skilledtrade workers in the U.S. are 50 years old and older, and nearly 20% are over 60. If we want a strong economy, then we need new talent to get us there.

For women, the future is particularly bright.

Women earn only about 80 cents on the dollar compared with men, even though half the U.S. workforce is female and women account for more than half of all college grads. But in the skilled trades, the story’s different. In construction, for example, women earn about 99% of men’s pay, according to the Bureau of Labor Statistics (BLS).

It’s cool to be a maker!

Being a “maker” is more important now than ever as people shift from passive consumers to become active creators. Fixing things, building things, seeing the physical fruit of your labor can be far more personally fulfilling than the tasks associated with many traditional careers requiring four-year degrees. 

Download free social media graphics to promote the trades on your social media channels! https://bit.ly/3mhj4ur

MARKETING VIEW | 27

EVENTS

MARK YOUR CALENDAR: DISTRICT MEETING & IOWA AG EXPO

T

he Iowa-Nebraska Equipment Dealers Association (INEDA) invites you to attend a district meeting this spring for an evening filled with good food and enjoyable conversations among your fellow dealer members and INEDA staff members. The district meetings, which replaced the Annual Conference last year, are designed to be more accessible for you to attend by offering four meeting locations in both Iowa and Nebraska.

Join us this February and March (locations to be determined) for an evening full of good food and enjoyable conversations. In addition, you’ll learn about current issues facing the industry, review pertinent legislative and industry relations information, and discover how INEDA programs and services can help your business succeed. We hope to see you there!

Mark your calendar for the Iowa Ag Expo on February 1-3 at the Iowa Events Center in Des Moines, IA! 

28 | CALENDAR UPCOMING EVENTS

Iowa District Meetings Exact locations to be determined.

Monday, February 21 • Mason City, IA Tuesday, February 22 • Des Moines, IA Wednesday, February 23 • LeMars, IA Thursday, February 24 • Coralville, IA

Nebraska District Meetings Exact locations to be determined.

Monday, March 21 • Sidney, NE Tuesday, March 22 • Kearney, NE Wednesday, March 23 • York, NE Thursday, March 24 • Norfolk, NE

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CALENDAR UPCOMING EVENTS | 29

Iowa-Nebraska Equipment Dealers Association 8330 NW 54th Ave. Johnston, IA 50131-2841

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