Excess inventory, a massive problem for many businesses, has several causes, some of which are unavoidable. Overstocks may accumulate through production overruns or errors. Certain styles and colors prove unpopular. With some products - computers and software, toys, and books - last year's models are difficult to move even at huge discounts. Occasionally the competition introduces a better product. But in many cases the public's buying tastes simply change, leaving a manufacturer or distributor with thousands (or millions) of items that the fickle public no longer wants.
One common way to dispose of this merchandise is to sell it to a liquidator, who buys as cheaply as possible and then resells the merchandise through catalogs, discount stores, and other outlets. However, liquidators may pay less for the merchandise than it cost to make it. Another way to dispose of excess inventory is to dump it. The corporation takes a straight cost write-off on its taxes and hauls the merchandise to a landfill. Although it is hard to believe, there is a sort of convoluted logic to this approach. It is perfectly legal, requires little time or preparation on the company's part, and solves the problem quickly. The drawback is the remote possibility of getting caught by the news media. Dumping perfectly useful products can turn into a public relations nightmare. Children living in poverty are freezing and XYZ Company has just sent 500 new snowsuits to the local dump. Parents of young children are barely getting by and QRS Company dumps 1,000 cases of disposable diapers because they have slight imperfections.
The managers of these companies are not deliberately wasteful; they are simply unaware of all their alternatives. In 1976 the Internal Revenue Service provided a tangible incentive for businesses to contribute their products to charity. The new tax law allowed corporations to deduct the cost of the product donated plus half the difference between cost and fair market selling price, with the proviso that deductions cannot exceed twice cost. Thus, the federal government sanctions - indeed, encourages - an above-cost federal tax deduction for companies that donate inventory to charity.
One common way to dispose of this merchandise is to sell it to a liquidator, who buys as cheaply as possible and then resells the merchandise through catalogs, discount stores, and other outlets. However, liquidators may pay less for the merchandise than it cost to make it. Another way to dispose of excess inventory is to dump it. The corporation takes a straight cost write-off on its taxes and hauls the merchandise to a landfill. Although it is hard to believe, there is a sort of convoluted logic to this approach. It is perfectly legal, requires little time or preparation on the company's part, and solves the problem quickly. The drawback is the remote possibility of getting caught by the news media. Dumping perfectly useful products can turn into a public relations nightmare. Children living in poverty are freezing and XYZ Company has just sent 500 new snowsuits to the local dump. Parents of young children are barely getting by and QRS Company dumps 1,000 cases of disposable diapers because they have slight imperfections.
The managers of these companies are not deliberately wasteful; they are simply unaware of all their alternatives. In 1976 the Internal Revenue Service provided a tangible incentive for businesses to contribute their products to charity. The new tax law allowed corporations to deduct the cost of the product donated plus half the difference between cost and fair market selling price, with the proviso that deductions cannot exceed twice cost. Thus, the federal government sanctions - indeed, encourages - an above-cost federal tax deduction for companies that donate inventory to charity.