Tuesday, August 24, 2010

Mistaken Manufacturer

Rochelle Electric Power PlantI exchanged a couple of emails with a past participant yesterday. She'd been stung during a sales tax audit because one of her vendors hadn't charged her sales tax. So she wound up having to pay the use tax, plus interest and penalties. Standard stuff, of course.

What was interesting is that, after the audit, she called the vendor and asked why they didn't charge her tax. Their response was that they didn't have to, they were a manufacturer and therefore exempt.


Now, to be fair, the product was odd enough that I can see there being some really arcane exemption lurking in the statutes. So I suggested she check on that. But it amazed me (I should learn to never be amazed) that a company would think that the manufacturing exemption would apply to what they sell.

Just to make sure, for some of you who may be reading this, when we're talking about the manufacturing exemption, it's for the purchases of the manufacturer who uses them in manufacturing. Every state has different rules of course, but that's the big concept. It doesn't grant an exemption to what the company sells! Sheesh.

Now, I'm sending a link to this article to (we'll call her "Jane") who gave me the idea for this article (thanks and a gold star to you!). But I'm going to have to chide her a little. I talk about the fact that, when an in-state vendor fails to charge you tax on something you think is taxable, you should call them and find out why. If she had made that phone call back when these purchases were made, she might not have convinced the vendor. But she would have known to accrue the tax, and thereby avoid the interest and penalties that she paid as a result of the audit.

And, as a consolation prize, I did tell her that the vendor was probably going to get audited. Let's face it. When an auditor comes across a few invoices from an in-state vendor where they didn't charge sales tax for any apparent reason, they're audit-bait.

The Sales Tax Guy

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Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo. And the subject of the picture has nothing to do with this story!

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