Author: Matt Scott

I recently had the opportunity to attend the Institute for Professionals in Taxation’s 2017 Midwest Manufacturing Tax Workshop. The two-day workshop was held at the Sheraton Hotel in Ann Arbor, Michigan. Here are a few of my key takeaways:

• Expect there to be an uptick of merger and acquisition activity soon for manufacturers. The nationwide volume of mergers & acquisitions declined in the latter half of 2016 amid political uncertainty. Partially due to this lack of activity, cash balances are now sitting extremely high and this high liquidity is expected to result in a large uptick in mergers and acquisitions as 2017 progresses. Sales & use tax professionals should pay close attention to any M&A activity at their company due to the potential sales tax consequences of the merger or acquisition itself, as well as understanding the sales tax liabilities of the company being acquired (including nexus implications).

Many manufacturers aren’t very concerned about their sales & use tax compliance today. “Whether we pay sales tax on a purchase is all handled by our ERP system. It codes everything as either taxable or exempt and then we self-assess tax as needed” is a common refrain from many controllers. Oftentimes their claims are even reinforced by a clean sales tax bill from their last audit. “We got a nominal assessment on our last sales & use tax audit, so obviously our ERP system is making the correct decision most of the time” is a standard assumption.

Certainly, the automation of the sales tax decision process has made sales tax compliance a lot easier for manufacturers. Complying with sales tax laws has historically been overly burdensome for manufacturers, since in most states whether any given purchase is exempt depends on whether and how that purchase is used in the production process. Each state has different exemptions and even states with similar statutory exemptions have different ways of interpreting them. In the past, in order to make a correct tax decision each purchase had to be examined to verify whether it would qualify for exemption. However, today many manufacturers eschew that inefficient process by instead having the sales tax decision automated based on general ledger account, cost center or material group. The process is as simple as assigning each account or group as either taxable or exempt and then either submitting an exemption certificate for purchases coded to exempt accounts or self-assessing use tax if no tax was charged on a purchase coded to a taxable account. The “decision” of whether an item is taxable or exempt is now just an automated process.