Today is Manufacturing Day 2017. The first Friday of October of each year is set aside to celebrate manufacturers and to bring awareness to modern manufacturing.
Manufacturing drives our economy. Healthy, profitable manufacturers are needed in the United States to drive a thriving economy. Keeping costs down is one piece of a jigsaw puzzle that contributes to the bottom line success of a manufacturer.
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:
Raw materials are purchased free from sales tax, because they are incorporated into the manufactured product for sale. EVERYONE. KNOWS. THAT. Tax is rarely overpaid on obvious and properly coded raw material purchases.
However, materials can occasionally become a part of the manufactured product for sale when they are not an obvious incorporation into the finished product and even if they are not coded to a raw material account. These oddball, hard to classify items most often get coded to supply or consumable types of accounts. These are the forgotten raw materials. The problem with forgotten raw materials is that sales or use tax is often erroneously overpaid on their purchase. If a material is incorporated into the final product in some way, shape, or form the purchase will most likely qualify for exemption from sales and use tax in your state, regardless of its general ledger account classification.
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.
Tis the season – the hectic season! Tax professionals are busy with thoughts and actions to close a year, close audits, plan for 2017, update tax rates, procure and arrange for sales tax projects to hit the new year off running, and oh yeah – to shop for holiday presents for co-workers and loved ones.
Since VJI Views is a blog dedicated to the U.S. manufacturing community and particularly to tax issues and to the overall economic condition of the manufacturing community, I want to take this opportunity to wish everyone a festive holiday season, to have a compliant and pain-free sales and use tax environment in 2017 and to purchase “American made” when possible this season and all through 2017.
The Georgia Department of Revenue has amended sales and use tax Reg. Sec. 560-12-1-.16 that governs direct pay permits. Details of the changes are outlined in the Regulation. Here are a few highlights:
Permits must be applied for through the Georgia Tax Center online application process
All other direct payment permits will expire on December 31, 2016 and cannot be used to make tax free purchases
Direct pay permits applied for through the online application process will become effective on or after January 1, 2017 or the date issued whichever comes later.
By far, the single, most-appreciated fringe benefit that I have enjoyed (even above the accumulation of frequent traveler points) thus far in my thirty-year career in sales and use tax, is the plant tour. I thoroughly enjoy donning up in a hard hat, safety goggles and steel-toe shoes to tour the factory floor. I like to see first-hand, things being made.
Manufacturing Day is a celebration of modern manufacturing hoping to change the perception of manufacturing careers for future generations. The celebration occurs annually on the first Friday in October. Manufacturing Day is this Friday, October 7, 2016.