The manufacturing industry is an enormous sector in the United States as it provides jobs and boosts the economy, but are you aware of the varying sales tax laws that come along with being a manufacturer?
Most states provide some kind of sales tax exemptions to manufacturers, whether it be on the raw materials that will be used in manufacturing a product, the manufacturing machinery, and equipment, or the chemicals and catalysts that assist in the manufacturing process.
In a majority of states, raw materials are exempt to manufacturers when they are used in the manufacturing process as ingredients for the final product. The machinery and equipment that are used to manufacture the raw materials from start to finish also tend to be either taxed at a reduced rate or not taxed at all. Repair/replacement parts and labor for manufacturing machinery and equipment as well as smaller facets of manufacturing like transportation equipment are highlighted in the sales tax laws.
Manufacturers in Florida
Raw materials and manufacturing machinery and equipment are tax exempt in Florida. In contrast, tools such as grinding wheels and saw blades are taxable, as are customized cutters and tools, even when they are specifically designed for a particular job. The cost of labor, parts, and materials needed to repair machinery and equipment used in manufacturing is not taxable to manufacturers who have specific industrial classification numbers.
Manufacturers in Mississippi
Mississippi provides a full sales tax exemption for items like raw materials, catalysts and processing chemicals. A majority of the other manufacturing components are taxed at a reduced rate of 1.5%; this includes the sale or rental of manufacturing machinery and machine parts used in the manufacturing process. Motorized units and other conveyor systems are included in the definition of manufacturing machinery. However, maintenance and repair machinery and research laboratory machinery are not considered manufacturing machinery.
Transportation equipment (i.e. forklifts) used to transport manufactured tangible personal property, is partially exempt from sales tax for the portion of the warehouse or plant that is specifically used for manufacturing. Office space and other non-manufacturing areas would not be subject to the exemption allocation percentage. Mississippi state law states that the purchases of pallets for storage and transportation are taxable. However, if the pallet is used as a container and possession of the pallet is passed on to a customer at the time of sale of the goods, the pallet is exempt.
Manufacturers in Nevada
Nevada’s sales tax laws in relation to manufacturing are more simplified in the fact that nearly all tangible personal property transferred for value is taxable, as well as the services needed to complete the sale of the tangible personal property. Installation and repair services are not taxable only if they are separately stated on the invoice. Nevada makes the distinction that a good must be part of the final product in order to be exempt. As stated in Nevada, NAC 372.370, sales tax does not apply to purchases of tangible personal property that will be incorporated into a manufactured article to be sold, meaning that raw materials to be used in making a final product are not taxable.
Manufacturers in Ohio
As is also the case with the aforementioned states, raw materials are not taxable to manufacturers in Ohio. Ohio does not tax a variety of manufacturing areas, including manufacturing machinery and equipment, tools, repair/replacement parts, and processing chemicals. Even more interesting is that foundations and supports for production machinery, materials handling equipment, and other equipment used in a continuous manufacturing operation are not taxable in Ohio. In addition, foundations and supports for tangible personal property used to manufacture tangible personal property used in the manufacturing operation are considered necessary for the continuation of the manufacturing operation and are not taxable.
Manufacturers in Oklahoma
Oklahoma’s state law 710:65-13-150.1(b) broadly mentions that purchases by a manufacturer of tangible personal property or services for use in a manufacturing operation are exempt from sales tax. Included in this exemption is manufacturing equipment, machinery, and associated repair or replacement parts, conveyors, dust collector equipment, forklifts, and manufacturing supplies i.e. work clothing and uniforms, safety goggles, face masks, static mats and surge protectors. Oklahoma provides one of the most exemptions to manufacturers.
As evident in the various state’s laws, manufacturers do receive a number of sales tax exemptions. Since the laws are written on a state by state basis and therefore vary greatly from state to state, it is crucial that manufacturers analyze each state’s law to ensure the correct taxability determination is being made. Depending on where a mistake is made, it could either result in a significant sales and use tax assessment due to the state, or a large sales and use tax refund due to the manufacturer.
Please feel free to reach out to us for a no-cost consultation to discuss your sales and use tax exposure as a manufacturer.