DOWNERS GROVE, Ill. – The ServiceMaster Company has announced that dividends paid in 2003 on its common stock will not be taxable as dividend income for federal income tax purposes, but instead will be treated as a non-taxable return of capital.
Accordingly, dividends paid should generally be applied to reduce the cost basis of the shares. Shareholders should receive their Form 1099-DIV with a non-taxable return of capital shown in box 3 and consult their own tax adviser to determine the tax consequences of these distributions.
Under federal tax rules, dividends are considered taxable only when paid out of current or accumulated “earnings and profits.” As a result of its December 1997 reincorporation, the company only began generating corporate earnings and profits for tax purposes in 1998.
During 2003, various legislative proposals related to the taxation of dividends, combined with the re-audit of the company’s financial statements and preparation for the previously announced IRS audit, caused the company to analyze the taxability of its dividends.
This analysis showed that since 1998, earnings and profits, for tax purposes have been reduced by dividend payments, amortization of intangibles for tax reporting, deductions relating to business closures and the timing of certain other tax-related items.
ServiceMaster is currently in the process of determining the proper tax treatment of dividends paid to shareholders in prior years (2000 through 2002) and expects to provide amended forms 1099-DIV for 2000 in February and to provide additional information and background for 2001 - 2002 over the course of the year.
Although an exact amount cannot be confirmed until its operating results for 2004 are realized and reported, the Company currently expects a significant portion of its 2004 dividend payments will also be classified as a non-taxable return of capital for tax purposes.