6-i CHAPTER 6. MARKUPS FOR EQUIPMENT PRICE DETERMINATION

TABLE OF CONTENTS

6.1 INTRODUCTION .............................................................................................................. 6-1

6.2 BASELINE, INCREMENTA L, AND OVERALL MARKU PS ........................................ 6-2

6.2.1 Baseline Markups

................................ ................................ ................................. 6-2

6.2.2 Incremental Markups ........................................................................................... 6-3

6.2.3 Distribution

- Channel Market Shares ................................................................... 6-4

6.2.4 Overall Markups .................................................................................................. 6-4

6.3 BASIC ASSUMPTIONS US ED TO ESTIMATE WHOLE SALER AND

MECHANICAL CONTRACTOR MARKUPS ................................................................. 6-5

6.4 ESTIMATION OF WHOLESALER MARKUPS ............................................................. 6-6

6.5 ESTIMATION OF MECHAN ICAL CONTRACTOR MARK UPS .................................. 6-7

6.6 ESTIMATION OF NATIONAL ACCOUNT MARKUPS ................................................ 6-9

6.7 SALES TAX ....................................................................................................................... 6-9

6.8 OVERALL MARKUPS

................................ ................................ .................................... 6-10

REFERENCES .......................................................................................................................... 6-12

LIST OF TABLES

Tab le 6.2.1 Distribution Channel Market Shares for Baseline and Higher Efficiency

Level Automatic Commercial Ice Makers ........................................................... 6-4 Table 6.4.1 Typical Wholesaler Expenses and Markups ............................................................. 6-7 Table 6.5.1 Typical Mechanical Contractor Expenses and Markups .......................................... 6-8

Table 6.7.1 Combined State and Local Sales Tax Rates ........................................................... 6-10 Table 6.8.1 Baseline Markups by Distribution Channel and Overall Weighted Average Markup, Including the Weighted Average Sales Tax Multipli er ....................... 6-10 Table 6.8.2 Incremental Markups by Distribution Channel and Overall Weighted Average Markup , Including the Weighted Average Sales Tax Multiplier ....................... 6-106-1 CHAPTER 6. MARKUPS FOR EQUIPMENT PRICE DETERMINATION

6.1 INTRODUCTION

One of the most important inputs to the life -cycle cost and payback period analysis and the national impact analysis is the projected installed cost of the automatic commercial ice

makers . Installed cost include s equipment purchase price and installation costs. The U.S. Department of Energy ( DOE ) projects the equipment purchase price by using multipliers called “markups” that are applied to the manufacturer p roduction cost ( MPC ) to estimate the customer purchase price of the equipment. The manufacturer markup, projected as part of the engineering analysis (chapter 5 of the preliminary t echnical support document), converts the MPC into manufacturer selling price ( MSP ). Distribution channel markups are also applied to the MSP based on the distribution channels through which customers currently purchase the equipment.

DOE determined that customers purchase automatic commercial ice mak ers through three major

distribution channels:

Manufacturer  Customer ( National Account Channel )

Manufacturer  Wholesaler  Customer ( Wholesaler Channel )

Manufacturer  Wholesaler  Mechanical Contractor  Customer ( Contractor Channel )

The three distribution channels can also be viewed as a single

- step (national accounts) channel, a two

- step (wholesaler) channel , and a three or more step (contractor) channel . DOE recognizes, based on input received at the Framework public m eeting, that customers frequently rely on third part ies

— dealer s or contractors—for installation and repair work because customers rely on the equipment and cannot be in a situation where their equipment is not operating, 1
though mechanical contractors, specifically, are not commonly used . Thus, DOE has retained the contractor channel as a proxy for the three -step chain. DOE seeks additional data from stakeholders concerning appropriate markups for the third step of the contractor c hannel. (See the TSD Executive Summary.)

In addition to the manufacturer markup and distribution channel markups, sales tax on the equipment is the final markup that determines the customer purchase price of the equipment. Sales tax varies by the state in which the equipment is installed.

DOE calculated an aggregate average markup value for each distribution channel. DOE then weight-averaged the three distribution channel markup values using the market share of

each distribution channel to obtain weighted average distribution channel markups (see section

6.2.3 for market share estimates) . Based on suggestions from stakeholders at the Framework public meeting, DOE us ed the same weighted average distribution channel markup values for all

automati c commercial ice

- making ( ACIM ) equipment classes.

DOE calculated a weighted average sales tax using the population of each state as the corresponding weight. DOE then multiplied the weighted average sales tax by the weighted average distribution channel markups to estimate overall distribution channel markup values for

automatic commercial ice makers

.6-2 This chapter presents DOE’ s methodology for calculat ing the three distribution channel markups , weighted average sales tax , and overall distribution channel markups.

6.2 BASELINE, INCREMENTA L, AND OVERALL MARKUPS

Baseline markups are the markups that convert the MSP of equipment at the baseline efficiency level ( Efficiency Level 1 ) to customer purchase price. Incremental markups are markups that convert the proje cted increase in MSP of equipment at Efficiency Level 2 or higher

to a projected increase in customer purchase price compared to the price of equipment at Efficiency Level 1 . Overall markups include the weighted average values of markups based on

the estim ated market share for each distribution channel and the sales tax.

6.2.1 Baseline Markups

If the baseline equipment is sold through the national account channel , the following equation defines the estimated equipment price:

EQP NATL ACCT BASE = MFG BASE × MU NATL ACCT BASE × ( 1 + ST ) Eq. 6.1

W here:

MFG BASE = MSP of baseline equipment ($/unit ), EQP NATL ACCNT BASE = n ational account price to the customer of baseline equipment ($ /unit),

MU NATL ACCT BASE = national account markup on baseline equipment, and

ST = weighted average sales tax rate.

If the baseline equipment is sold through the wholesaler channel:

EQP WHOLE BASE = MFG BASE × MU WHOLE BASE × ( 1 + ST ) Eq. 6.2

W here:

EQP WHOLE BASE = wholesaler price of baseline equipment ($ /unit ), and

MU WHOLE BASE = wholesaler markup on baseline equipment.

If the baseline equipment is sold to a customer through the contractor channel :

EQP MECH CONT BASE = MFG BASE × MU WHOLE BASE × MU MECH CONT BASE × ( 1 + ST ) Eq. 6.3

W here:

EQP MECH CONT BASE = mechanical contractor price of baseline equipment ($ /unit ), and

MU MECH CONT BASE = mechanical contractor markup on baseline equipment.6-3 6.2.2 Incremental Markups

Incremental markups are cost multipliers that relate increment s in the MSP of equipment at higher efficiency levels to the corresponding increments in customer purchase price. DOE projects the increment in MSP of equipment at higher efficiency levels by subtracting the MSP of equipment at the baseline efficiency level ( MFG BASE ) from the projected MSP of equipment at higher efficiency level s:

MFG INCR = MFG HIGHER EFF LEVEL − MFG BASE Eq. 6.4

W here:

MFG INCR = projected increment in MSP of higher efficiency equipment ($/unit ), and

MFG HIGHER EFF LEVEL = projected MSP of equipment at higher efficiency level ($ /unit).

If the equipment is sold through the national account channel

, DOE projects the increase in equipment price using the following equation:

EQP NATL ACCT INCR = MFG INCR × MU NATL ACCT INCR × ( 1 + ST ) Eq. 6.5

W here:

EQP NATL ACCNT INCR = projected increment in customer purchase price to the n ational account

customer ($ /unit ), and

MU NATL ACCT INCR = national account incremental markup.

If the customer acquires the higher efficiency equipment through the wholesaler or

contractor channels :

EQP WHOLE INCR = MFG INCR × MU WHOLE INCR × ( 1 + ST ) Eq. 6.6

W here:

EQP WHOLE INCR = projected incremental wholesaler price ($ /unit ), and

MU WHOLE INCR = incremental wholesaler markup

.

EQP MECH CONT INCR = MFG INCR × MU WHOLE INCR × MU MECH CONT INCR × ( 1 + ST ) Eq. 6.7

W here:

EQP MECH CONT INCR = projected incremental mechanical contractor price ($ /unit ), and

MU MECH CONT INCR = incremental mechanical c ontractor markup.6-4 6.2.3 Distribution

- Channel Market Shares

Table 6.2.1 provides the estimated market shares for the three distribution channels for

automatic commercial ice makers used for the preliminary analysis

. DOE used these distribution

channel market shares to estimate overall markups. DOE obtained the market shares from U.S. Census Bureau data for the commercial refrigeration equipment sector, of which automatic

commercial ice makers comprise one of the component product lines . Stakehol ders at the

Framework public m eeting indicat ed that the majority of automatic commercial ice makers are purchased through a three-step distribution channel , consistent with the estimates listed in the

table

.

Table 6.2.1 Distribution Channel Market Shares for Baseline and Higher Efficiency Level

Automatic Commercial Ice Makers

National Account Channel Wholesaler

Channel Contractor Channel

Automatic

Commercial Ice Makers, All 6% 32 % 62 %

Source: U.S. Census Bureau, Sector 42: EC0742SXSB01: Wholesale Trade: Subject Series

- Misc Subjects: Sales by Class of Customer for the United States: 2007, data for NAICS code 423740, Refrigeration equipment and supplies merchant wholesalers

. Downloaded March 4, 2011

.

6.2.4 Overall Markups

DOE estimated o verall markup values separately for both baseline and incremental markups by combining the weig ht ed

- average sales tax with the weighted -average distribution channel markups. DOE estimated o verall baseline mark up values using:

EQP CUST BASE = MFG BASE

× ( WT NATL ACCT BASE × MU NATL ACCT BASE + WT WHOLE BASE × MU WHOLE BASE + WT MECH CONT BASE × MU WHOLE BASE × MU MECH CONT BASE )

× ( 1 + ST )

= MFG BASE × MU OVERALL BASE Eq. 6.8

W here:

EQP CUST BASE = customer purchase price for baseline equipment ($ /unit ),

WT NATL ACCNT BASE = estimated market share of baseline equipment sold through national account channel (%),

WT WHOLE BASE = estimated market share of baseline equipment sold through wholesaler channel (%),

WT MECH CONT BASE = estimated market share of baseline equipment sold through contractor channel (%), and

MU OVERALL BASE = estimated overall baseline markup

.6-5 DOE projected o verall incremental markups using:

EQP CUST INCR = MFG INCR

× ( WT NATL ACCT INCR × MU NATL ACCT INCR + WT WHOLE INCR × MU WHOLE INCR + WT MECH CONT INCR × MU WHOLE INCR × MU MECH CONT INCR ) × ( 1 + ST )

= MFG INCR × MU OVERALL INCR Eq. 6.9

W here:

EQP CUST INCR = projected increment in customer purchase price of equipment at a higher efficiency level compared to baseline equipment ($ /unit ),

WT NATL ACCNT INCR = projected market share of higher efficiency level equipment sales through national account channel (%),

WT WHOLE INCR = projected market share of higher efficiency level equipment sales through wholesaler channel (%),

WT MECH CONT INCR = projected market share of higher efficiency level equipment sales through

contractor channel (%) , and

MU OVERALL INCR = overall incremental markup

.

EQP CUST = EQP CUST BASE + EQP CUST INCR Eq. 6.10

DOE used the overall baseline and overall incremental markups to estimate the baseline

customer price ( EQP CUST BASE ) and to project the incremental customer price ( EQP CUST INCR ). For a particular piece of equipment at a higher efficiency level, the projected total price of that equipment to the customer (

EQP CUST ) is the sum of the baseline customer price ( EQP CUST BASE ) and the projected incremental customer price ( EQP CUST INCR ).

6.3 BASIC ASSUMPTIONS US ED TO ESTIMATE WHOLE SALER AND

MECHANICAL CONTRACTOR MARKUPS

DOE based the wholesaler markups on industry balance sheet data and based the

mechanical contractor markups on U.S. Census Bureau data for the plumbing, heating, and air conditioning ( PH AC) industry. 2 DOE obtained the industry balance sh eet data from the Heating,

Air -conditioning & Refrigeration Distributors International (HARDI), the trade association representing wholesalers of refrigeration and heating, ventilating, and air conditioning ( HVAC R) equipment. 3 D OE compiled the U.S. Census Bureau PHAC data following the same format as used for the balance sheet data for wholesalers. These balance sheets itemize the costs incurred by firms that sup ply and install PHAC equipment. DOE estimated the wholesaler and mechanical contractor markups based on three key assumptions about ACIM costs :6-6 1. The balance shee ts accurately represent the various average costs incurred by firms distributing and installing automatic commercial ice mak ers

.

2. The wholesaler and contractor costs can be divided between (a) costs that vary in proportion to the MSP ( variable costs) and (b) costs that do not vary with MSP (fixed costs).

3. Wholesaler and contractor prices vary in proportion to the wholesaler and contractor

costs included in the balance sheets.

The basis for the first assumption is that t he industry balance sheets itemize costs incurred by a firm by a number of cost categories, including direct costs to purchase or install the equipment, o perating labor and occupancy costs, and other operating costs and profit. Although

wholesalers and contractors te nd to handle multiple equipment lines (including refrigerators

, f reezers , b everage dispensers , and other related equipment), the data provide the most credible

available information for ACIM distribution costs

.

The basis for the second assumption is tha t firms must incur some costs regardless of the cost of the goods being sold— costs such as sales, accounting and management staff, office expenses, depreciation, and many other operating costs do not vary with the MSP . For purposes of this analysis, DOE refe rs to these costs as fixed. Other costs, such as uncollectable accounts, bad debts, and profit margins, vary as a function of the total cost of sales, including the cost of goods sold. For purposes of this analysis, DOE refers to these costs as variable.

The basis for the third assumption is that the HVAC R wholesaler and contractor industry is competitive , while customer demand for ACIM equipment is assumed to be inelastic ( i.e. , the demand is not expected to decrease significantly with an increase in price of equipment). The large number of HVACR firms listed in the 2007 economic census indicates the competitive nature of the market. For example, there are more than 700 HVACR manufacturers, 4 1,300 wholesalers of refrigeration equipment, 5 36,000 commercial and institutional building

contractors, 6 and 91,000 HVAC contractors 7 listed in the 2007 census. Following standard economic theory, competitive firms facing inelastic demand either set prices in line with costs or quickly go out of business. 8

6.4 ESTIMATION OF WHOLESALER MARKUPS

Annually, HARDI conducts a confidential survey of its member firms in which wholesalers report median data. For what they describe as a typical distributor, HARDI disaggregates revenues into categories, including direct cost of goods so ld (equipment ( MSP ), materials, fuels, and contracted services ), labor costs , occupancy costs , other operating costs , and profit. Appendix 6A presents the data for a typical HARDI distributor in terms of specific types of expenses within these categories

. Table 6.4.1 summarizes these expenses in units of expenses per dollar of sales revenue and revenue per dollar of goods sold. As shown in the first column of

Table 6.4.1 , the direct cost of equipment sold represent s $0.734 per dollar of sales revenue . I n other words, for every $1.00 the typical wholesaler take s in as sales revenue, it pays $0.734 in direct costs. Labor expenses account for $0.161 per dollar of sales revenue, occupancy expenses account for $0.038, other operating expenses account for $0.054, and profit accounts for $0.013 per dollar sales revenue.6-7 Table 6.4.1 Typical Wholesaler Expenses and Markups

Description Wholesale Firm Expenses or Revenue

Per Dollar

Sales Revenue Per Dollar Cost

of Goods Sold Direct Cost of Equipment Sales: Cost of goods sold $0.7 34 $1.0 0 0

Labor Expenses: Salaries and benefits $0. 161 $0.2 19 Occupancy Expense s : Rent, maintenance, and utilities $0.03 8 $0.05 2 Other Operating Expenses: Depreciation, advertising, and insurance $0.0 5 4 $0.0 7 4

Profit $0.0 1 3 $0.0 18 Baseline Markup ( MU WHOLE BASE ): Revenue per dollar cost of goods sold * 1. 36 2 Incremental Markup ( MU WHOLE INCR ): Increased revenue per dollar increase cost of goods sold * 1. 09 1
Source: Heating, Air

- conditioning & Refrigeration Distributors International. 20 1 0. 20 1 0 Profit Report (200 9 Data)

. * Numbers are rounded and may not add up to the totals.

The last column of Table 6.4.1 shows the data converted from costs per dollar revenue into revenue per dollar cost of goods sold. DOE performed this conversion by dividing each cost category in the first data column of Table 6.4.1 by $0.734 ( i.e. , equipment expenditure per dollar revenue). The data in th is column show that, for every $1.00 the wholesaler spends on equipment costs, the wholesaler earns $1.00 in sales revenue to cover the equipment cost, $0.22 to cover labor costs, $0.05 to cover occupancy expenses, $0.07 for other operating expenses, and $0.02 in profits. This totals to $1.36 in sales revenue earned for every $1.00 spent on equipment costs. Therefore, the wholesale r baseline markup ( MU WHOLE BASE ) is 1.36 ($1.36 ÷ $1.00).

DOE also used the data in the last column of Table 6.4.1 to estimate the incremental markups. The total incremental markup depends on which of the costs in Table 6.4.1 are variable

and which are fixed. For example, for a $1.00 increase in the manufacturer equipment price, if all

of the other costs scale with the MSP ( i.e. , all costs are variable), the increase in wholesaler price
will be $1.36 , implying that the incremental markup is 1 .36 , or the same as the baseline markup.

However , if none of the other costs is variable, then a $1.00 increase in the MSP will lead to a $1.00 increase in the wholesaler price, for an incremental markup of 1.0. DOE assume d that the labor and occupancy costs will be fixed and that the other operating costs and profit will scale

with the MSP ( i.e. , be variable). In this case, for a $1.00 increase in the MSP , the wholesaler price will increase by $1.09. Therefore, the wholesaler incremental markup ( MU WHOLE INCR ) is 1.09 ($1.09 ÷ $1.00). See appendix 6A for additional details and data used for markup calculations.

6.5 ESTIMATION OF MECHANICAL CONTRACTOR MARK UPS

DOE derived markups for mechanica l contractors from U.S. Census Bureau data for

PHAC contractors. This sector includes establishments primarily engaged in installing and servicing PHAC equipment, which may include installations , additions, alterations, maintenance, and repairs. The U.S. Census Bureau data for the PH AC sector include d etailed statistics for establishments with payrolls, similar to the data reported by HARDI for wholesalers. The prim ary difference is that the U.S. Census Bureau reports itemized revenues and expenses for the

PH AC industry as a whole in total dollars, rath er than in typical values for the average or representative business. Because of this, DOE assumed that the total dollar values that the U.S. Census Bureau reported, once converted to percentages, represent revenues and expenses

for the average or typical contracting business. Table 6.5.1 summarizes the typical expenses for

mechanical contractors. The first data column of Table 6.5.1 lists expenses per dollar sales revenue (appendix 6A contains the full set of data). T he direct cost of sales represents about6-8 $0.678 per dollar sales revenue to the mechanical contractor. Labor expenses account for $0.175 per dollar sales revenue, occupancy expenses account for $0.022 per dollar sales revenue, other

op erating expenses account for $0.039, and profit makes up $0.086 per dollar sales revenue.

Table 6.5.1 Typical Mechanical Contractor Expenses and Markups

Description Mechanical Contractor Firm Expenses or Revenue

Per Dollar

Sales Revenue Per Dollar Cost

of Goods Sold Direct Cost of Equipment Sales: Cost of goods sold $0.678 $1.000 Labor Expenses: Salaries (indirect) and benefits $0.175 $0.258 Occupancy Expense: Rent, maintenance, and utilities $0.022 $0.032 Other Operating Expenses: Depreciation, advertising, and insurance $0.039 $0.058

Net Profit Before Taxes $0.086 $0.127 Baseline Markup ( MU MECH CONT BASE ): Revenue per dollar cost of goods sold * 1.475 Incremental Markup ( MU MECH CONT INCR ): Increased revenue per dollar increase cost of goods

sold* 1.184

Source s : U.S. Census Bureau. 2007. Plumbing, Heating, and Air

- Conditioning Contractors. Sector 23: 238220

. Construction: Geographic Area Series: Detailed Statistics for Establishments: 2007; DOE estimates

. * Numbers are round ed and may not add up to the totals.

DOE converted these expenses per dollar sales into revenue per dollar cost of goods sold by dividing each figure in the first data column by $0.678. The data in the last column of Table

6.5.1 show that, for every $1.00 the mechanical contractor spends on equipment costs, the typical mechanical contractor earns $1.00 in sales revenue to cover the equipment cost, $0.26 to cover labor costs, $0.03 to cover occupancy expenses, $0.06 for other operating expenses, and $0.13 in profits. This totals $1.47 in sales revenue ear ned for every $1.00 spent on equipment costs. This results in a mechanical contractor baseline markup ( MU MECH CONT BASE ) of 1. 47 ($1.47÷ $1.00).

DOE was also able to use the data in the last column in Table 6.5.1 to estimate the incremental markups by separat ing the fixed and variable costs. For example , if all of the other costs scale with the equipment price ( i.e. , all costs are variable), the increase in mechanical contractor price will be $1. 47, an incremental markup of 1.47 , or the same as the baseline markup. However , if none of the other costs are variable, then a $1.00 increase in the equipment price will lead to a $1.00 increase in the mechanical contractor price, for an incremental markup

of 1.0. DOE assume d the labor and occupancy costs are fixed and the other operating costs and profit scale with the equipment price ( i.e.

, are variable). In this case, for a $1.00 increase in the equipment pr ice, the typical mechanical contractor price will increase by $1. 18 , giving a

mechanical contractor incremental markup ( MU MECH CONT INCR ) of 1. 18 ($1.18 ÷ $1.00).

Mechanical contractor costs differ in various regions of the country depending on availability of labor, cost of living, and union versus non-union workforce. Because many mechanical contractor costs differ systematically by s tate, DOE characterize d the markups developed from U.S. Census Bureau data with a probability distribution base d on a s tate

- by -s tate analysis of U.S. Census Bureau data for PHAC contractors. The s tate

- by -s tate analysis provided

a distribution on the relative markups of m echanical contractors in the United States

.

Appendix 6A provides the s tate markup data that DOE used to characterize the mechanical contractor baseline and incremental markups. DOE used the state

- level markup data

in combination with state

- level electricity and water prices in the LCC and PBP analyses to6-9 provide additional granularity in th e analysis of whether customers are better or worse off at the efficiency levels analyzed in this rulemaking.

6.6 ESTIMATION OF NATIONAL ACCOUNT MARKUPS

National accounts are generally large accounts— large enough to circumvent the

wholesaler channel and negotiate directly with, and purchase directly from, manufacturers to

achieve significantly lower equipment prices. The manu facturer s, in turn, must cover additional expenses related to the distribution of the equipment , but gain in terms of negotiating a greed

upon sales volumes with each national account

.

To estimate the price savings realized from equipment purchased through the national

account distribution chain, DOE assum ed that the resulting e quipment price increase is one half

of that realized from distribution through the wholesaler channel . In other words, if the price markup resulting from the wholesale r markups is $100, the national account markup is $50.

Because DOE d oes not have data suggesting typical values for the actual national account markup , it chose a value halfway between the MSP and the wholesaler markup

.

For example, using a base line MSP of $1,000 for an automatic commercial ice maker

delivered to a restaurant

, and a baseline wholesaler markup of 1.36, the resulting baseline

customer equipment price for sales through a wholesaler ( without sales taxes ) is $ 1,360 ($ 1,000

× 1.36 ). The dollar value increase due to the above distribution channel markups is $360 ($ 1,360 - $1,000 ). Under the assumption that national account customers realize equipment price increases equal to one half of that through the wholesaler distribution channel, the dollar value of

the estimated equipment price increase under the national account is $ 180. The resulting equipment price is $1,180 ($ 180 + $1,000), which results in a national account baseline markup

of 1.18 ($ 1,180 ÷ $ 1,000 ). Using a value of 1.09 for the wholesaler incremental markup and a

similar calculation results in a total national account incremental markup of 1.046 ($1,046 ÷ $1,000).

6.7 SALES TAX

Sales tax includes state and local sales taxes that are applied to the customer price of

automatic commercial ice makers

. The sales tax is a multiplicative factor that increases the customer equipment price by an amount equal to MSP plus markups multi pli ed by the sales tax

rate. DOE derived sales tax rates from the Sales Tax Clearinghouse

. 9 Table 6.7.1 lists tax rates by state . DOE applied t he state

- level combined tax rate to the estimated value of state

- level

ACIM shipments to obtain the total purchase cost to a customer located in a given state.

S ales tax rates range from zero to 9.4 5 percent , with a mean value of 6.25 percent. DOE applied sales taxe s to the customer equipment price irrespective of the distribution channel or the

state in which the customer is located . For the national impact analysis and other national- level analyses, DOE calculated a weighted

- average, national

- level sales tax rate by multiplying the relative population of each state by the tax rates listed in Table 6.7.1

. The weighted

- average, national- level sales tax rate is 7. 26 percent.6- 10 Table 6.7.1 Combined State and Local Sales Tax Rates

State Sales Tax State Sales Tax State Sales Tax

Alabama 8.25% Kentucky 6.00% North Dakota 5.85%

Alaska 1.40% Louisiana 8.75% Ohio 6.80%

Arizona 8.15% Maine 5.00% Oklahoma 8.20%

Arkansas 8.20% Maryland 6.00% Oregon 0.00%

California 9.20% Massachusetts 6.25% Pennsylvania 6.40%

Colorado 6.40% Michigan 6.00% Rhode Island 7.00%

Connecticut 6.00% Minnesota 7.20% South Carolina 7.15%

Delaware 0.00% Mississippi 7.00% South Dakota 5.50%

Dist. of Col. 6.00% Missouri 7.25% Tennessee 9.45%

Florida 6.65% Montana 0.00% Texas 8.05%

Georgia 6.95% Nebraska 6.00% Utah 6.70%

Hawaii 4.35% Nevada 7.85% Vermont 6.05%

Idaho 6.05% New Hampshire 0.00% Virginia 5.00%

Illinois 8.20% New Jersey 6.95% Washington 8.80%

Indiana 7.00% New Mexico 6.55% West Virginia 6.00%

Iowa 6.85% New York 8.45% Wisconsin 5.45%

Kansas 8.05% North Carolina 7.85% Wyoming 5.35%

Source: The Sale Tax Clearinghouse, www.thestc.com/STrates.stm

.

6.8 OVERALL MARKUPS

Table 6.8.1 presents the baseline markup values for each distribution channel and the overall baseline markup values used for automatic commercial ice makers

. Table 6.8.2 present s the incremental markup values for each distribution channel and the overall incremental markup

values . Note that the markups shown for wholesaler /contractor represent the product of the wholesaler chain and contractor chain markups (i.e., they are the product of two terms shown separately in the equations in section 6.2 ).

Table 6.8.1 Baseline Markups by Distribution Channel and Overall Weighted Average Markup, Including the Weighted Average Sales Tax M ultiplier

Wholesaler Wholesaler /

Contractor National Account (Mfg Direct) Overall Markup

Channel Mult 1.3624 2.0086 1.1812 1.7522

Sales Tax 1.0726 1.0726 1.0726 1.0726 Overall Multiplier 1.4613 2.1544 1.2670 1.8794

Table 6.8.2 Incremental Markups by Distribution Channel and Overall Weighted Average Markup, Including the Weighted Average Sales Tax Multiplier

Wholesaler Wholesaler /

Contractor National Account (Mfg Direct) Overall Markup

Channel Mult 1.0913 1.2925 1.0456 1.2133

Sales Tax 1.0726 1.0726 1.0726 1.0726 Overall Multiplier 1.1705 1.3863 1.1216 1.3014

DOE used the overall markups to estimate the customer price of baseline and higher efficiency equipment

. For example, if the MSP of a baseline self

- contained u nit is $1 ,000, DOE6- 11 obtained the customer purchase price for this baseline equipment by multiplying the MSP by the overall markup value of 1.8794, or $1,879.40. If the incremental MSP of the equipment at a higher efficiency level is $100, then DOE obtained the incremental customer pur chase price of this equipment by multiplying the MSP by the overall incremental markup of 1.3014 to obtain an

incremental customer purchase price of $130.14 . The customer purchase price of this higher efficiency equipment is the sum of the baseline price a nd the increment, or $2,009.52 ($ 1,879.40 + $ 130.14 ).6- 12 REFERENCES

1. U.S. Department o f Energy, Transcripts: Public Meeting on Energy Conservation Standard

Framework Document f or Automatic Commercial Ice -Makers, December 16, 2010, pp. 165–167. Washington, D.C.

< http://www1.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/acim_fra me work_public_meeting_transcript_12_16_2010.pdf >

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2007 . (Last accessed May 28, 2010.)

< http://factfinder.census.gov/servlet/IBQTable?_bm=y&-ds_name=EC0723A1&-

NAICS2007=238220&- _lang=en. >

3. Heating, Airconditioning & Refrig eration Distributors International. 2010 Profit Report (2009 Data) . 2010. Columbus, OH.

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< http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&- ds_name=EC0742I1&- _lang=en >

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