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Sales & Use Tax Tips for March 2009
SALES & USE TAX MANUFACTURING EXEMPTIONS
Manufacturers are you missing exemptions? Not a manufacturer? This may still be for you!
Many exemptions are often available to traditional manufacturers and to non-traditional manufacturers, such as retailers, as well. However, exemptions are often missed due to varied state and local laws and exemption qualifiers. Additionally, companies may not see themselves as manufacturers and miss exemptions for certain non-traditional aspects of manufacturing.
Careful analysis of the definitions and wording of states’ laws and regulations will help you avoid missing exemptions and paying more tax than legally due. Retailers, grocers and other industries may also qualify for manufacturing exemptions related to some of their activities that may be deemed as manufacturing.
Typical manufacturing exemptions include raw materials, chemicals and consumables, component parts, machinery and equipment, fuels, utilities, packaging materials, research and development, quality control and testing, pollution control, and repair and installation services.
States and local home-rule municipalities can vary widely in defining when manufacturing starts and ends. For some, manufacturing starts with the receiving and handling of raw materials and ends when finished goods are conveyed to storage on the plant site. For others, manufacturing doesn’t start until raw materials are first acted upon, but ends when the product is completed, excluding packaging.
Exemption qualifiers such as “Directly”, “Predominately” and “Exclusively” also vary in their use and scope. Qualifiers may be used alone or be combined for greater restriction. The key differences require careful examination of the statutory language defining the terms. A predominant use study may be required particularly when it comes to fuels and utility exemptions.
There may be enterprise zones or other incentives and special exemptions available. It is usually up to the manufacturer to contact the appropriate agencies responsible for administering such.
Reliance on familiarity with the rules in one state will likely lead to costly mistakes in another state or local jurisdiction. Careful consideration should be given to each relevant locality’s manufacturing exemption requirements and laws.
Effective, proactive planning and even slight, prospective changes in your manufacturing process could expand the exemptions available to your company, and thus earn you significant tax savings. Large manufacturers may want to consider direct pay permits to gain better control and ensure accurate tax payment. A notable disadvantage, however, is that there may be more focused attention from auditors when under a direct pay permit.
Retailers, grocers and other non-traditional manufacturers may want to review their business model to determine what activities may qualify for manufacturing exemptions.
Our professionals can help you sort through manufacturing issues and available exemptions. For more information please see the Manufacturing section of our website.
Click here for more Sales Tax Tips or visit our website www.oatax.com. For additional insight on common sales tax concerns, please see the Did You Know? section of our website.
Should you have questions or require assistance please Contact us today or call 1-888-466-2829 to speak with an Olivier &
Associates Sales and Use Tax professional for a no-obligation consultation about your Sales & Use Tax issues.
* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.
