Sales Tax Looms

Last summer we saw a significant reduction in interest rates. We published an article on our website suggesting that many of our clients should consider refinancing to lock in lower interest rates. Many of you actually did make the move to contact your lenders for rate reductions. Others made changes in lenders to save as much as 2% or more from where they were at the time. This was true for long-term mortgage rates and mid-term rates and, on a smaller scale, operating debt. Many of you enlisted our assistance in finding the lending institution that best met your goals and needs at the lowest rates.

There are many good lenders in the market. Some of them are looking out for you and offer lower rates when they are available. Many lenders aren't proactive in offering you those reductions. If you ask, they will be happy to help make the changes. I often operate under the rule, "you don't get what you don't ask for. "

With the recent additional reduction in interest rates, it's time to look at refinancing again, the first time for many of you. Some will say it's not worth the hassles and time to do this. Let me assure you, many of our clients are very happy they did. In the past six months, we have assisted one client reduce rates an average of 2% on over $2,000,000 in debt. That's an initial annual savings of $40,000. Another client saved between 1-1.5% on $1,500,000, saving close to $20,000 per year. Keep in mind, a 1% reduction on $1,000,000 saves $10,000 annually!

I’m guessing most of you wouldn’t leave a $20,000 bill lying on the sidewalk if you spotted one. That’s what you are doing if you don’t look at your present loan situation and ASK for the best rates available today. You may say, Federal Reserve Chairman Bernanke said that rates would stay low for two years--I have plenty of time. Bear in mind, he works for the government. He didn’t make any guarantees and he could be gone tomorrow.

Some will say, I don’t have the time right now. Remember, waiting could cost you a lot of money!? Please allow us to help you. Yes, you will being paying us for this service. However, as I also say, “if every time you give me a dollar, I give you five dollars in return, how many times do you want to do that?” Don’t be penny-wise and pound-foolish. Please give us a call if we can help get you started or help you through the refinancing process. Don’t wait to get started, even in a busy time of year. Start saving now.

One more thought for those who are more forward thinking. If you are in the growth mode and also in good financial shape, what is the likelihood you will be borrowing additional money to purchase a new farm, make improvements, or buy any other real estate in the next year or two? If this describes you, think about and discuss the money-saving potential of borrowing in advance and locking in additional long-term debt. Use that money to reduce the need to draw on your line of credit and/or use it to pay off an equipment loan that is within a year or two of being paid off. The concept is that a year from now when you buy the next major real estate, you will have your financing in place and your rate will be locked-in favorably in advance. Go back and borrow on your line and/or replace your equipment note to get the cash needed to fund the real estate at the time of purchase.

Does anyone think interest rates will continue to be this low 2-3 years from now? If they aren’t, you have locked in a long-term RE note at 1-2% lower than the market. If it doesn’t go up, you aren’t hurt. If it goes down, the banks are close to paying you to take their money. I don’t think that’s going to happen. Give this some thought. Let us know if you want to discuss how this concept can work in your business operation.

Sales Tax Looms

Like most other states in the Union, Indiana is looking for as many ways to increase tax collections as possible. We’ve previously communicated that the Indiana Department of Revenue has been focusing on sales tax on tile ditching. They have gone out to tile companies, looked over their customer lists, and sent out bills to farm customers who had made purchases in the prior three years.

The State is at it again. They are looking at types of equipment unlikely to be sales tax exempt under the code. These would include items like gators, mules, ATVs, etc. While there are circumstances where these items could be exempt, many are not. A question that might be asked is what these items are used for, particularly spraying, which can be exempt.

The IDR has been looking into seed companies that are giving away these types of equipment as rewards for buying their seed. Many times, the seed company is not paying the sales tax upon purchase. If they don’t, the recipient could be held liable for the sales tax after the fact. Your “free reward” may have a cost after all!

Stay tuned. I’m sure there is more sales tax adventure to come.

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