Everyone in the food industry knows that Georgia is one of the largest poultry processing regions in the world. It’s no wonder that for nearly 30 years, VJI staff have provided its sales and use tax services to many poultry processing clients throughout Georgia and the U.S.
In early 2016, VJI contracted to perform a sales and use tax overpayment review for another poultry industry client, a rapidly growing agriculture and egg business with a plant in Gainesville, GA and with Corporate HQ in the mid-west. The new client has several additional locations across the U.S. that have undergone several audits. During those audits, our client was informed by one of the state DORs that taxes had not been paid on several items that should have been taxed.
Our client used this information to develop a conservative tax approach on its purchases by applying a single state taxing recommendation from previous audits in one state to all of their processing plants across the country, including the Georgia location. After reviewing the Gainesville processing plant purchasing records, VJI tax experts identified approximately $300,000 in sales and use tax overpayments. That’s an extraordinary average savings of $100,000 a year for a single location of its size! The moral of this story? Each state has its own tax laws and some are much more favorable to manufacturers than others. By using the services of expert tax professionals to provide advice on sales tax matters, any manufacturing company could gather results that could give them a lot to crow about.
A former controller at a Georgia company that VJI staff worked with on a sales and use tax underpayment review in 2010, reached out to VJI’s tax director after becoming a controller at another Georgia manufacturing company. Anxious to quickly understand the tax process that he would be managing at his new business, he concluded that the information that our staff provided to him about how sales and use taxes were handled in the AP department at his former company would be the best and fastest method to get up to speed on the tax process at his new one.
VJI’s tax experts performed a review for this automotive seat manufacturer in June 2016. Although the company had relatively modest annual sales, our experts completed their analysis, prepared and submitted a report of findings, and subsequently filed a claim by mid-July for more than $102,000 in tax refunds. Our staff worked diligently to help move the Georgia DOR along in processing the claim by quickly providing any additional information that the DOR requested. The full refund was received 90 days after the claim was submitted, providing proof that the Georgia DOR has delivered on its Commissioner’s promise to streamline its tax refund claims process. This experience dramatically demonstrates that overpayment reviews can bring significant refunds back quickly to any company ― even small and medium-sized ones ― provided that the refund process is handled by experienced tax professionals. Needless to say, our new client was very pleased with the results of our service, which not only brought great value to his new company, but also to himself as a new employee.
A large manufacturer of bed and mattress covers was notified of an initial sales and use tax assessment of more than $20,000. VJI consultants first conducted an overpayment review and then closely reviewed the audit methodology. The results of the audit review found a number of errors and the overpayment review found a substantial amount of sales and use taxes paid in error. Ultimately, the total amount of refunds and audit errors uncovered by our consultants exceeded the original assessment, which resulted in a net savings for the client.
VJI consultants conducted a sales and use tax overpayment review for a large pump manufacturer that resulted in a $143,000 refund for the client. The overpayments that we discovered involved a mix of general manufacturing issues and the new Georgia utility exemptions. As part of our review services, VJI staff provided all of the paperwork needed to file for the refund at the Georgia DOR and then tracked the filing process. The refund was approved and sent to the client in 90 days, which is far shorter than the normal time that refunds of this size are processed and cleared by the Georgia DOR.
Because the DOR’s Commissioner made a commitment to speed up its refund process for Georgia taxpayers, we interpret this experience as a sign that this promise has been fulfilled. We also conclude that now, more than ever, is a great time for Georgia manufacturers to have a sales and use tax overpayment review and to file for refunds on any overpayments that are found during the review.
VJI sales tax consultants recently conducted sales and use tax overpayment reviews for a client with paper mills located in Georgia and California that produce absorbent paper products. The California operation also has a lab and an R&D center that develops new methods to increase the effectiveness of the company’s products; for example, by adding chemicals that enhance absorbency. It was these chemicals that caught the attention of our consultants who found that sales taxes were being paid to vendors who supplied bulk chemicals that were used for non-exempt plant operations and as exempt chemical ingredients incorporated in the paper products. With the client’s assistance, a study was conducted to determine the percentage of bulk chemical purchases that were used in manufacturing. As a result, two-thirds of the more than $150,000 in sales tax refunds identified by our consultants were related to these bulk chemical purchases.
A company that manufactures a wide variety of commercial refrigeration units, display cases, and walk-in coolers and freezers contracted with VJI to conduct sales and use tax overpayment reviews of its plants in California, Virginia and Georgia. VJI consultants identified several common areas of overpayments at these facilities including taxes erroneously paid on warranties and not taking tax credits for bad debts and Canadian GST. During a tour of one facility, a consultant noticed that large instruction manuals were being packaged and shipped with the units that were produced. An inquiry revealed that the manuals were created, printed, and bound at the factory. A study found that the taxes paid on exempt materials used to produce the manuals amounted to nearly $17,000. At another plant, a complex study is being completed to sort out accrued and tax paid to vendors on the actual cost of materials used to install refrigeration units in which the data for materials are co-mingled with labor costs and profit margins. To date, VJI has found more than $700,000 in sales tax refunds for this client.
VJI was asked to provide sales and use tax audit reduction services for a carpet manufacturer with facilities in Alabama. A sales and use tax review for these sites was initially conducted by a Big-4 accounting firm and then by the client. A third review was conducted by a state auditor. VJI then conducted a fourth review as part of its audit reduction services. Even though the client’s tax records for the audit period were reviewed independently three times, our experts still found another $37,000 in overpaid sales and use taxes. Most of the refunds identified by VJI’s detailed and thorough review were for Alabama’s unique manufacturing tax reductions for utilities.
A well-known paper products manufacturer asked VJI to conduct a sales and use tax overpayment review at its largest production plant. While reviewing utility purchases, VJI consultants noticed that the percentage of electricity and gas that the company had estimated to be exempt from tax was too low when compared to the size of the plant and similar plants previously reviewed by VJI. An energy utilization study suggested by VJI confirmed our consultants’ suspicions. As a result of adjusting the utility exemption percentage to the higher level that was found in the utilization study, more than $250,000 per year was realized in sales tax savings.
When conducting an overpayment review for a steel door manufacturer, VJI consultants discovered that the company was paying sales tax on numerous drop shipments of its products to customers that were shipped by one of its vendors. The total amount of documented overpaid taxes found by VJI for this single issue was substantial, considering that for one drop-shipment alone, more than $10,000 in exempt sales tax was erroneously paid by the client.
One of the country’s largest chicken processors had been aware of recent tax law changes that involved the tax-free purchase of electricity when it is used for agricultural purposes. Accordingly, this VJI client notified its electric supplier of its qualified tax-exempt status. However, during VJI’s sales and use tax overpayment review, our consultants noticed that taxes were being paid on electricity used in a separate agricultural product storage building that had separate metering and a separate utility bill. Because the client was unaware that the storage of agricultural products was also a tax-exempt agricultural activity defined in the new law, VJI was able to identify more than $70,000 per year in future sales tax savings.
A client with packaging plants in 10 states produces printed plastic and paper packages in its Alabama plant. The company creates custom printing plates for their customers’ packages and, after each print run, the plates are given to their customers. VJI consultants recognized during a sales and use tax overpayment review that according to Alabama sales tax laws, these plates were essentially custom-made products ── just like the packages that were produced by using the plates in the production process. According to Alabama state tax laws, all of the materials, machinery and equipment used in producing the plates are tax-exempt items used in manufacturing production, which resulted in a substantial refund for the client.