I have been helping manufacturers find overpaid sale and use tax for more than twenty years. Even though tax laws constantly change, one of the main reasons that companies make over-payment mistakes has not changed -- poor or lack of communication between the accounting department and purchasing and plant personnel.
An accounting department making sales and use tax decisions without proper input from purchasing or plant personnel is a recipe for disaster. How an item is used at the manufacturing facility is critical to determining if tax should be paid.
Often, companies rely on A/P personnel to determine whether or not something is taxable.Tax appears on an invoice received by A/P and they decide if items are exempt. The fatal flaw in this theory is that more often than not, they don’t know what is being purchased and how it is being used. For example, part #123 purchased from XYZ Company going to a Repairs Account is very arbitrary. Without knowing all the details, a good tax decision cannot be made. The more efficient approach would be to get purchasing’s involvement to make the tax decision and then A/P can pay the tax accordingly.
In order for purchasing personnel to be able to make good tax decisions or at least give relevant information to A/P, a focused effort needs to be given for sales tax training, specifically to purchasers. Two or three hours of customized training by an experienced sales tax consultant can do the trick. Having key department personnel in sync will drastically improve every manufacturer’s bottom line.
Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:
- 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
- Use Tax Exemptions Case: Non-Traditional Manufacturer in Missouri