Identifying Refund Opportunities through Reverse Sales and Use Tax Audits for Manufacturers
Posted by Mark Stack on April 23, 2024
Although most states provide sales and use tax exemptions for specific manufacturer purchases, the particulars can vary widely. Manufacturers frequently overlook entitled exemptions, resulting in unintended tax overpayments. To maximize benefits, it's prudent to consider undertaking a reverse sales and use tax audit.
Understanding Reverse Audits
Reverse audits operate in contrast to government audits focused on tax underpayments. Instead, their objective is to pinpoint and recover overpaid taxes.
Generally, equipment and raw materials utilized in the manufacturing process are exempt from sales and use tax. However, many states have broadened these exemptions to encompass purchases of additional items consumed or utilized in manufacturing. These may include utilities, maintenance supplies, and other essential equipment.
Examples of Exempt Items
- Packaging materials
- Material handling and storage equipment
- Safety gear and uniforms
- Fire detection and suppression systems
- Pollution control equipment
Stay Informed
Sales and use tax exemptions evolve over time, posing ongoing compliance challenges. Remaining abreast of the latest regulations in the states where you operate ensures continued eligibility for exemptions.
Are You Leveraging Opportunities?
Securing manufacturing exemptions typically requires presenting suppliers with exemption certificates. Engaging in a reverse audit can help ensure thorough utilization of available exemptions, preventing potential financial losses. Reach out to us to initiate the audit process and swiftly recover any overpaid sales and use taxes.
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Mark is responsible for tax compliance services to businesses and individuals, with specialized knowledge related to international taxation as well as state and local tax (SALT), including nexus and multistate consulting, reviews, and compliance.