States governments in the United States offer manufacturers with plenty of lucrative tax saving opportunities, specifically in the domain of sales and use tax. These opportunities can sometimes be so overwhelming that it could be easy for manufacturers to wrongly assume that everything they purchase and use is sales tax exempt.
In fact, many manufacturers have this misconception.
Making an assumption that “we’re manufacturers and everything is exempt for us”, is likely to cost you in the form of a hefty tax bill under a potential audit.
So what actually qualifies as taxable and non-taxable for manufacturers?
Although, it’s hard to give a definite answer to this question as every manufacturer’s individual circumstances is likely to vary, there are some guidelines that you can use to better orientate your focus when deciding the exempt status of a purchase.
Items purchased for use in your manufacturing area are generally considered sales tax exempt. This could be a machinery, a piece of equipment, a fuel stock or any other item.
As long as the item is being used as a core component in your manufacturing process, it is likely to qualify for the sales tax exemption.
Besides items, utility purchases can also qualify for tax exemption status if they’re used for any one of the following purposes:
It’s important to note that the utility must be directly used in the production phase for it to be considered sales tax exempt.
When talking about taxable purchases, purchases made for the distribution and administrative areas of a facility are generally considered taxable.
Distribution area typically refers to that area of your facility where post packaging processes take place. For example, loading, storage and shipping areas all fall under the category of distribution area. Any item purchased for use in these areas is likely to be considered taxable.
The administrative area is where accounting, sales, procurement and facility maintenance departments are located. Taxable purchases associated with administrative area include furniture, office supplies and maintenance equipment and materials for the facility.
In conclusion, although manufacturers in the Unites States enjoy a whole host of tax saving benefits, not everything is tax exempt for them.
If you’re ever in doubt whether a purchase you’re making is taxable or non-taxable, feel free to contact us; our experts will be happy to guide you.
A BONUS read: How to Apply for Utility Sales Tax Refund?