6-i 

CHAPTER 6. MARKUPS FOR EQUIPMENT PRICE DETERMINATION

TABLE OF CONTENTS

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

6.2 BASELINE, INCREMENTAL, AND OVERALL MARKUPS ........................................ 6-1

6.2.1 Baseline Markups................................................................................................. 6-2

6.2.2 Incremental Markups ........................................................................................... 6-2

6.2.3 Distribution Channel Market Shares .................................................................... 6-3

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

6.3 BASIC ASSUMPTIONS USED TO ESTIMATE WHOLESALER AND 

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

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

6.5 ESTIMATION OF MECHANICAL CONTRACTOR MARKUPS .................................. 6-7

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

6.7 SALES TAX ..................................................................................................................... 6-10

6.8 OVERALL MARKUPS.................................................................................................... 6-11

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

LIST OF TABLES

Table 6.2.1 Distribution Channels Market Shares for Commercial Refrigeration 

Equipment ............................................................................................................ 6-4

Table 6.4.1 Wholesaler Expenses and Markups* ........................................................................ 6-7

Table 6.5.1 Mechanical Contractor Expenses and Markups*...................................................... 6-8

Table 6.7.1 State 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 Multiplier ....................... 6-11

Table 6.8.2 Incremental Markups by Distribution Channel and Overall Weighted Average 

Markup, Including the Weighted Average Sales Tax Multiplier ....................... 6-11

LIST OF FIGURES

Figure 6.5.1 Cumulative Distribution of Mechanical Contractor Markups for Commercial 

Refrigeration Equipment ...................................................................................... 6-9
6-1 

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 installed cost of the commercial refrigeration equipment . 

Installed cost includes equipment purchase price and installation costs. The U.S. Department of 

Energy (DOE) determines the equipment purchase price by using multipliers called “markups” 

that are applied to the manufacturer production cost (MPC) to obtain the customer purchase price 

of the equipment. The manufacturer markup, calculated as part of the engineering analysis 

(chapter 5 of the preliminary technical support document), converts the MPC into manufacturer 

selling price (MSP). Additional markups, called distribution channel markups, are applied to the 

MSP based on the distribution channels through which customers purchase the equipment. DOE 

determined that commercial refrigeration equipment is purchased by the customers through three 

major distribution channels: 

Manufacturer  Customer (National Account Channel) 

Manufacturer  Wholesaler  Customer (Wholesaler Channel) 

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

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 average markup values for each distribution channel. The three 

distribution channel markup values were then weight-averaged using the market share of each 

distribution channel as the weight to obtain weighted-average distribution channel markups. 

DOE determined that the market share of the distribution channels was different for selfcontained and remote condensing equipment. Therefore, different weighted-average distribution 

channel markup values were calculated for self-contained equipment and remote condensing 

equipment. 

DOE calculated a weighted-average sales tax by using the population of each state as the 

corresponding weight. This weighted-average sales tax was then multiplied by the weightedaverage distribution channel markups to obtain overall distribution channel markup values for 

self-contained and remote condensing equipment. 

This chapter presents DOE’s methodology for calculating the three distribution channel 

markups, weighted-average sales tax, and overall distribution channel markups. 

6.2 BASELINE, INCREMENTAL, AND OVERALL MARKUPS

Baseline markups are the markups that convert the MSP of equipment at Efficiency Level 

1 to customer purchase price. Incremental markups are markups that convert the increase in MSP 

of equipment at Efficiency Level 2 or higher to an increase in customer purchase price compared 
6-2 

to the price of equipment at Efficiency Level 1. Overall markups include the weighted-average 

values of markups based on the market share each distribution channel and the sales tax. 

6.2.1 Baseline Markups

If the baseline equipment is sold to a customer by the manufacturer through the national 

account channel, the following equation defines the equipment price: 

EQPNATL ACCT BASE = MFGBASE × MUNATL ACCT BASE × (1 + ST) Eq. 6.1

Where:

MFGBASE = MSP of baseline equipment ($), 

EQPNATL ACCNT BASE = national account price to the customer of baseline equipment ($), 

MUNATL ACCT BASE = national account markup on baseline equipment, and 

ST = sales tax rate.

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

EQPWHOLE BASE = MFGBASE × MUWHOLE BASE × (1 + ST) Eq. 6.2 

Where:

EQPWHOLE BASE = wholesaler price of baseline equipment ($), and 

MUWHOLE BASE = wholesaler markup on baseline equipment. 

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

EQPMECH CONT BASE = MFGBASE × MUWHOLE BASE × MUMECH CONT BASE × (1 + ST) Eq. 6.3 

Where:

EQPMECH CONT BASE = mechanical contractor price of baseline equipment ($), and

MUMECH CONT BASE = mechanical contractor markup on baseline equipment. 

6.2.2 Incremental Markups

Incremental markups are cost multipliers that relate increments in the MSP of equipment 

at higher efficiency levels to the corresponding increments in the customer purchase price. The 

increment in MSP of equipment at higher efficiency levels is obtained by subtracting the MSP of 

equipment at the baseline efficiency level (MFGBASE) from the MSP of equipment at higher 

efficiency levels. 
6-3 

MFGINCR = MFGHIGHER EFF LEVEL−MFGBASE Eq. 6.4 

Where:

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

MFGHIGHER EFF LEVEL = MSP of equipment at higher efficiency level ($). 

If the equipment is sold to a customer by the manufacturer through a national account, the 

following equation defines the increase in equipment price: 

EQPNATL ACCT INCR = MFGINCR × MUNATL ACCT INCR × (1 + ST) Eq. 6.5 

Where:

EQPNATL ACCNT INCR = increment in customer purchase price to the national account customer ($),

and

MUNATL ACCT INCR = national account incremental markup. 

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

contractor channels: 

EQPWHOLE INCR = MFGINCR × MUWHOLE INCR × (1 + ST) Eq. 6.6 

Where:

EQPWHOLE INCR = incremental wholesaler price ($), and 

MUWHOLE INCR = incremental wholesaler markup. 

EQPMECH CONT INCR = MFGINCR × MUWHOLE INCR × MUMECH CONT INCR × (1 + ST) Eq. 6.7

Where:

EQPMECH CONT INCR = incremental mechanical contractor price ($), and

MUMECH CONT INCR = incremental mechanical contractor markup.

6.2.3 Distribution Channel Market Shares

For the 2009 rulemaking for commercial refrigeration equipment, market shares of the 

three distribution channels were based on estimates provided by Carrier Corporation to DOE 

during the public review of the advanced notice of proposed rulemaking. 73 FR 50094 (August 

25, 2008) DOE retained this market share data for remote condensing equipment. During the 

preliminary analysis for the current rulemaking, DOE obtained additional data related to selfcontained equipment from articles on the Foodservice Equipment & Supplies magazine website,1

which provided market shares for distribution channels for all foodservice equipment sales. 

Refrigeration equipment used in the foodservice industry is primarily composed of selfcontained equipment. Refrigeration equipment constitutes only 8 percent of the total equipment 
6-4 

sales to the foodservice industry1 and the distribution channel shares for refrigeration equipment 

may be different from the rest of the foodservice equipment. However, due to lack of availability 

of additional data, DOE used the market share values of the overall foodservice equipment sales 

for self-contained commercial refrigeration equipment. 

 provides the market shares of the three distribution channels for both self-contained and 

remote condensing equipment used for the preliminary analysis. 

Table 6.2.1 Distribution Channels Market Shares for Commercial Refrigeration 

Equipment

Equipment Type National Account Channel Wholesaler Channel Contractor Channel

Remote Condensing 70 % 15% 15%

Self-Contained 30% 60% 10%

6.2.4 Overall Markups

Overall markup values were separately obtained for both baseline and incremental 

markups by combining the sales tax with the weighted-average distribution channel markups that 

used market share values as weights. Overall baseline markup value were calculated using the 

following: 

EQPCUST BASE = MFGBASE

× (WTNATL ACCT BASE × MUNATL ACCT BASE + WTWHOLE BASE × MUWHOLE BASE

+ WTMECH CONT BASE × MUWHOLE BASE × MUMECH CONT BASE)

× (1 + ST) 

 = MFGBASE × MUOVERALL BASE

Eq. 6.8

Where:

EQPCUST BASE = customer purchase price for baseline equipment ($),

WTNATL ACCNT BASE = market share of baseline equipment sales through national account channel 

(%),

WTWHOLE BASE = market share of baseline equipment sales through wholesaler channel (%), 

WTMECH CONT BASE = market share of baseline equipment sales through contractor channel (%), and

MUOVERALL BASE = overall baseline markup. 

Overall incremental markups were calculated using the following equation: 

EQPCUST INCR = MFGINCR

× (WTNATL ACCT INCR × MUNATL ACCT INCR + WTWHOLE INCR × MUWHOLE INCR

+ WTMECH CONT INCR × MUWHOLE INCR × MUMECH CONT INCR) × (1 + ST) 
6-5 

 = MFGINCR × MUOVERALL INCR Eq. 6.9 

Where:

EQPCUST INCR = increment in customer purchase price of equipment at a higher efficiency level 

compared to baseline equipment ($), 

WTNATL ACCNT INCR = market share of higher efficiency level equipment sales through national 

account channel (%),

WTWHOLE INCR = market share of higher efficiency level equipment sales through wholesaler 

channel (%), 

WTMECH CONT INCR = market share of higher efficiency level equipment sales through contractor 

channel (%), and 

MUOVERALL INCR = overall incremental markup. 

EQPCUST = EQPCUST BASE + EQPCUST INCR Eq. 6.10 

The use of the overall baseline and overall incremental markups results in the baseline 

customer price (EQPCUST BASE) and the incremental customer price (EQPCUST INCR). For a particular 

piece of equipment at a higher efficiency level, the total price of that equipment to the customer

(EQPCUST ) is the sum of the baseline customer price (EQPCUST BASE) and the incremental customer

price (EQPCUST INCR).

6.3 BASIC ASSUMPTIONS USED TO ESTIMATE WHOLESALER 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 (PHAC) industry.2 DOE obtained the industry balance-sheet data from the Heating, 

Airconditioning & Refrigeration Distributors International (HARDI), the trade association

representing wholesalers of refrigeration and heating, ventilating, and air conditioning (HVACR) 

equipment.3 DOE compiled the U.S. Census Bureau PHAC data following the same format as 

the balance-sheet data for wholesalers. These balance sheets break out the components of all 

costs incurred by firms that supply and install PHAC equipment. DOE derived the wholesaler 

and mechanical contractor markups from three key assumptions about COMMERCIAL 

REFRIGERATION EQUIPMENT costs: 

1. The firm balance sheets accurately represent the various average costs incurred by firms 

distributing and installing commercial refrigeration equipment. 

2. The wholesaler and contractor costs can be divided into two categories: (1) costs that 

vary in proportion to the MSP of commercial refrigeration equipment variable costs); and 

(2) costs that do not vary with the MSP of commercial refrigeration equipment (fixed 

costs).

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

included in the balance sheets.

The basis for the first assumption is that the industry balance sheets itemize firm costs 

into a number of cost categories, including direct costs to purchase or install the equipment, 
6-6 

operating labor and occupancy costs, and other operating costs and profit. Although wholesalers 

and contractors tend to handle multiple commodity lines (including air conditioners, furnaces, 

and boilers) the data provides the most accurate available data for commercial refrigeration 

equipment costs. 

Information obtained from the trade literature, and from selected HVACR wholesalers,

contractors, and consultants, supports the second assumption that wholesale and contractor 

markups vary according to the quantity of labor and materials used to distribute and install 

HVACR equipment. In the following discussion, DOE assumes a division of costs between those 

that do not scale with the MSP (labor and occupancy expenses) and those that do vary with MSP 

(operating expenses and profit). This division of costs led to the estimate of wholesale and 

contractor markups described below. 

The basis for the third assumption is that the HVACR wholesaler and contractor industry 

is competitive and consumer demand for commercial refrigeration, heating and air conditioning 

equipment is 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 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 contractors7 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. In the survey, HARDI itemizes revenues and costs into cost 

categories, including direct equipment expenses (cost of goods sold), labor expenses, occupancy 

expenses, other operating expenses, and profit. DOE presents the data for a typical HARDI 

distributor in terms of specific types of expense within these categories in appendix 6A. Table 

6.4.1 summarizes these expenses in units of expenses per dollar 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 represents $0.734 per dollar of sales revenue. In other words, for every $1.00 wholesalers 

take in as sales revenue, they use $0.734 to pay for the direct equipment 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 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 $0.734 $1.000

Labor Expenses: Salaries and benefits $0.161 $0.219

Occupancy Expense: Rent, maintenance, and utilities $0.038 $0.052

Other Operating Expenses: Depreciation, advertising, and insurance $0.054 $0.074

Profit $0.013 $0.018

Baseline Markup (MUWHOLE BASE): Revenue per dollar cost of goods sold * 1.362

Incremental Markup (MUWHOLE INCR): Increased revenue per dollar increase cost of goods 

sold** 1.091

* Source: Heating, Airconditioning & Refrigeration Distributors International. 2010. 2010 Profit Report (2009 Data).

** Numbers include rounding errors 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 this 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 wholesaler baseline markup (MUWHOLE 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 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 manufacturer selling price (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 are variable, then a $1.00 increase in 

the manufacturer selling price will lead to a $1.00 increase in the wholesaler price, for an

incremental markup of 1.0. DOE assumes that the labor and occupancy costs will be fixed and 

that the other operating costs and profit will scale with the manufacturer selling price (i.e., be 

variable). In this case, for a $1.00 increase in the manufacturer selling price, the wholesaler 

price will increase by $1.09. Therefore, the wholesaler incremental markup (MUWHOLE 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 MARKUPS

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

plumbing, heating, and air-conditioning contractors. This sector includes establishments 

primarily engaged in installing and servicing plumbing, heating, and air-conditioning equipment, 

which may include new work, additions, alterations, maintenance, and repairs. The U.S. Census 

Bureau data for the PHAC sector include detailed statistics for establishments with payrolls, 

similar to the data reported by HARDI for wholesalers. The primary difference is that the 

U.S. Census Bureau reports itemized revenues and expenses for the PHAC industry as a whole in 

total dollars rather than in typical values for an average or representative business. Because of 

this, DOE assumed that the total dollar values that the U.S. Census Bureau reported, once 

converted to a percentage basis, represented revenues and expenses for an average or typical 
6-8 

contracting business. As with the data for wholesalers, Table 6.5.1 summarizes the expenses for 

mechanical contractors. The expenses per dollar sales revenue are given in the first data column

of Table 6.5.1 (appendix 6A contains the full set of data). The direct cost of sales represents 

about $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 operating expenses account for $0.039, and profit makes up $0.086 per dollar sales 

revenue.

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 

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 earned for every $1.00 spent on equipment costs. This 

results in a mechanical contractor baseline markup (MUMECH CONT BASE) of 1.47 ($1.47÷ $1.00).

Table 6.5.1 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 (MUMECH CONT BASE): Revenue per dollar cost of goods sold ** 1.475

Incremental Markup (MUMECH CONT INCR): Increased revenue per dollar increase cost of goods 

sold **

1.184

* Source: U.S. Census Bureau. 2007. Plumbing, Heating, and Air-Conditioning Contractors. Sector 23: 238220. Construction: Geographic Area 

Series: Detailed Statistics for Establishments: 2007.

** Numbers include rounding errors and may not add up to the totals.

DOE was also able to use the data in the last column in Table 6.5.1 to estimate the 

incremental markups by separating 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, implying that the incremental markup is 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 assumes the labor and occupancy costs to be fixed and the other 

operating costs and profit to scale with the equipment price (i.e., be variable). In this case, for a 

$1.00 increase in the equipment price, the mechanical contractor price will increase by $1.18, 

giving a mechanical contractor incremental markup (MUMECH CONT INCR) of 1.18 ($1.18 ÷ $1.00).

Mechanical contractor costs differ in various regions of the country for reasons including 

availability of labor, cost of living, and union versus non-union workforce. Because many 

mechanical contractor costs differ systematically by state, DOE characterized the markups 

developed from U.S. Census Bureau data with a probability distribution based on a state-by-state
6-9 

analysis of U.S. Census Bureau data for PHAC contractors. The state-by-state analysis provided 

a distribution on the relative markups of mechanical contractors in the United States. 

Figure 6.5.1 shows the cumulative probability distribution of the state markup index that 

DOE used to characterize the mechanical contractor baseline and incremental markups. 

Figure 6.5.1 Cumulative Distribution of Mechanical Contractor Markups for Commercial 

Refrigeration Equipment

6.6 ESTIMATION OF NATIONAL ACCOUNT MARKUPS

Large customers of commercial refrigeration equipment use national accounts to 

circumvent the wholesaler channel, thereby allowing them to negotiate significantly lower 

equipment prices directly with the manufacturer. The manufacturer, in turn, must cover 

additional expenses related to the distribution of the equipment, but gains in terms of negotiating 

agreed-upon sales volumes with the customer. 

To capture the price savings realized from equipment purchased through national 

accounts, DOE derived a national account markup, assuming that the resulting equipment price 

increase was one half of that realized from a distribution through the wholesaler channel. In other 

words, if the price markup resulting from the wholesaler markups is $100, the national account 

markup is $50. DOE based the use of a national account markup that is one half of that realized 

from the wholesaler distribution channel on the assumption that the resulting national account 

equipment price must fall somewhere between the manufacturer selling price and the customer

price under the wholesaler distribution channel. Because DOE does 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 baseline MSP of $1,000 for a piece of commercial refrigeration 

equipment delivered to a supermarket, and a baseline wholesaler markups 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 

0%

20%

40%

60%

80%

100%

1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9

Cumulative Percentages (%)

Markup

Mechanical Contractor Markup by State
6-10

($1,360 - $1,000). Under the assumption that national account customers realize equipment price 

increases equal to one half of that through the wholesale distribution channel, the dollar value of 

the equipment price increase under the national account is $180. The resulting equipment price is 

$1,180 ($180 + $1,000), which results in national account baseline markup of approximately 

1.18 ($1,180 ÷ $1,000). A similar calculation using a value of 1.09 for the wholesaler 

incremental markup, results in a national account incremental markup of 1.046 ($1,046 ÷ 

$1,000). 

6.7 SALES TAX

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

commercial refrigeration equipment. The sales tax is a multiplicative factor that increases the 

customer equipment price. DOE derived sales taxes representative of the combined state and 

local sales tax rates from the Sales Tax Clearinghouse, shown in Table 6.7.1. The state level 

combined tax rates can be applied to the estimated value of state level commercial refrigeration 

equipment shipments to obtain the total purchase cost to the customer located in any state. 

The distribution of sales tax rates ranges from a minimum of zero percent to a maximum 

of 9.4 percent with a mean value of 6.8 percent. DOE applied sales taxes to the customer 

equipment price irrespective of the distribution channel and the market in which the customer is 

located. A weighted-average national level sales tax rate is calculated by multiplying the relative 

population of each state by the tax rates in Table 6.4.1. The weighted national average sales tax 

rate is 7.25 percent. 

Table 6.7.1 State Sales Tax Rates 

State Combined 

State and 

Local Tax 

Rate

State Combined 

State and 

Local Tax 

Rate

State Combined 

State and 

Local Tax 

Rate

Alabama 8.25 Kentucky 6.00 North Dakota 5.80

Alaska 1.40 Louisiana 8.75 Ohio 6.80

Arizona 8.15 Maine 5.00 Oklahoma 8.15

Arkansas 8.20 Maryland 6.00 Oregon 0.00

California 9.15 Massachusetts 6.25 Pennsylvania 6.40

Colorado 6.35 Michigan 6.00 Rhode Island 7.00

Connecticut 6.00 Minnesota 7.20 South Carolina 7.05

Delaware 0.00 Mississippi 7.00 South Dakota 5.50

Dist. of Columbia 6.00 Missouri 7.35 Tennessee 9.40

Florida 6.70 Montana 0.00 Texas 8.05

Georgia 6.90 Nebraska 6.00 Utah 6.70

Hawaii 4.40 Nevada 7.85 Vermont 6.05

Idaho 6.05 New Hampshire 0.00 Virginia 5.00

Illinois 8.20 New Jersey 6.95 Washington 8.75

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 7.80 Wyoming 5.15

Source: The Sale Tax Clearinghouse, http://www.thestc.com/STrates.stm. 
6-11

6.8 OVERALL MARKUPS

Table 6.8.1 presents the baseline markup values for each distribution channel and the 

overall baseline markup values for remote condensing and self-contained commercial 

refrigeration equipment. Table 6.8.2 presents the incremental markup values for each distribution 

channel and the overall incremental markup values for remote condensing and self-contained 

equipment. 

Table 6.8.1 Baseline Markups by Distribution Channel and Overall Weighted Average

Markup, Including the Weighted Average Sales Tax Multiplier 

Wholesaler

Channel

Contractor Channel

(includes wholesaler 

markup)

National 

Account

Channel

Overall Markup

Remote 

Condensing

SelfContained

Markup 1.362 2.004 1.181 1.332 1.372

Sales Tax 1.073 1.073 1.073 1.073 1.073

Markup with 

Sales Tax 1.461 2.150 1.267 1.429 1.472

Table 6.8.2 Incremental Markups by Distribution Channel and Overall Weighted Average

Markup, Including the Weighted Average Sales Tax Multiplier 

Wholesaler

Channel

Contractor Channel

(includes wholesaler 

markup)

National 

Account

Channel

Overall Markup

Remote

Condensing

SelfContained

Markup 1.091 1.300 1.046 1.091 1.098

Sales Tax 1.073 1.073 1.073 1.073 1.073

Markup with 

Sales Tax 1.171 1.395 1.122 1.170 1.179

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 unit is $1,000, the 

customer purchase price for this baseline equipment is obtained by multiplying the MSP by the 

overall markup value of 1.472 to obtain the baseline customer purchase price of $1,472. If the 

increment in the MSP of the equipment at a higher efficiency level is $100, then the customer 

purchase price increment of this equipment can be obtained by multiplying by the overall 

incremental markup of 1.179 to obtain a customer purchase price increment of $117.90. The 

customer purchase price of this higher efficiency equipment is the sum of the baseline price and 

the increment, which is equal to $1,589.90 ($1472 + $117.90). 
6-12

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