Why a hardware reseller pays tax on profit it does not have when memory prices rise

The April monthly figures show a 34 percent gross margin on memory kits. In January it was 17. The accountant calls it a strong quarter, and in the same week the distributor asks for prepayment on the next order because the credit limit is full. The explanation we usually hear in such a situation is that customers pay late, or that sales gave too much discount. Both may be true. This piece is about a third cause, which lies in the cost price used to calculate that 34 percent.

The market where this is happening now is memory. TrendForce predicted in March 2026 that contract prices for conventional DRAM would rise by 58 to 63 percent in the second quarter, and expects for the third quarter of 2026 a further 13 to 18 percent, because chipmakers are shifting capacity to memory for AI data centres. A reseller that bought in January and sells in April sees that rise in its figures as profit.

In the worked example, 96 percent of the gross margin consists of price rises on the shelf

Everything below is a worked example and not a client case. The figures were chosen to make the mechanics visible.

In January a reseller buys 200 memory kits of 64 GB DDR5 at €300 each. Investment: €60,000. The estimate uses a 20 percent mark-up on the purchase price, so a selling price of €360 and a margin of €60 per kit, 16.7 percent of revenue.

In April the same kit is listed at €450 at the distributor. Of the 200 kits, 80 go out at the old quoted price of €360, because those quotes were already running. The other 120 go at €520. Revenue: 80 times 360 is €28,800, plus 120 times 520 is €62,400, together €91,200.

The books now calculate as follows. Cost of sales: €60,000, the historical purchase price. Gross profit: €31,200. Margin: 34.2 percent. That is the figure the accountant sees, and the bank.

Calculate it again, with the price you have to pay today to buy back those 200 kits. Replacement value: 200 times 450 is €90,000. Operating profit: 91,200 minus 90,000 is €1,200. Just over 1 percent of revenue. The difference between the two calculations, €30,000, is the increase in value of the stock between January and April; in the literature this is called the holding gain. Of the €31,200 gross profit, €30,000 is therefore holding gain and €1,200 trading profit. That is 96 percent against 4.

The 80 kits at the old quoted price yield €60 each on paper. At replacement value each kit costs €90. €7,200 in total, invisible in the books. Gutmann and Sangani (Northwestern working paper, April 2026, not yet peer reviewed) asked 400 price setters in February 2026 how they deal with a rise in purchase price; about 40 percent wait to raise prices until the old stock has run out. Their broader finding, based on airline fares and Compustat data for 2010 to 2025, is that companies set their prices against the historical accounting purchase price, so price adjustments lag behind the market; the 80 kits at the old quoted price are exactly that behaviour.

Why the tax assessment only arrives when the money is already tied up in stock

Look at April itself first. €91,200 comes in and repurchasing the same 200 kits costs €90,000. What is left is €1,200, and that is exactly the trading profit. The month with the record margin therefore yields a cash surplus of just over 1 percent of revenue, before anything has been paid in salaries, rent or interest.

Then the tax. The €31,200 profit is taxable. In this worked example we use the low corporate income tax rate of 19 percent, which applies in 2026 to the first €200,000 of profit, so €5,928. You do not pay that amount in April. It runs through the provisional assessment during the year or through the assessment after the end of the financial year. And that is where the problem lies: when the assessment arrives, the money has already been spent on new stock at the higher price. Over the whole cycle the reseller is €4,728 short, and that shortfall falls at a different moment from the profit it arose from. In this example not a single kit was sold at a loss and no customer pays late.

The insight is old. In his lectures in the 1920s and 1930s (collected in Verzameld werk deel II, 1964), Limperg described why a trader only knows his profit after he has replaced the stock sold at the current price; anything above that is illusory profit. Edwards and Bell (The Theory and Measurement of Business Income, 1961) formally split reported profit into an operating profit at replacement value and a holding gain. Neither book is available free online; the worked example above is that split: €1,200 next to €30,000.

Why a component price rises by tens of percent in a single quarter

Part of it is real scarcity: capacity is going to AI data centres. Another part is created by the chain itself. Lee, Padmanabhan and Whang (Management Science, 1997, peer reviewed) described the bullwhip effect, in which small fluctuations in end demand cause ever larger order fluctuations upstream, and named the rationing response as one of the four causes: as soon as a supplier starts allocating, buyers order more than they need to secure their share. Forrester (Industrial Dynamics, 1961) had already simulated that mechanism. Ivanov and Dolgui (International Journal of Production Research, 2022, peer reviewed) call the broader situation the shortage economy: prolonged, simultaneous shortages of components, energy, capital and labour, with rapidly rising prices.

What that means for you only becomes clear at the end. Orders inflated during an allocation are cancelled as soon as the scarcity is over, and the stock stays with whoever had already bought it.

The same movement is happening one level higher in the chain. TrendForce reported on 4 September 2026 that processor, memory and storage together rose from 45 to 68 percent of the bill of materials of a notebook between the first quarter of 2025 and the third quarter of 2026, and that brands are for now cushioning their retail prices with stock bought at the old price. That is exactly the mechanism in this article, at your supplier. As soon as that buffer runs out, the next increase is in your own purchase price list.

In the autumn the same stock is in the books at a loss

Back to the worked example, now in the autumn. The reseller bought more in the summer at €450 and has 150 kits in stock in September. The distributor's purchase price falls to €380. The market price at which the kits can still be sold is €420, and after selling costs about €400 of that is left: the net realisable value.

Richtlijn 220 van de Raad voor de Jaarverslaggeving (Dutch Accounting Standard 220) and IAS 2 require valuation at the lower of cost and net realisable value. Cost is €450, realisable value €400. Write-down: 150 times €50 is €7,500. That €7,500 reduces autumn profit, while not a single euro of cash goes out; it is the mirror image of April, when €30,000 of profit came into the books without cash. The write-down goes to the realisable value of €400; for trading goods, the purchase price of €380 plays no role in that calculation.

The stock you bought above your normal demand during the shortage is the stock that ends up on that write-down list. You can already pull those quantities from your system now.

When this does not apply

The worked example works because two things coincide: a 20 percent mark-up and a 50 percent price rise during the time the stock was on the shelf. Take one of the two away and the gap disappears.

Suppose the price in April is €315, a rise of 5 percent. The same 80 kits go at €360, the other 120 at €378. Revenue: 28,800 plus 45,360 is €74,160. Repurchasing 200 kits then costs €63,000, so €11,160 is left. The holding gain is €3,000 and the tax on it disappears in the normal fluctuation of a month.

The same applies to the reseller that buys to order and rarely holds stock for longer than two weeks: purchase price and replacement value are then so close that the calculation shows nothing new. For the MSP that supplies hardware within a managed services contract at a price fixed for a year, the problem is of a different nature: there all 200 kits go at the old price, and the loss from the table then becomes 200 times €90, €18,000.

Calculate per product group, because DRAM and cases do not move together

The average across the whole company hides this gap. A reseller doing 30 percent of its revenue in memory and storage and 70 percent in cases, power supplies, cables and licences sees a margin in the total that rises a few points. That looks like a good quarter. The memory line shows 34 percent against 1 percent at replacement value; the cases show the margin where it always was.

The rigorous method is a second cost price field per item, updated daily from the distributor's price list, and a margin report that shows both prices. If your system cannot do that, this is the do-it-yourself version:

1. Take per product group the ten items with the highest revenue over the past three months.
2. Next to the cost price in the books, put the price on the last purchase invoice or today's distributor price.
3. Recalculate last month's gross profit per product group using that second price.
4. Deduct the difference from profit and put the tax on that difference next to it.
5. Compare what remains with what repurchasing the quantities sold costs.

That is an hour and a half of work in Excel if you can pull revenue per item from the system. It gives the direction and the order of magnitude, and that is what you need to decide.

What can a hardware reseller do when purchase prices rise fast?

Four measures, each with its rationale, and because we earn our money with exactly this kind of management information, you may read the first one with extra suspicion.

1. Put the margin on replacement value next to the margin in the books, per product group, every month. In the worked example, that is the difference between 34.2 and 1.3 percent. Without that second figure, you only see the gap when the distributor asks for prepayment.
2. Price on replacement value, including for open quotes, and give quotes for memory, storage and graphics cards a validity of a few days. In the worked example, the 80 kits at the old quoted price cost €7,200. Gutmann and Sangani found that about 40 percent of price setters wait until the old stock has run out; that is the group that takes this loss.
3. Set aside the tax on the holding gain at the moment the profit arises, not when the assessment arrives. In the worked example, this concerns €5,928 on a profit of which €30,000 is tied up in stock. Include that reservation in your liquidity forecast for the quarter in which you pay it. The article on cash flow as a brake on growth goes deeper into that working capital mechanism.
4. Decide purchase quantity and selling price in one go, per product group, and record the outcome so you can look back at it next month. Arrow, Harris and Marschak (Econometrica, 1951) laid the foundation for inventory decisions under uncertainty. Hu and Su (Omega, 2018, peer reviewed) show in an analytical model that whoever sets purchasing and selling price together with an uncertain purchase price earns considerably more than whoever takes those decisions one after the other, and that a broader supplier base increases profit.

For the annual accounts, the gross margin at historical cost is the right figure. To steer, you need a second one next to it as long as purchase prices move faster than your stock turns. The €30,000 holding gain from the worked example is in your profit and tied up in your stock.

Frequently asked questions about margin and cash when hardware prices rise

My gross margin is rising, but my bank balance is falling. How is that possible?

When your purchase prices rise, the books calculate the cost of sales at the old purchase price. The difference with the new purchase price counts as profit, while you need it to buy back the stock you sold. In the worked example in this article, €30,000 of the €31,200 gross profit is such an increase in the value of stock on the shelf, and after repurchasing the reseller has €1,200 left.

Do I pay tax on the increase in value of my stock?

With the usual profit calculation at historical cost: yes, as soon as the stock is sold. The holding gain is then part of taxable profit. In the worked example that is 19 percent of €31,200, €5,928, while the trading profit at replacement value was €1,200. You do not pay it in the same month: it runs through the provisional assessment or the assessment after the end of the financial year, and by then the money is tied up in new stock. So set it aside at the moment the profit arises. That tax is not unavoidable, by the way. Under sound business practice (goed koopmansgebruik) there are valuation methods that keep the price rise on existing stock out of taxable profit, such as LIFO and the base stock method (ijzeren voorraadstelsel), and in Dutch annual accounts stock may even be valued at current value. The condition is a consistent practice and a method that suits the nature of your business, so that is a conversation with your tax adviser and not a switch you flip yourself.

Should I raise my selling prices before my old stock runs out?

Yes, if you have to buy the stock again after selling it. The selling price belongs with the price you pay for the replacement. Gutmann and Sangani (working paper, April 2026, not yet peer reviewed) found that about 40 percent of price setters wait until the old stock has run out; in the worked example that costs €90 per kit on 80 kits, €7,200.

When should I write down my hardware stock?

As soon as the net realisable value falls below cost, under Dutch Accounting Standard 220 and IAS 2. In the worked example that is for 150 kits with a cost of €450 and a realisable value of €400: €7,500. Do not wait until the accountant asks for it, because the stock you bought above your normal demand during a shortage is the first to qualify.

How much memory should I keep in stock now?

That depends on your lead time, your quote validity periods and whether you let the selling price move along. Hu and Su (Omega, 2018, peer reviewed) show that deciding purchase quantity and selling price together yields more than deciding them one after the other. TrendForce expects a further rise of 13 to 18 percent for the third quarter of 2026; anything you buy above normal demand is a candidate for write-down as soon as the market turns.

Further reading: Cash flow as a brake on growth: why SMEs get stuck and how to break through and Rolling forecasts: steering in uncertain times. New: What a manufacturing company loses by postponing a heat pump until 2027 for the higher Energy Investment Allowance (EIA). New: Why a technical wholesaler pays €98,000 every year for €396,000 of stock that has not moved in twelve months.

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