If you qualify as a manufacturer, then congratulations! There are all kinds of wonderful and delightful exemptions that you can enjoy.
But if you're not...well, sorry. If you read the rest of this article, don't blame me if you get ticked off. Because you're not a manufacturer.
What I want to cover for you are the laws that make life grand for manufacturers, at least as far as sales and use taxes are concerned. You need to check these opportunities for your state, and see which ones apply. Because there's a chance you're giving the state money they don't deserve.
1. Machinery. In most states, manufacturing machinery is either exempt from tax or taxed at a lower rate. There are restrictions, but this is a pretty common and money-saving exemption. Common restrictions (which vary enormously) include:
- The machine must be used to directly change the product from one form to the other
- The machine must be used predominantly in the manufacturing process
- The manufacturing process usually doesn't include the finished goods or raw materials inventory. It typically begins at the first machine and ends at the last machine on the line.
- The machine often must be depreciable or have a minimum purchase price.
- A few states require that the machinery expand production
2. Repairs. In most states, repair labor and parts for exempt machinery aren't taxable.
3. Tools. In some states, smaller equipment, like hand tools, safety equipment, etc. are exempt.
4. Consumables. Generally, the ingredients that become part of the product are exempt. This really is just the resale exemption. But some states also grant an exemption for consumables (eg. like lubricants, drill bits, sand paper, catalysts, etc.) that are used during the process, but don't become an ingredient of the product.
5. Utilities. In some states, electricity, natural gas, propane, and other energy sources are exempt or taxed at a lower rate.
These are the big categories. And there are lots of complications and exceptions with each state being completely different. And these exemptions only apply to manufacturers. But if you are one, you owe it to yourself to get very familiar with the exemptions in your state so that you save every last dollar.
Sales Tax Guy
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