A business can qualify to receive the ERC if their operations were halted or suspended due to an order by a governmental authority. This might sound like essential businesses are out of luck when it comes to the ERC, but this is not the case. Businesses that were not directly affected by an order to close may still be able to qualify for the ERC if they experienced a supply chain disruption during the COVID-19 pandemic.
Supply Chain Disruptions Eligible for ERC
The COVID-19 pandemic wreaked havoc on supply chains all over the world, causing massive disruptions and delays. Many of these disruptions may make your business eligible for an ERC claim.
One of the most obvious areas your business’s supply chain may have been impacted is at the sourcing point, where the critical goods you require are actually made. If the manufacturer of your critical goods had to suspend operations due to the pandemic, then your supply chain was most likely finished before it even got started.
Next, your supply chain may have been disrupted at the storage point, where goods are stored before being shipped. After storage comes the transfer point, where goods are loaded into cargo containers in preparation of being shipped. Due to regulations around social distancing during the pandemic, many storage and transfer points were understaffed, or even closed, causing massive delays.
After being loaded into storage containers, the goods are shipped either by land or sea. This is the point where many businesses saw their supply chain have issues. Port closures and understaffing, as well as an increase in goods purchased by people stuck at home, caused unprecedented delays.
These are just a few ERC supply chain disruption examples, but any disruption caused by governmental orders at one of the points in the supply chain listed above may make your business eligible to receive the ERC.
Businesses Excluded from the ERC Tax Credit
No businesses are out-right excluded from the ERC program due to the type of industry they are in. As long as a business meets the qualifications to be eligible for the program, they are welcome to make an ERC claim. However, it is important to be aware that certain wages, such as those paid to a majority owner of the business, may not qualify to be included in the ERC.
Qualifying Businesses Impacted By Supply Chain Disruptions
All sorts of businesses rely on the national and global supply chains many of us take for granted, but a few industries were more likely to feel ERC supply chain disruptions than others.
One such industry was automotive dealerships, who were unable to import cars due to delays in shipping. The technology industry was also hit hard, with the manufacturing of microchips being suspended or slowed down due to government orders closing factories. This also affected the retail stores which sell the end products that microchips are an integral component in.
Finally, construction businesses were heavily impacted by supply chain disruptions. Delays in manufacturing and shipping made it extremely difficult for construction companies to obtain the raw materials they needed, such as lumber, bricks, and steel.
How to Determine Eligibility for ERC
Businesses are not eligible for the ERC just because they claim to have been affected by broad, nonspecific supply chain issues. To be eligible for the ERC, the supply chain issues must be directly caused by a governmental order that has closed or suspended the operations of a supplier to the business.
There are three key factors that must be in place for a supply chain disruption to qualify you to claim the ERC. First, a governmental order has to have impacted your supplier’s ability to make deliveries of goods critical to the operation of your business. Second, you must be able to prove that you were unable to purchase these critical goods from an alternate supplier. Finally, you must be able to prove the consequences your business experienced due to your inability to purchase these critical goods.
Contact an ERC Consultant About Supply Chain Disruptions
It is plain to see that the supply chain disruptions are a complicated matter with many moving pieces. It is easy to think your business may qualify to receive the ERC due to supply chain issues, when in fact it does not, and vice-versa. For this reason it is important to utilize the services of a trusted ERC consultant who understands all of the subtleties involved when determining if your business qualifies for the ERC based on supply chain disruptions. If you believe your business is eligible to receive the ERC you should first speak with an ERC consultant to see if you qualify. Trying to navigate the process on your own can lead to mistakes, which in turn could lead to a costly audit.