Manufacturers often focus on reducing production costs and improving operational efficiency, but many overlook potential tax savings that may be hidden in their purchase records. To help ensure that your manufacturing business is taking advantage of all available exemptions to enhance your cash flow, consider conducting a reverse sales and use tax audit.

Open the books

A reverse sales and use tax audit is a proactive review of prior sales and use tax payments to identify overpayments and uncover refund opportunities. Unlike a traditional tax audit, such as one conducted by the IRS, a reverse audit is initiated by the taxpayer and focuses on finding taxes that were paid unnecessarily or in excess of what was legally due.

In many states, manufacturers can recover overpaid sales and use taxes for several prior years. So the tax savings from a reverse audit can really add up.

Manufacturers are particularly likely to benefit from reverse sales and use tax audits because of the complexity of their purchasing activities. They routinely acquire machinery, equipment, replacement parts, raw materials and consumable supplies, many of which may qualify for sales tax exemptions under state law.

Equipment not used directly in the manufacturing process but essential to it may also be exempt. Examples include computers, lighting, plumbing and electrical, and climate control equipment. Maintenance-related purchases, such as equipment, supplies and repair parts, may also be exempt.

Other items that may be exempt from sales and use taxes include:

Packaging materials,
Material handling and storage equipment used in the manufacturing process,
Safety equipment and uniforms,
Fire detection and suppression systems,
Cleaning equipment and supplies used on or near manufacturing equipment, and
Pollution control equipment.

But keeping track of the wide variety of sales and use tax exemptions offered by each of the states in which you do business and purchase materials and equipment is challenging. So it’s easy to miss claiming all of the exemptions your manufacturing business is entitled to. Further complicating matters is the fact that exemptions may change over time.

Turn to us for help

For manufacturers facing rising costs and increased competitive pressures, a reverse sales and use tax audit can provide valuable savings. We can help your manufacturing business analyze purchase records, invoices, exemption certificates and tax accrual procedures to identify overpayments. We can also assist with preparing your refund claims. Contact us today.