Is your storeroom full of sales tax challenges? If you are like most manufacturers, the answer is YES. Most storerooms house parts and supplies that are used throughout the plant in a variety of ways. Based on how these items are used determines whether or not they are tax exempt. The problem begins when purchases are completed without regard to how parts and supplies will be used and if they qualify for tax exemption.
I have seen companies make huge sales tax mistakes with their storeroom purchases, and results have been disastrous. Either exemptions were missed and tax incentives were wasted – or worse, audits result in significant liabilities because not enough tax was paid.
If you suspect your storeroom may be hiding costly tax mistakes, consider these two Best Practices Solutions:
Option 1: Purchase parts and supplies exempt from tax then pay tax at the time of use based on the item’s specific function.
Option 2: Look to alternative solutions, such as percentage-based reporting. Through a statistical analysis of purchases, determine the percentage of taxable purchases, and then every month report tax on that percentage of purchases.
Either way, it is imperative to make a game plan and stick with it. Consistency is half the battle. Communication is equally important. Everyone that deals with storeroom purchases – purchasers, users and bill payers – need to be trained and part of the process. Teach everyone how their actions impact tax savings and train them to make smart exemption decisions. The result will be a storeroom full of tax savings.
If you have questions or comments (or would like to share your experiences on this topic), please feel free to post below.
Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:
- Direct Pay Permits for Manufacturers - Good Idea?
- Manufacturing Purchases: 5 Sales-Use Tax Basics for Purchasers and A/P
- Manufacturing Exemption Misconception: Everything is Tax Exempt!
- Manufacturers’ Utility Studies: 5 Approaches to Utility Exemptions
- Manufacturing Sales & Use Exemptions: Open to Interpretation