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Sales Tax for Manufacturing Storerooms: Best Practices

author photo of Lauren Stinson

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.

About the Author: Lauren Stinson,CMI, is Principal and National Leader - Sales & Use Tax at Cherry Bekaert LLP; a national CPA and consulting firm ranked as one of the top 25 in the country. Previously, Lauren was Owner and President of Windward Tax, a sales and use tax consulting firm. She has more than 25 years experience working with manufacturers on sales and use tax issues. Lauren is pleased to share her expertise with SalesTaxSupport readers as the Manufacturing contributor in SalesTaxSupport’s Industry blog, as well as the Georgia Sales Tax contributor in the States blog.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Lauren directly using the orange "REQUEST" link on Lauren's Firm Profile page.

Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:

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