Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers THURS DAY, S EPTEMBER 18, 2014, 1:00-2:50 pm Eastern IMPORTANT INFORMATION This program is approved for 2 CPE credit hours . To earn credit you must: • Attendees must listen throughout the program, including the Q & A session, in order to qualify for full continuing education credits. S trafford is required to monitor attendance. • Record verification codes presented throughout the seminar. If you have not printed out the “ Official Record of Attendance,” please print it now (see “ Handouts” tab in “ Conference Materials” box on left -hand side of your computer screen). To earn Continuing Education credits, you must write down the verification codes in the corresponding spaces found on the Official Record of Attendance form. • Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer S ervice at 1-800-926-7926 ext. 10. WHOM TO CONTACT For Assistance During the Program : - On the web, use the chat box at the bottom left of the screen - On the phone, press *0 (“ star” zero) If you get disconnected during the program, you can simply call or log in using your original instructions and PIN.
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Manufacturing and Production Sales Tax Exemptions S ept. 18, 2014 Susan Traylor Bittick Mark A. Loyd Ryan Bingham Greenebaum Doll S usan.bittick@ ryan.com mloyd@ bgdlegal.com Thomas E. Mazurek, Jr Andrew J. Toth Tronconi S egarra & Associates Tronconi S egarra & Associates tmazurek@ tsacpa.com atoth@ tsacpa.com
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE S PEAKERS ’ FIRMS TO BE US ED, AND CANNOT BE US ED, BY A CLIENT OR ANY OTHER PERS ON OR ENTITY FOR THE PURPOS E OF (i) AVOIDING PENALTIES THAT MA Y BE IMPOS ED ON ANY TAXP A YER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER P ARTY ANY MATTERS ADDRES SED HEREIN. Y ou (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subj ect to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 5
S E P T E M B E R 1 8 , 2 0 1 4 Manufacturing Overview Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers Andrew J. Toth, CPA Partner SOLUTIONS BEYOND THE OBVIOUS
TRONCONI SEGARRA & ASSOCIATES LLP Manufacturing Overview – From Merriam-Webster Dictionary: Manufacture – noun 1) something made from raw materials by hand or by machinery 2) a: the process of making wares by hand or by machinery especially when carried on systematically with division of labor; b: a productive industry using mechanical power and machinery 3) the act or process of producing something 7 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP – From Merriam-Webster Dictionary: Manufacture – verb 1) to make (something) usually in large amounts by using machines 2) to create (something, such as a false story or explanation) by using your imagination often in order to trick or deceive someone 8 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP – Manufacturing for Sales Tax Most states provide an exemption from sales tax or a reduced rate of sales tax for machinery and equipment used in “manufacturing” or “production”. » The underlying theory is to prevent the cascading of sales tax that would be caused by taxing purchases used or consumed in the manufacturing process. 9 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP Unfortunately when state revenue departments apply their interpretation of “manufacturing” or “production” it is not as clear as the dictionary definitions above. » As the definitions are not uniform it adds to the complexity of operating multi-state manufacturing businesses. 10 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP What to look for in state statutes to determine a state’s sales tax treatment of purchases related to manufacturing: » definition of manufacturing » machinery and equipment used in manufacturing » ingredients and component parts used in manufacturing » property consumed or used in manufacturing » where the manufacturing process begins and ends 11 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP – Over time states have developed tests for determining what is manufacturing/ production Physical Change Test » Defines manufacturing as the process of changing the form or composition of materials. » Usually allows an exemption for machinery and equipment used directly in making a change to materials. Integrated Plant Theory » Is a broader interpretation of the manufacturing process that relies less on the physical relationship of purchases. » Provides and exemption for equipment and machinery that is integral and necessary to the manufacturing process. 12 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP – Machinery and Equipment Language that limits eligible manufacturing purchases » Directly – during production the machinery and/ or equipment must act upon the material to form the product, have an active causal relationship in production. » Predom inately – used more than 50% of the time in manufacturing. » Exclusively – solely used in manufacturing - 100%. » Mixed or proportional use – exemption determined by the portion of time equipment is used in an exempt manufacturing process. 13 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP Arizona – Machinery or equipment used directly in manufacturing… . Florida – “Industrial machinery and equipment” means tangible personal property or other property that has a depreciable life of three years or more and that is used as an integral part in the manufacturing… Iowa – directly and predom inately used in processing by a manufacturer. Machinery and equipment is directly used in manufacturing if it is used to initiate, sustain or terminate a processing activity. Relevant issues include the physical and temporal proximity between the item and the activity, and the active causal relationship between the item and the activity. 14 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
TRONCONI SEGARRA & ASSOCIATES LLP Kansas – The following sales are exempt: (1) all sales of machinery and equipment used as an integral or essential part of an integrated production operation by a qualified manufacturing or processing plant or facility; (2) all sales of installation, repair and maintenance services performed on such machinery and equipment; and (3) all sales of repair and replacement part and accessories purchased for such machinery and equipment. Massachusetts – Machinery is used directly and exclusively in actual manufacture, conversion or processing when it is used solely during a manufacturing, conversion or processing operation to effect direct and immediate physical change on tangible personal property to be sold… . 15 Manufacturing and Production Sales Tax Exemptions: Not Just for Manufacturers
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