Expensive Misconceptions

by | Nov 11, 2021 | Uncategorized | 0 comments

Recent media reporting shows that American automobile manufacturers could lose $110 billion in revenue in 2021 due to a shortage of computer chips. This shortage helps put into perspective how important manufacturing is to our economy.

It’s no wonder that just about every state with transaction-based taxes also has accompanying exemptions for manufacturing operations. The reason is simple: these exemptions target manufacturers to encourage them to keep operations and facilities in their state and motivate an expansion of those facilities.

The most common misunderstanding regarding manufacturing is that these exemptions only apply to purchases for “the actual assembly line” or “equipment that makes a change to the product being manufactured.” 

      Brad Ayres
      State Tax Manager
      

This misunderstanding can be an expensive misconception and one every manufacturer should avoid. In most states, the tax incentives for manufacturing reach far beyond the actual “assembly line,” so to speak. For example, a company that manufactures ice on a large scale might only consider purchases of an actual ice maker, parts for the ice maker, and other related equipment exempt from sales tax. However, since reverse osmosis, a complex process, filters the water used in the ice maker, the ice manufacturer could potentially be missing out on hundreds of thousands of dollars in sales tax exemptions across all their ice plants. In defining the start of their manufacturing process as the water entering the ice maker, they make the costly misconception we refer to above. The same is true for services and equipment purchases after the ice-making process, like wrapping and packaging. Although the details might be different, most states have specific exemptions for manufacturers surrounding the wrapping and packaging of the completed product. Those same supplies and services exemptions are not offered to retailers and other service providers like they are for manufacturing facilities. One dollar kept in the private sector is worth more than ten dollars taken by a bureaucratic government. Expensive misconceptions have an economic impact that ripple throughout our entire economy, with missed opportunities for manufacturers all too significant when you consider what they could be doing with their money instead of investing it into misinformation and costly mistakes.

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