Case Study: How an Equipment Distributor Cut Taxes with an IC-DISC

Background

A U.S.-based wholesale distributor of industrial equipment and machinery had been exporting heavy-duty manufacturing and construction equipment to customers in Latin America, Europe, and Asia. The company sourced products from U.S. manufacturers and distributed them to international vendors such as local distributors, resellers, even direct buyers, ensuring compliance with export regulations and providing logistical support.

With $20 million in annual export sales, the company was thriving, but its owners were looking for ways to reduce their tax burden and improve cash flow for reinvestment.

Challenge

As an intermediary between U.S. manufacturers and foreign buyers, the distributor operated on thin margins. The owners wanted to legally lower their tax liability while maintaining growth and reinvesting in expanding their global customer base.

Solution: Implementing an IC-DISC

After consulting with an international tax specialist, the company established an Interest Charge Domestic International Sales Corporation (IC-DISC) to take advantage of export tax incentives. Here’s how they structured it:

  1. Commission-Based Model – The IC-DISC was set up to receive a commission on the company’s qualified export sales. The distributor paid the IC-DISC a commission, which was deductible as an expense on its corporate tax return.
  2. Lower Tax Rates – The IC-DISC, a tax-exempt entity, distributed its profits to the owners as qualified dividends, taxed at a lower rate than ordinary business income.
  3. Annual Tax Savings – By implementing the IC-DISC, the company was able to shift a portion of its taxable income to a lower tax bracket.

Results

  • Annual tax savings of $105,600, significantly reducing the company’s overall tax burden.
  • Increased reinvestment in marketing, logistics, and expanding international sales operations.
  • Improved cash flow, allowing the company to negotiate better terms with suppliers and offer competitive pricing to international buyers.
  • Stronger global presence, as tax savings were used to establish new distribution partnerships in emerging markets.

Conclusion

For U.S. wholesale distributors of industrial equipment and machinery, an IC-DISC provides a powerful tax savings strategy. By leveraging this export incentive, businesses can improve cash flow, reinvest in expansion, and stay competitive in global markets—all while maintaining full compliance with U.S. tax laws.

Could Your Industrial Equipment Distribution Business Benefit from an IC-DISC?

If your company exports U.S.-made products, an IC-DISC may provide significant tax advantages. Contact us at Transglobal Tax Solutions to explore how this strategy could work for your business.