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Why would any laws need to be changed? Companies should and will just start holding higher levels of inventory as a business practice.

JaimeThompson 4y ago
Companies should not spend billions on stock buybacks instead of keeping their factories in running order but the recent baby food issues in the US show that isn't always the case.
- bloodyplonker22 4y ago
  It's not one or the other, they can do both. You think that a company would rather do a stock buyback and NOT keep their factories in running order so their stock will tank right after they buy back their stock at a higher price?
  - vkou 4y ago
    Depends on the vesting schedule of the people doing the buybacks.
tbrownaw 4y ago
This article[1] says that in some states it's included in what you have to pay property tax on. That seems like it would push businesses to keep less than would otherwise be optimal. [1] https://www.boxstorm.com/articles/inventory-tax-explained-for-your-small-business/ https://www.boxstorm.com/articles/inventory-tax-explained-fo...
- nickff 4y ago
  Money used to purchase inventory is also usually taxed as profit, which is a further disincentive.
  - WheatM 4y ago
  - bruce511 4y ago
    Yes, and no. Profit is profit and is taxed. After making a profit companies have the option of what to do with their profit. They can dividend it, use it as capital, or use it to increase working capital (like stock.) Some tax environments tax dividends further, thus making it attractive (or cheaper, depending on you pov) to reinvest the profit in the business. Of course working capital (stock on hand) can also be increased by other means - for example a loan or a capital injection. Lastly, raw stock (pile of chips) is easy to value for stock-taking purposes (usually cost basis.) partially, or in some cases completely, finished goods is trickier. They could be valued at cost, at zero (a half finished controller is worth, what?) Generally companies keep as much as they need, ideally no more. But the right number can be a moving target. We've been erring on the high side for a while now.
  - xadhominemx 4y ago
    It’s not taxed as profit. It’s just a cash (non-expensed) outflow. That’s just a fundamental feature of how modern accounting works.

JaimeThompson 4y ago

Companies should not spend billions on stock buybacks instead of keeping their factories in running order but the recent baby food issues in the US show that isn't always the case.

bloodyplonker22 4y ago
It's not one or the other, they can do both. You think that a company would rather do a stock buyback and NOT keep their factories in running order so their stock will tank right after they buy back their stock at a higher price?
- vkou 4y ago
  Depends on the vesting schedule of the people doing the buybacks.

tbrownaw 4y ago

This article[1] says that in some states it's included in what you have to pay property tax on. That seems like it would push businesses to keep less than would otherwise be optimal. [1] https://www.boxstorm.com/articles/inventory-tax-explained-for-your-small-business/ https://www.boxstorm.com/articles/inventory-tax-explained-fo...

nickff 4y ago
Money used to purchase inventory is also usually taxed as profit, which is a further disincentive.
- WheatM 4y ago
- bruce511 4y ago
  Yes, and no. Profit is profit and is taxed. After making a profit companies have the option of what to do with their profit. They can dividend it, use it as capital, or use it to increase working capital (like stock.) Some tax environments tax dividends further, thus making it attractive (or cheaper, depending on you pov) to reinvest the profit in the business. Of course working capital (stock on hand) can also be increased by other means - for example a loan or a capital injection. Lastly, raw stock (pile of chips) is easy to value for stock-taking purposes (usually cost basis.) partially, or in some cases completely, finished goods is trickier. They could be valued at cost, at zero (a half finished controller is worth, what?) Generally companies keep as much as they need, ideally no more. But the right number can be a moving target. We've been erring on the high side for a while now.
- xadhominemx 4y ago
  It’s not taxed as profit. It’s just a cash (non-expensed) outflow. That’s just a fundamental feature of how modern accounting works.