20 Sales and Use Tax Situations that Manufacturers Should Avoid
If you’re part of the accounting or purchasing departments at a manufacturing facility, making decisions about sales and use tax process is probably part of your regular responsibilities. But what happens if you are unknowingly following outdated regulations or relying on antiquated compliance procedures? The answer is wasted money and unnecessary expenses.
Sales and use tax mistakes can quickly eat away at a company’s profits. One missed sales tax exemption over the course of a year can add up to thousands of dollars in overpaid taxes. Undetected sales tax nexus may be a state’s jackpot. And mishandled P-cards are often an auditor’s treasure trove.
How can you determine if your sales and use tax processes are in need of repair? Windward Tax has identified twenty red flags that could indicate you are inadvertently making costly sales and use tax mistakes. Here’s a sample of a few of the signs to look out for. Download the entire list here.
20) It has been more than three years since your AP Department received any sales & use tax training.
Most companies have significant turnover, especially in the AP departments. Plus, during the course of a few years, tax laws change. Three years is a good benchmark for a tune up because if you have problems, you are still within the statute of limitations to sort things out.
19) You can’t quickly and easily identify which forklifts are taxable and exempt.
Material handling equipment is often a major source of confusion for taxpayers. For example, forklifts are tax exempt under certain circumstances. The same is true for spare parts, consumable supplies and energy sources. Also, consider the leasing or owning differential. Manufacturers must have a clear understanding of how equipment is used to determine exempt status.
18) You are currently under audit.
At this point, you are under the state’s microscope as auditors look for opportunities to collect unpaid sales taxes. Now is the perfect time to conduct a reverse audit by sales tax professionals on a contingency basis. Why not investigate if you mistakenly overpaid the state? The results may offset any taxes owed and may reduce your penalty and interest.
17) You have one storeroom that houses both taxable and exempt plant supplies.
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. Too often exemptions are missed and tax incentives are wasted – or worse, audits result in significant liabilities because not enough tax was paid.
16) You don’t have a system to accrue use tax.
At some point in time, most companies need to pay use tax on purchases that were never taxed by the vendor. Often mistakes occur when you purchase multiple products from one vendor who assumes the entire purchase is tax exempt. Another pitfall is with out-of-state vendors who are not required to collect your state’s sales tax. In both cases, and many others, you will be required to remit use tax. An auditor is going to look more carefully at all purchases if proper compliance mechanisms are not in place.
Review the rest of the 20 Signs It Is Time for a Sales Tax Tune Up to determine if your sales tax procedures need to be assessed.