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 ........................................ 6-1

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

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 Overa ll 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 ...................................................................................... 6-96-1 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 ) det ermines 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 ana lysis (chapter 5 of the preliminary t echnical 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 value s 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 weighted

average distribution channel markups to obtain overall distribution channel markup values for

self -contained and remote condensing equipment.

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 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 compared6-2 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:

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

W here:

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

, MU NATL 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:

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

W here:

EQP WHOLE BASE = wholesaler price of baseline equipment ($), 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 C ONT BASE × ( 1 + ST ) Eq. 6.3

W here:

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

MU MECH CONT BASE = mechanical contractor markup on baseline equipment.

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 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 ( MFG BASE ) from the MSP of equipment at higher efficiency level s.6-3 MFG INCR = MFG HIGHER EFF LEVEL − MFG BASE Eq. 6.4

W here:

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

MFG HIGHER 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:

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

W here:

EQP NATL ACCNT INCR = increment in customer purchase price to the n ational account customer ($),

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 = incremental wholesaler price ($), 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 = incremental mechanical contractor price ($)

, and

MU MECH CONT INCR = incremental mechanical c ontractor 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 a dvanced n otice of proposed rule making . 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 addition al data related to self

contained equipment from article s on the Foodservice Equipment & Supplies m agazine 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 equipment6-4 sales to the foodservice industry 1 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 Refrigerati on 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

O verall 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:

EQP CUST BASE = MFG BASE

× ( WT NATL ACCT BA SE × 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 ($),

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

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

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

MU OVERALL BASE = overall baseline markup

.

Overall incremental markups wer e calculated using the following equation:

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 M ECH CONT INCR ) × ( 1 + ST )6-5 = MFG INCR × MU OVERALL INCR Eq. 6.9

W here:

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

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

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

WT MECH CONT INCR = market share of higher efficiency level equipment sales through contractor channel (%) , and

MU OVERALL INCR = overall incremental markup

.

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

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

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

- sheet data for wholesalers. These balance sheets break out the components of all costs incurred by firms that supply and install PHAC eq uipment. 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 in stalling commercial refrigeration equip ment

.

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 t he industry balance sheets itemize firm costs

into a number of cost categories, including direct costs to purchase or install the equipment,6-6 o perating labor and occupancy costs, and other operating costs and profit. Although wholesalers

and contractors ten d 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 HVAC R wholesalers, contractors, and consultants, supports the second assumption t hat wholesale and contractor markups vary according to the quantity of labor and materials used to distribute and install

HVAC R 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 HVAC R 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 s ignificantly with an increase in price of equipment). The large number of HVACR firms listed in the 2007 c ensus indicates the competitive nature of the market. For example, there are more than 700 HVACR

manufacturers

, 4 1,300 wholesalers of refrigeration eq uipment, 5 36,000 c ommercial 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 WHOLES ALER 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 represent s $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 $0.7 34 $1.0 0 0 Labor Expenses: Salaries and benefits $0. 161 $0.2 19 Occupancy Expense: 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 c onditioning & Refrigeration Distributors International. 20 1 0. 20 1 0 Profit Report (200 9 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 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 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 a re 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 l ead 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 ( 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 plumbing, h eating, and a ir -conditioning c ontractors . 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 PH AC 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 PH AC industry as a whole in

to tal 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 typical6-8 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). T he 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 op erating 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 ( MU MECH CONT BASE ) of 1. 47 ($1.47÷ $1.00).

Table 6.5.1 Mechanical Contractor Expenses and Markup s*

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 $0.6 78 $1.00 0 Labor Expenses: Salaries (indirect) and benefits $0. 1 75 $0.2 58 Occupancy Expense: Rent, maintenance, and utilities $0.02 2 $0.0 32 Other Operating Expenses: Depreciation, advertising, and insurance $0.0 39 $0. 0 58

Net Profit Before Taxes $0. 086 $0.1 27 Baseline Markup ( MU MECH CONT BASE ): Revenue per dollar cost of goods sold ** 1. 47 5 Incremental Markup ( MU MECH CONT INCR ): Increased revenue per dollar increase cost of goods

sold ** 1. 18 4

* 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 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 , 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 contrac tor price will increase by $1. 18, giving a mechanical contractor incremental m arkup ( MU MECH 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 cos ts differ systematically by s tate, DOE characterize d the markups developed from U.S. Census Bureau data with a probability distribution based on a s tate

- by -s tate6-9 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

.

Figure 6.5.1 shows the cumulative probabilit y distribution of the state markup index that

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

Figure 6.5.1 Cumulative D istribution of M echanical C ontractor M arkups for C ommercial Refrigeration Equipment

6.6 ESTIMATION OF NATION AL ACCOUNT MARKUPS

Large customer s 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 reali zed 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 pri ce 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 nati onal account equipment price must fall somewhere between the manufacturer selling price and the customer price under the wholesaler distribution channel

. 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 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 1.9Cumulative Percentages (%)

Markup

Mechanical Contractor Markup by State6- 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 s tate 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 cust omer 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 present s 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 M ultiplier

Wholesaler

Channel Contractor Channel (includes wholesaler markup) National

Account

Channel Overall Markup

Remote Condensing Self

Contained 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 Self

Contained 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 u nit 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 mar kup 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 REFERENCES

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