MINNEAPOLIS, Feb. 11, 2015 /PRNewswire/ -- Appliance Recycling
Centers of America, Inc. ("ARCA" or the "Company") reported that it
has applied for and, as of February 9,
2015, received approval from the California Board of Equalization ("BOE") to
participate in the BOE's Managed Audit Program, which allows ARCA
to conduct a self-examination related to state sales and use taxes.
As the Company communicated previously, the BOE had notified the
Company of its intent to conduct an examination of sales and use
taxes covering ARCA's appliance replacement sales in California during 2011-2013. During the
fourth quarter of 2014, the Company received communication from the
BOE indicating that they were not in agreement with the Company's
interpretation of the sales tax law in the State of
California. The Company then contacted its utility company
clients requesting evidence of tax exemption. The utility
companies did not respond to the Company's requests. On
February 6, 2015, the Company's Board
Chairman and its Chief Executive Officer met with representatives
of the utility company for which the majority of the sales taxes
relate. The utility company representatives stated that to
their knowledge they had no evidence of tax exemption to provide
the Company. They said that they would, however, research
whether funding for any of the appliance replacements came from
federal sources, which could potentially help support partial tax
exemption. ARCA's participation in the BOE's Managed Audit Program
could result in the elimination of potential tax penalties while
significantly reducing interest costs associated with any tax
assessment. The Managed Audit will cover the period from
January 1, 2011 through September 30, 2014, and is expected to be
completed by March 31, 2015.
Through appliance replacement programs, certain utility
companies provide qualified, low-income households with new ENERGY
STAR® major household appliances and permanently remove
the residents' old, energy-inefficient models from service. These
programs, which are funded primarily by utility ratepayers, are
designed to provide societal benefits by reducing participants'
energy and water bills while conserving natural resources.
Operating as a service provider that distributed appliances to
utilities for appliance replacement, the Company believed it was
exempt from collecting sales tax for the programs, and as such, did
not collect sales taxes for the periods under examination.
ARCA provided a comprehensive range of appliance replacement
support services to program sponsors during the period under
examination, including:
- Procuring energy efficient appliance models that meet the
sponsoring utilities' specifications;
- Scheduling appliance delivery and installation for qualified
participants;
- Inspecting residences for appropriate electrical connections
prior to appliance delivery;
- Overseeing the delivery and installation of new ENERGY
STAR® appliances;
- Recycling old appliances in compliance with federal, state and
local regulations to permanently remove them from the electrical
grid and/or water supply; and
- Providing extensive data and customized reports to utility
management for evaluating cost-effectiveness and other program
benefits.
One utility-sponsored appliance replacement program for which
the Company provided services during the examination period was
funded by a ratepayer surcharge, which was subject to state sales
tax, on ratepayers' utility bills. The utility remitted these taxed
surcharge funds to the California BOE after collection.
Consequently, any assessment of sales taxes on appliances delivered
to participants in the low-income appliance replacement program
results in a second round of taxation on California utility ratepayers. Collecting
sales tax on the ENERGY STAR® appliances would have also
reduced the number of participants who could have been served
through the program. Funded through California's Gas Consumption Surcharge Fund,
this fund was established to provide certain low-income assistance
programs, cost-effective energy efficiency and conservation
activities, and public interest research and development through a
surcharge on all natural gas consumed in the state.
The Company believes that the outcome from the Managed Audit
Program will likely result in a Notice of Determination from the
California BOE of an assessment of at least $4.0 million ($2.6
million net of income taxes), covering the entire period
under audit. The Company has been working with outside consultants
to arrive at our assessment estimate and will continue to engage
the services of these sales tax experts throughout the Managed
Audit Program process. Such assessment, however, would be
subject to protest and appeal, and would not need to be funded
until the matter has been fully resolved. Resolution could take up
to three years. The Company anticipates that a pre-tax charge to
earnings will be required and that previously issued unaudited
consolidated financial statement for the fiscal quarters ended
March 29, June
28 and September 27, 2014 and
consolidated financial statements for the years ended December 28, 2013, December 29, 2012 and December 31, 2011 and the quarters in the years
then ended will need to be restated. Such previously issued
consolidated financial statements should no longer be relied
upon
In addition to the right to protest and appeal any assessment,
the Company is working with consultants and legislators to put
forth Assembly Bill No. 88 in the California State Legislature
2015-2016 regular session to exempt from sales and use taxes the
gross receipts from the sale of, and storage, use or other
consumption in the State of
California of, energy or water efficient home appliances
purchased by public utilities that are provided at no cost to
low-income participants in federal, state or ratepayer-funded
energy efficiency programs for those participants' use.
Due to uncertainties estimating the merits of the case under a
tax appeal, possible recovery from customers through their funding
sources and the impact of pending legislation to exempt energy
efficient appliances provided to low-income households from sales
and use tax, the Company is unable to anticipate or estimate any
amounts that may be recoverable or that could reduce the amount of
liability the Company may be assessed related to this sales tax
matter. Any reduction to the BOE's tax assessment will be
reflected in income in future periods when realized.
About ARCA
ARCA's three business components are uniquely positioned in
the industry to work together to provide a full array of
appliance-related services. ARCA Advanced Processing, LLC employs
advanced technology to refine traditional appliance recycling
techniques to achieve optimal revenue-generating and environmental
benefits. ARCA is also the exclusive North American distributor for
UNTHA Recycling Technology (URT), one of the world's leading
manufacturers of technologically advanced refrigerator recycling
systems and recycling facilities for electrical household
appliances and electronic scrap. ARCA's regional centers process
appliances at end of life to remove environmentally damaging
substances and produce material byproducts for recycling for
utilities in the U.S. and Canada.
Eighteen company-owned stores under the name ApplianceSmart,
Inc.® sell new appliances directly to consumers and
provide affordable ENERGY STAR® options for energy
efficiency appliance replacement programs.
This press release contains statements that are
forward-looking statements as defined within the Private Securities
Litigation Reform Act of 1995, including statements regarding
ARCA's future success. These forward-looking statements are subject
to risks and uncertainties that could cause actual results to
differ materially from the statements made, including the risks
associated with general economic conditions, competition in the
retail and recycling industries and regulatory risks. Other factors
that could cause operating and financial results to differ are
described in ARCA's periodic reports filed with the Securities and
Exchange Commission. Other risks may be detailed from time to time
in reports to be filed with the SEC.
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SOURCE Appliance Recycling Centers of America, Inc.