A monthly publication by and for members of
The Silver Users Association

This Month?s Newsletter is Sponsored by: And Special Thanks to Mitsui & Company and Ames Goldsmith for their sponsorship of the SUA Fall Meeting.

MARKET WATCH Month High Low Average September 6.92 6.13 6.40 August 6.67 6.52 6.69 July 6.71 5.94 6.37 June 6.17 5.63 5.85 May 6.19 5.51 5.85 April 8.21 5.82 7.06 March 7.94 6.71 7.29 February 7.94 6.04 6.47 January 6.63 6.20 6.36 back to top LANDMARK BUSINESS TAX RELIEF BILL ON THE WAY TO THE WHITE HOUSE The Senate voted 69 to 17 to approve the conference report to the American Jobs Creation Act of 2004 (H.R. 4520), clearing the way for enactment of this landmark tax relief package. President Bush has said he will sign the measure, which repeals current law export tax provisions ruled illegal by the World Trade Organization and provides some $138 billion of tax relief over 10 years to U.S. businesses, including a $77 billion tax break over 10 years for U.S. manufacturers. (see further details below). Upon enactment, this legislation will provide the most significant tax relief for American businesses in more than a decade. In a rare Sunday session, the Senate approved, 66 to14, a motion to invoke cloture and end debate on the measure. After the cloture vote, Sen. Mary Landrieu (D-LA) threatened to hold up a vote on final passage of the conference report unless Senate leaders agreed to address the Ready Reserve-National Guard employee credit. Similarly, Sen. Harkin threatened to hold up final passage because of his concern about several issues, including the lack of FDA regulation in the tobacco buyout provision and the lack of a provision blocking the overtime regs in the conference report. Senate leaders, late last night, reached an agreement that allowed the Senators to raise these issues before the final vote on H.R. 4520.Both Harkin and Landrieu voted for final passage. Enactment of H.R. 4520, which repeals the extraterritorial income (ETI) regime ruled illegal by the WTO, will help lift punitive tariffs imposed by the European Union on more than 1,600 U.S. exports since March 2004. The tax relief for U.S. manufacturers and other business taxpayers included in the package will help ensure that our current economic recovery continues. The revenue-neutral measure includes some $138 billion of tax relief over ten years, offset by repeal of the export tax provisions and a number of revenue raisers. Once the bill is signed into law, the European Commission will need to submit a proposal to the European Council of Ministers to lift the sanctions. The NAM ?s expectation is that the European Union (EU) will act responsibly to lift the tariffs upon enactment of the American Jobs Creation Act of 2004. In addition to repealing the FSC/ETI programs, Congress substituted different tax relief. The principal relief is a new deduction for United States "production activities." This was a great win for MJSA as we supported this provision. The relief constitutes slightly more than half ($76 billion) of the bill's total tax relief ($136 billion). There are quite a few other provisions in the bill. Our intent is to highlight only the most significant ones. There is a lot of fine print to read as the bill language runs over 600 pages. Also, we expect we will learn about "nuances" during the implementation of the new deduction. Taxable Income Deduction from U.S. ?Production? Activities The law provides the equivalent of a tax rate cut of three percent (when fully implemented) for taxpayers engaged in United States based production. While there are several significant aspects, three are most notable. First, the provision achieves the tax cut not by lowering the tax rate but by reducing the amount of taxable income with a new deduction. (This also means a taxpayer receives the benefit regardless of what rate bracket applies to the taxpayer.) Second, the deduction is not limited to ?traditional? manufacturers. Third, the deduction is available to taxpayers regardless of how the business is organized for tax purposes. Under present law, there is no provision in the Code that permits taxpayers to claim a deduction from taxable income attributable to domestic production activities, other than allowable deductions of costs incurred to produce such income. The new law provides a deduction from taxable income (or, in the case of an individual, adjusted gross income) for a portion of the taxpayer?s qualified production activities income (QPAI). For taxable years beginning in 2005 and 2006, the deduction is three percent of income and, for taxable years beginning in 2007, 2008, and 2009, the deduction is six percent of income. For taxable years beginning after 2009, the deduction is nine percent of such income. However, the deduction for a taxable year is limited to 50 percent of the wages paid by the taxpayer during the calendar year that ends in such taxable year. Qualified Production Activities Income A key definition is what constitutes qualified production activities. While the debate on the relief centered on manufacturing, the definition is more inclusive than just manufacturing. Among other items, agricultural and horticultural activity, construction, architectural, and engineering services are qualified activities. The first step is to determine ?qualified production activities income.? QPAI is equal to domestic production gross receipts, reduced by the sum of: the costs of goods sold that are allocable to such receipts; other deductions, expenses, or losses that are directly allocable to such receipts; and a proper share of other deductions, expenses, and losses that are not directly allocable to such receipts or another class of income. The next step is to determine ?Domestic production gross receipts.? These generally are gross receipts of a taxpayer that are derived from: any sale, exchange, or other disposition, or any lease, rental, or license, of qualifying production property that was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States. ?Qualifying production property? generally includes any tangible personal property, computer software, or sound recordings. Domestic product gross receipts also includes: any sale, exchange, or other disposition, or any lease, rental, or license, of qualified film produced by the taxpayer; (2) any sale, exchange, or other disposition of electricity, natural gas, or potable water produced by the taxpayer; construction activities performed in the United States; or engineering or architectural services performed in the United States for construction projects located in the United States. Other Rules With respect to domestic production activities of an S corporation, partnership, estate, trust or other pass through entity, the deduction under the law generally is determined at the shareholder, partner, or similar level by taking into account at such level the proportionate share of qualified production activities income of the entity. The Deduction and the Alternative Minimum Tax Under the alternative minimum tax (AMT) structure certain deductions, credits, allowances, and so forth, taken from regular taxable income are added back into the calculation of taxable income. The new law provides that whether one calculates tax liability based on the regular structure or the AMT, this new production activity deduction is allowed. Direct Expensing Present law provides that, in lieu of depreciation, a taxpayer with a sufficiently small amount of annual investment may elect to deduct such costs. For taxable years beginning in 2003 through 2005, the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003 increased to $100,000 (up from $25,000) the amount a taxpayer may deduct of the cost of qualifying property placed in service for the taxable year. In general, qualifying property is defined as depreciable tangible personal property (and certain computer software) that is purchased for use in the active conduct of a trade or business. The $100,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $400,000 (increased from $200,000. The $100,000 and $400,000 deduction limits are indexed for inflation. The increased expensing allowance and the investment ceiling both revert back to their original levels in 2006. The provision extends the increased amount that a taxpayer may deduct, and other changes that were made by JGTRRA, for an additional two years. Thus, the provision provides that the maximum dollar amount that may be deducted under section 179 is $100,000 for property placed in service in taxable years beginning before 2008. S Corporation changes Under present law, a small business corporation may elect to be an S corporation with the consent of all its shareholders, and may terminate its election with the consent of shareholders holding more than 50 percent of the stock. A "small business corporation" is defined as a domestic corporation which is not an ineligible corporation and which has (1) no more than 75 shareholders, all of whom are individuals (and certain trusts, estates, charities, and qualified retirement plans) who are citizens or residents of the United States, and (2) only one class of stock. For purposes of the 75-shareholder limitation, a husband and wife are treated as one shareholder. The new law provides that all family members can elect to be treated as one shareholder for purposes of determining the number of shareholders in the corporation. A family is defined as the lineal descendants of a common ancestor (and their spouses). The common ancestor cannot be more than six generations removed from the youngest generation of shareholder at the time the S Corporation election is made or the effective date of the law, if later. The law increases the maximum number of eligible shareholders from 75 to 100. Industrial Development Bonds Qualified small-issue bonds are tax-exempt state and local government bonds used to finance private business manufacturing facilities or the acquisition of land and equipment by certain farmers. In both instances, these bonds are subject to limits on the amount of financing that may be provided, both for a single borrowing and in the aggregate. In general, no more than $1 million of small-issue bond financing may be outstanding at any time for property of a business (including related parties) located in the same municipality or county. Generally, this $1 million limit may be increased to $10 million if all other capital expenditures of the business in the same municipality or county are counted toward the limit over a six-year period that begins three years before the issue date of the bonds and ends three years after such date. Outstanding aggregate borrowing is limited to $40 million per borrower (including related parties) regardless of where the property is located. The new law increases from $10 million to $20 million the maximum allowable amount of total capital expenditures by an eligible business or a related party in the same municipality or county during the six-year measurement period. As under present law, no more than $10 million of bond financing may be outstanding at any time for property of an eligible business (including related parties) located in the same municipality or county. Other present-law limits (e.g., the $40 million per borrower limit) continue to apply. However, the provision is effective only for bonds issued after September 30, 2009. back to top MARKETS FOR SILVER IN FOOD PROCESSING EXPECTED TO GROW In a world where there is increasing concern over the safety of food and how it is processed, packaged and stored, silver-based biocides are being evaluated for many different purposes. Sales of silver for such purposes are still small, less than 10,000 ounces world wide, and mostly in Japan and in Europe, but major growth is expected. Silver, because of its antibacterial qualities, offers greater hygiene, control of odor, and prevention of discoloration and structural damage in processing areas. Use of silver-based biocides also offers reduced downtime because there is less need to take processing equipment offline for cleaning. Additional uses are in specialty packaging, occupational clothing worn by food processing workers, prevention of pathogen build-up in climate control systems, and on floors, walls and ceilings of food processing and storage facilities. Hygiene needs are greatest for meat and poultry processing because of the danger of potentially deadly microbes such as Salmonella and Listeria. Dairy and bakery products can also be a large potential market for control of pathogens in processing areas. Ice making and beverage preparation also make use of silver biocide coated parts in processing machinery. So far, there has not been any use or need for the processing and packaging of fresh fruits and vegetables as the pathogen danger is lower. Silver-based biocides in packaging can also help keep the foods inside fresh for longer periods of time, but are generally too expensive to be used on throw-away items. For cost-effective adoption, a minimum of a 1,000 fold decrease in pathogen count is necessary and often a 100,000 fold decrease is necessary to really excite food processors. Lower loadings are acceptable against gram positive and gram negative bacteria than are needed for control of usually less prevalent and less dangerous molds and fungi. Meat and poultry processors are taking increasingly more steps to minimize any possible build up of particularly virulent pathogens such as E. Coli H157:O7 and Listeria. Current steps include welding of metals and other components of machinery so that no biofilms suitable for supporting pathogens can form in small or narrow spaces. Stainless steel surfaces, especially for meat and poultry, are widely used and have traditionally not had problems. Meat and poultry processors also use other well established processes such as washing and bleaching, high-energy irradiation, and organic antimicrobial treated parts and surfaces. The American Meat and Poultry Institute (AMPI) has published a pamphlet on principles of sanitary design for meat and poultry processing plants. The AMPI is aware of the possible beneficial effects of silver for meat and poultry processing and packaging, and the Silver Institute is in the process of contacting the AMPI in order to develop further potential uses of silver-based biocides. Different government and non-government entities are involved in keeping foods safe. In the United States, for example, the FDA oversees food contact applications, and the EPA oversees non-food contact surfaces such as walls, floors, ceilings, and climate control ducting. The National Sanitation Foundation of Ann Arbor, Michigan, a nongovernment organization, sets industry standards often codified by government regulators worldwide for silver coated contacting parts in ice and potable water processing machinery. The US Department of Agriculture only rarely gets called in for meat and poultry inspections. Use of biocides in food processing in the U.S. is likely to undergo more detailed scrutiny by the FDA. The agency is starting to look more carefully at health effects of both one-time and cumulative biocide intake resulting from the use of these chemicals. It must be remembered that although food and beverages can come into contact with biocide treated surfaces, these biocides must not become food or beverage ingredients. Consequently, it must be demonstrated that all biocides remain bound to the surface and do not leach into the food. Most food processors in North America are just beginning to be acquainted with products containing silver-based biocides. Experience in Japan and Europe indicates that adoption and success is likely. back to top JAMES CROPPER GOES FOR SILVER-COATED PAPER British papermaker James Cropper Plc has introduced a line of silver-based paper products known as Docugard using coating technology from UK-based BioCote. ?In today?s environment, there is an increased awareness and concern about the problems caused by cross-contamination of bacteria on contact surfaces in the workplace, not least in the healthcare sector and also in the food and catering industries. Building on our technical expertise in producing high purity papers and grades for specialist industrial uses, it was a natural progression to enter into an exclusive agreement with BioCote to encapsulate the anti-microbial system into papers and boards destined for use in such high risk environments,? company officials said in a prepared statement. They noted that in initial production trials of Docugard the paper had excellent anti-bacterial properties and fought the growth of staphylococcus, Listeria, E-coli and salmonella. The company says that early applications will be in protecting hospital case notes and medical files against the proliferation of bacteria, but future applications will include business stationery, envelopes, brochures, book-binding materials and other products. back to top SILVER COULD REPLACE TOXIC CHEMICALS IN WOOD PRESERVATIVES AND MARINE PAINTS - OVER 100 MILLION OUNCES OF SILVER WOULD BE CONSUMED Over 100 million ounces annually of silver could be used in biocides for the wood preservation industry and for marine antifouling coatings if further testing shows them to be technically and financially superior to current chemical-based biocides that are falling out of favor - some are being banned - because of their toxicity. The recent banning of tributyl-tin compounds in coatings for marine vessels, and the prospective banning of chromated copper arsenate for preserved wood products, opens up huge potential markets for silver-based substitutes which are not harmful to people and animals. This potential market is 20 times larger than current markets for silver based biocides - mainly for water purification - estimated at 6 million ounces (See Feb/March 2001 Silver News). Although for many years manufacturers of preserved wood products - such as railroad ties, utility poles, decking, benches and playground equipment - have been able to use copper arsenate in conjunction with other chemicals as a preservative, recent legislative initiatives may put an end to this practice. Recent studies by the University of Miami show that arsenic tends to accumulate in the soil under these structures and can be harmful to people. Children with bare feet are particularly susceptible to absorbing levels of arsenic that could cause cancer. There is also concern that the arsenic could enter aquifers from which drinking water is supplied. In addition, retired railroad ties and utility poles containing arsenic compounds present another problem; they can not be recycled or safely incinerated. Florida has already placed a moratorium on the purchase of arsenic-containing wood products for state parks and marinas, and the legislature is considering a ban on all purchases by consumers. California, Minnesota and several European countries are also considering similar bans. If silver were to replace the arsenic in these wood products, about 80 million ounces would be consumed in the United States, based on 1997 production figures. An additional 50 million ounces would be consumed in other countries. If other preservatives such as creosote were to be banned - several European countries are considering such a ban - even more silver would be consumed. In the area of marine antifouling paints - which prevent the growth of marine organisms on a marine structure or ship - a United Nations agency ban on using tributyl-tin compounds in marine coatings will take effect in January pending ratification by 25 countries representing 25 percent of the world's merchant shipping tonnage. Although the International Maritime Organization does not have jurisdiction over navy and coast guard vessels, many countries, including the United States, are expected to comply with the restrictions for their vessels. The tributyl-tin compounds are being banned because they injure marine life. Alternatives are being evaluated, including those based on copper, zinc and organic compounds. Any substitute must not harm marine animals or plants and must last for at least five years. Also, they must be compatible with resins used in coatings on vessels. Silver appears to fulfill all the requirements for a marine paint biocide. Overall sales of biocides for marine antifouling products are estimated to be $50 million annually with the average cost of the coating to be $44 per gallon. If silver were to replace tin completely, about 30 million ounces of silver would be consumed in these paints alone. Research programs to test the technical and economic feasibility of using silver in wood preservation should be undertaken. If silver can be shown to take the place of arsenic and other toxic, chemical-based wood preservatives, it could rival photographic uses in the amount of silver consumed annually, over 200 million ounces. If silver were to be used in marine antifouling paints, even greater consumption would be realized. back to top EU TO LIFT SANCTIONS ON U.S. EXPORTS EU Trade Commissioner Pascal Lamy announced that the EU Commission will recommend lifting current sanctions on some 1,600 exports now that President Bush has signed into law, the American Jobs Creation Act. In addition to providing some $138 billion in tax relief for American businesses, the new tax law repeals a U.S. export tax provision ruled illegal by the World Trade Organization. Under the WTO ruling, the EU was authorized to impose tariffs on U.S. exports of up to $4 billion a year. The EU began imposing a 5 percent tariff on some 1,600 exports beginning in March 2004. The tariffs increased by one percentage point a month and now stand at 12 percent. According to a EU press release, the EU Commission will recommend that the European Council of Ministers lift the sanctions effective January 1, 2005. In his statement, Lamy did raise potential issues with the two-year transition period and a grandfather provision in the bill that extends ETI benefits for exporters who entered into binding contracts before September 17.2003. Lamy said that the Commission will go to the WTO dispute settlement system regarding the WTO compliance of the new legislation. back to top MONEY LAUNDERING LAW TO BE EXTENDED Tiffany & Company, American International Group Inc. and other jewelry and insurance businesses will be the next group of companies required to train staff and check transactions with clients to catch money launderers. The U.S. Treasury?s Financial Crimes Enforcement Network plans to issue rules shortly to extend the 2001 USA Patriot Act?s anti-money laundering and terrorist financing rules, which were first applied to banks, credit unions, casinos, securities broker-dealers and mutual funds. President Bush signed the law 45 days after September 11, 2001, attacks. Jewelry retailers and insurers are concerned they will have additional expenses from studying transactions with a low risk of money laundering. Enforcement officials want to prevent terrorists from using other cash-intensive businesses as alternatives after banks and casinos implemented the law. Jewelers and insurers were among the industries Congress identified as most susceptible to money laundering. The agency focused on implementing the law?s rules to banks and casinos first and needed additional time ?defining the scope of these industries we?ve never regulated before? according to William Langford, associate director for regulatory policy at the network. Companies will have to train workers to recognize suspicious transactions, appoint compliance officers to run the programs and conduct independent tests to monitor the effectiveness of anti-laundering programs. The goal is to identify money launderers or terrorists when they first try to make their money look legitimate. back to top About SUA The Silver Users Association is a non-profit organization that was established in 1947 to represent the interests of companies that make, sell and distribute products and services in which silver is an essential component. The Washington Report is a member service of the Silver Users Association. If you want to be removed from this mailing list, please reply to this e-mail and include "unsubscribe" in the subject line plus your name and company.