Fall 2008 issue of Horizons

knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

You can download a copy of the toolkit at www.epa.gov/lean/toolkit/leanEnviroToolkit2.pdf.

On the manufacturing floor, environmental wastes do not add value to the customer and many times result in bottlenecks to one-piece flow. In addition, disposal of environmentally hazardous material can be a very costly process. These facts make these processes ripe targets for lean initiatives. The opportunity to improve these processes also can result in significant cost reductions. A lean and environmental pilot project completed in Washington state resulted in reduced energy costs of $99,000 annually, reduced hazardous waste by more than 60,000 pounds, and reduced solid waste by more than 500,000 pounds annually. Mitch Kidwell of the U.S. Environmental Protection Agency says “lean usually helps the environment without really intending to.” Kidwell believes that lean and green are a natural fit. The EPA has developed the “Lean and the Environment Toolkit.” The toolkit assembles practical experience collected by the EPA from a group of partner companies and organizations that have had experience with coordinating lean implementation and environmental management. The focus of the toolkit is to improve both the business performance and the environmental performance of the company and offers practical strategies and tools for integrating environmental considerations in lean initiatives. The toolkit will help you: • See hidden environmental wastes and hazards. Many times, environmental wastes are overlooked during lean initiatives and therefore go unaddressed. Costs including material disposal costs for compliance with environmental regulations and water, chemical and energy usage can be reduced if they become the target of a lean initiative. • Enhance the effectiveness of lean implementation. Coordination of lean and environmental initiatives can lead to improved bottom-line results by eliminating waste and improving usage of raw materials. • Deliver what the customers and the employees want. Consumers want environmentally friendly products. Companies that can deliver these products have a competitive advantage over those that do not. Improving the work environment can result in a positive effect on employee morale and reduce exposure to environmentally unfriendly chemicals or other substances.

Potential Tax Savings for Green and Lean Initiatives

Recently issued IRS regulations have made qualifying for the research and development tax credit more appealing to many companies and industries. The new regulations are taxpayer friendly and reflect a profound change in the position of the IRS and state taxing authorities by dramatically broadening the traditional tax definition of “R&D.” Many lean initiatives can qualify for the R&D tax credit for Federal Income Tax purposes. Re-engineering day-to- day operations such as engineering, production, quality assurance, purchasing and information technology all may include activities that qualify for the R&D Credit. If your lean initiatives focus on improving existing products, processes, techniques, etc., these costs may qualify as research expenses. Beginning in 2007, eligible taxpayers can elect to use the alternative simplified credit as a substitute for the more complex, traditional research credit. The traditional credit required the taxpayer to obtain records for base periods from the 1980s. For those taxpayers that have never taken the credit, the ASC calculation does not require a look back to historical-based periods. In addition, for those taxpayers whose research expenses no longer exceed the base period hurdle, the ASC provides an opportunity for a reduced R&D credit. In summary, the ASC can generate additional tax savings not available under the traditional research credit with a simpler calculation.

Questions? Contact:

Mike Lewis, CPA Partner-in-Charge Manufacturing and Distribution Services Group 314.290.3391 mike.lewis@rubinbrown.com

38 ◆ fall 2008 issue