1. Machinery used or required to operate, control, or regulate production equipment;

2. Materials and supplies necessary to construct and install machinery;

3. Certain repair and replacement parts;

4. Materials used for foundations that support machinery;

5. Machinery and equipment used for research and development, design, quality control and testing;

6. Environmental control devices essential to the production process;

7. Certain types of ready-mix concrete equipment;

It is important to note that not all assets that are capitalized for accounting purposes are considered to be capital equipment for the intent of this exemption.  Additionally, capital equipment does not include:

a. Motor vehicles;

b. Machinery or equipment used to receive or store raw materials;

c. Building materials, except under strict circumstances;

d. Machinery or equipment used for non-production purposes;

e. Machinery or equipment installed as an improvement to real property;

f. Machinery and equipment used by restaurants in furnishing, preparing or serving prepared foods;

g. any other items of machinery or equipment that is not essential to the integrated process of manufacturing, fabricating, mining or refining.

To be considered valid, Minnesota Capital Equipment sales and use tax refund claims must be filed within 42 months of the original invoice date.



As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability.  If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at info@salesandusetax.com.

Citations:

MN Statutes 297A.68, Subdivision 5 – Capital Equipment

Minnesota Sales and Use Tax

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In accordance with Connecticut Agencies Regulations 12-412(34)-1 and Connecticut General Statutes 12-412(34), Connecticut offers a broad exemption for machinery used directly in a manufacturing production process.  For the purposes of this exemption, a business must substantially alter raw or finished materials into a product possessing new characteristics in order to be considered a manufacturer. Additionally, the production process must result in a good or product that is intended for resale. The following are guidelines in determining whether a process qualifies as manufacturing under the Connecticut manufacturing machinery exemption:

1. The process must occur at a manufacturing plant located in Connecticut. The term “manufacturing plant” means an establishment that has manufacturing as its predominant purpose and that is generally recognized as such.  Predominant purpose can be determined by evaluating use of floor space, number of employees dedicated to the manufacturing production process, wages and salary of employees working at the location, costs attributable to the manufacturing production process, or whether sales are made at the location.

2. The more dramatic the change to the property as a result of the manufacturing process, the more likely it is to be considered manufacturing. For example, chemical change to property is more likely viewed as manufacturing than only physical change to property.

3. The process must be commonly regarded as manufacturing. For example, the state of Connecticut draws a distinction between the operation of a bakery within a supermarket and a bakery, which would not qualify as manufacturing; and a bakery where the baking is primarily intended for other than on-site sale, which would qualify as manufacturing.

4. If the manufacturing process involves production in standardized sizes, qualities and/or multiple quantities, the process is more likely to be considered manufacturing.

5. Steam or electricity generation is not considered manufacturing.

6. Software development is not considered to be manufacturing.

7. Radio, television or cable programming equipment may be exempt from sales and use taxes based on a number of criteria.  Contact us for additional information.

A key concept in the application of the Connecticut manufacturing machinery exemption is “direct use.”  Machinery and equipment that qualify for the Connecticut manufacturing machinery exemption must be used directly in the manufacturing production process.  “Direct use” is determined by the following principles:

a. Machinery or equipment that has a direct effect upon the character of the product being manufactured is used directly in the manufacturing process.

b. Machinery or equipment that is used predominantly in production, to control or monitor production or to test or measure products being manufactured can qualify as machinery used directly in the manufacturing process depending on the nature of the machinery or equipment at its relation to the production of goods intended for resale.

c. Machinery or equipment that is used to perform an activity that occurs prior to the first stage of the manufacturing process or after the last stage of production is not considered to be used directly in production.

d. Machinery or equipment that is used to repair or maintain machinery described above or to remanufacture tools used in production is not considered to be used directly in the production process.

Businesses that qualify for this exemption can request a refund from the state of Connecticut for sales tax paid in error. Labor is generally taxable, only purchases of tangible personal property will qualify for this exemption. Additional industry specific exemptions are also available.

As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability.  If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at info@salesandusetax.com.

Citations:

Connecticut Agencies Regulations 12-412(34)-1

Connecticut General Statutes 12-412(34)

Connecticut Sales and Use Tax

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The sales tax consulting firm SalesAndUseTax.com announces the opening of its Austin, Texas location to better represent its Texas sales tax audit defense clients.  Aaron C. Giles, President of SalesAndUseTax.com said, “We are excited about the benefits that will accrue to our clients as we take this necessary step to expand our presence in the Texas sales tax audit defense arena.”  Giles believes that having a location nearby the Comptroller’s office will make the audit defense service his firm offers even more effective than it has been in the past.

SalesAndUseTax.com specializes in providing sales and use tax consulting services to its clients.  SalesAndUseTax.com is fresh off a multi-state reverse audit victory resulting in a refund of over $4M to a client.  SalesAndUseTax.com assists companies through an impending state sales tax audit in several ways:

Audit Defense Services - SalesAndUseTax.com acts as the liaison with the state auditor working the audit.  This allows clients to reap the benefits of SalesAndUseTax.com’s expertise.  SalesAndUseTax.com deals with auditors on a daily basis.  As a result, its staff is familiar with strategies to manage auditors and negotiate with them to receive more favorable treatment.  SalesAndUseTax.com’s trademarked audit defense service consists of the following two components:

o Pre-Audit Compliance Review - Prior to the audit beginning SalesAndUseTax.com will analyze and determine areas of concern for its client.  Armed with that knowledge, along with its clients SalesAndUseTax.com will strategize how best to deal with deficiencies if they exist or maximize the benefit of refunds due.  Specific strategies exist to eliminate or reduce penalty and interest if a deficiency is found.

o Reverse Audit - The best practice is to immediately schedule a reverse audit when a company has been notified of an impending state audit.  A reverse audit is a detailed review of a company’s records to determine if any sales tax refund opportunities exist.  SalesAndUseTax.com’s firsthand experience demonstrates that most companies overpay sales and use tax.

Managed Audits – The state of Texas has a program that allows some companies to perform their own audit rather than sending a state auditor to perform the review.  In order to qualify for this program, however, the company must meet certain requirements and even then admittance to the program is limited.  If a company can qualify, the benefits are significant.  First, the state of Texas will waive penalty and interest from any deficiencies.  Penalty and interest accrue at 25% of any deficiencies.  Second, performing an internal audit allows companies to better manage areas where they may have exposure due to incomplete records or a change in accounting systems.  SalesAndUseTax.com helps companies qualify for this program.

Post Audit Review - If the state has recently completed an audit of a company, SalesAndUseTax.com will review the audit to see it can help the company recover money paid to the state.

“Generally, we find that companies are underestimating the breadth of the exemptions for which they qualify,” Giles said.  “Additionally, states are becoming increasingly aggressive in their auditing techniques in these challenging economic times,” according to Giles.  A combination of these two factors frequently results in overpayments of sales and use tax, penalties and interest during a state sales tax audit.  While companies are tempted to handle the sales tax audit internally, turning to an expert for help can drastically reduce the likelihood of any overpayments. 

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SalesAndUseTax.com Texas sales tax audit press release

Texas sales tax audit

Texas sales and use tax

Sales tax consulting

Texas equipment rental with operator sales tax exemption  

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Florida, Georgia and Tennessee have broad sales and use tax exemptions available for manufacturers.  Aaron C. Giles, President of the sales tax consulting firm SalesAndUseTax.com said “While these exemptions offer generous incentives for qualifying businesses, very few companies take full advantage of them.”  Manufacturers frequently miss out on these opportunities because some states exemptions are not well publicized.  In other cases, manufacturers may only be taking advantage of part of the exemption. 

The Georgia sales and use tax exemption for manufacturers is well documented and relatively easy for taxpayers to find.  The state’s exemption certificate can be downloaded from the Department of Revenue website.  “However, taxpayers do not have access to the case law and letter rulings where the state has set the precedent for exempt purchases,” said Giles.  “The only way for a business to know how aggressively they can interpret the exemption is to have an experienced consultant help them prepare the refund request and identify areas of opportunity.”

Unlike Georgia, the Florida sales and use tax exemption for manufacturers is not well publicized.  While the state of Florida has a broad sales and use tax exemption for these companies, many do not take advantage of it because they are unaware of its existence.  Giles said, “Florida’s manufacturing exemption is buried in the statutes.  Even worse, the language used to describe the exemption is vague.”  The state of Florida does publish Technical Assistance Advisories (TAA) on the Department of Revenue’s website, but navigating them or scanning court cases is time consuming and cumbersome.  Also, the exemptions and rulings described in each TAA apply only to the specific circumstances or industry for which the TAA was written.  “Trying to apply those decisions unilaterally across all industries will lead to denied refund claims,” Giles said.

The Tennessee sales and use tax exemption for manufacturers is not well publicized either.  “The exemption described in Tennessee Rule 1320-5-1-.106 does not describe the types of industrial machinery that qualify for the exemption,” according to Giles.  The Rule also states that taxpayers must apply for the refund prior to purchasing any equipment.  “There are circumstances other than those described in the Rule where the exemption can be applied retroactively after equipment has been purchased,” said Giles.

“In all of these states, we see firms that are underestimating the breadth of the exemption,” Giles said.  “In any state, there is an art to arguing the sales and use tax refund claim.  Few, if any, businesses have the time, resources, experience or expertise to sufficiently pursue these refund opportunities on their own.”   Giles advocates bringing in an outside consultant to handle the discovery and processing of the refund claim.  “Businesses should look for consultants who are willing to work on a contingency-basis,” said Giles.  ”This ensures the consultant will put forth his or her best effort to resolving the refund quickly.”  Contingency-based contracts also protect the company from the possibility of the racking up substantial consulting bills for efforts that produce little to no savings.

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Tennessee industrial machinery sales and use tax exemption  

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The state of Tennessee provides an exemption for industrial machinery used to fabricate or produce items for resale.  The exemption can be found under TN Rule 1320-5-1-.106, Industrial Machinery. 

Entities that wish to purchase or lease production equipment exempt from sales and use tax need to apply to the state of Tennessee for permission to do so.  The state of Tennessee will require information about the nature of the business and an explanation of why the taxpayer feels the purchase of the industrial machinery qualifies for the exemption.  If granted, the exemption certificate will be in place permanently unless the taxpayer’s business either:

a.  Ceases operations.

b.  The business changes in character to such a point that it no longer operates within the scope or description provided in its original application.

While the Rule states that the application must be made prior to the purchase of any qualifying equipment or machinery, there are exceptions to this requirement.  The examples given in Rule 1320-5-1-.106 for retroactive application include but are not limited to the following:

1.  A major restructuring of the business

2.  A change in ownership of the business

3.  Death of a key person in the tax area of the organization

4.  The taxpayer being misled by state officials who had indicated that authority to purchase the industrial machinery was not required

5.  Failure to renew the certificate if prior approval had been granted

6.  Any other grounds that the Commissioner finds satisfactory to allow retroactive application of this exemption.

The last example given in the Rule provides an open-ended clause that allows taxpayers an opportunity to retroactively apply for the exemption.  In our experience, a well documented request that provides a clear explanation for both why the business qualifies for the exemption as well as the reason for not applying prior to the purchase of said equipment is usually sufficient.  If you would like help in composing a request for the industrial machinery sales & use tax exemption, please contact a Tennessee Sales and Use Tax consultant at the link provided here or by calling toll free to (888) 350-4829.

As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability.  If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at info@salesandusetax.com. 

Citations:

T.C.A. §67-6-206

Tennessee Sales and Use Tax Rule 1320-5-1-.106

Tennessee Sales and Use Tax

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Georgia’s laws provide four circumstances under which computer software can be purchased exempt from sales and use tax.  They are:

1.  Customized computer software – the state of Georgia defines customized software as “computer software which is designed and developed by the author to the specifications of a specific purchaser.”  The way in which the computer software was transferred to the taxpayer does not affect the taxability of the sale of customized computer software.  Sales of multiple copies of the customized software does not influence the taxability of the transaction as long as the other copies of the software are sold to the same taxpayer for whom it was developed.  The combination of two or more prewritten computer software programs does not constitute a sale of customized computer software.  If customized computer software is sold in conjunction with the sale, lease or rental of hardware, machinery or computer equipment and there is not a separate charge for the customized software, the entire transaction is considered to be subject to sales and use tax.

2.  Electronically transmitted computer software - software that is downloaded over the internet, emailed or conveyed to the end user by any “means other than tangible storage media.”  In order to support this claim the taxpayer will need to keep records documenting the software was transmitted electronically.  Ideally, in the “Ship to:” area of the invoice, the seller can put “transmitted electronically” and the email address to which it was sent.  If the file is downloaded via FTP (File Transfer Protocol) or via the internet the taxpayer may have to call and request documentation stating that the transaction was completed electronically. 

3.  Purchases of computer equipment including software that exceed $15 million per calendar year incorporated into a high technology facility classified under the NAICS 51121, 51331, 51333, 51334, 51421, 52232, 54133, 54171, 54172, 334413, 513321, 513322, 514191, 541511, 541512, 541513 or 541519.  For the purposes of this exemption, computer equipment is defined as “any individual computer or organized assembly of hardware or software such as a server farm, mainframe or midrange computer, mainframe driven high-speed print and mailing devices, and workstations connected to those devices via high bandwidth connectivity such as a local area network, wide area network, or any other data transport technology which performs one of the following functions: storage or management of production data, hosting of production applications, hosting of application systems development activities, or hosting of applications systems testing.”

4.  Software that is used in one of the specific ways is also considered to be exempt from sales and use tax:

a.  Software that controls production machinery or equipment that is used to manufacture tangible personal property for sale.  The machinery or equipment must be “necessary and integral” to the manufacturing process.

b.  Software that is used to control the primary handling equipment that moves tangible personal property in a warehouse or distribution facility.  Additionally, this equipment must be part of a $5 million or more expansion of an existing warehouse or distribution facility or the construction of a new warehouse or distribution facility where the total value of all real and tangible personal property for use in the construction meets or exceeds the $5 million threshold.

c.  Software that is used in the remanufacture of airplane engine parts or engines.  Remanufacture means the “substantial overhauling or rebuilding of aircraft engines or aircraft engine parts or components.”

d.  Software that is used in equipment or systems whose primary purpose is to reduce or eliminate air or water pollution.

e.  Software that is used in qualified water conservation facilities and is used for water conservation.  A qualified water conservation facility “means any facility, including buildings, and any machinery and equipment used in the water conservation process resulting in a minimum 10% reduction in permit by relinquishment or transfer of annual permitted water usage from existing permitted ground-water sources.”  Additionally, the facility must be governed by the “rules and regulations promulgated by the Department of Natural Resources.”

As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability.  If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at info@salesandusetax.com. 

Citations:

Georgia Code O.C.G.A. § 48-8-3(34), (34.1), (34.2), (36), (36.1) and (68)

Substantive Rules and Regulations 560-12-2-.111

Georgia Sales and Use Tax

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Copyright © 2008, SalesAndUseTax.com.  All rights reserved.

Atlanta, GA (PRWEB) September 1, 2008 — In November, voters in California, Colorado and Minnesota will go to the polls to vote on proposed sales and use tax rate increases. If passed, these states will be following the lead of states such as Indiana, Iowa, Maryland and North Carolina who have recently imposed sales tax rate increases on their citizens. “Sales tax is a regressive tax, meaning that it imposes a greater burden on low-income families,” said Aaron C. Giles, “During economic downturns, like the one we are currently facing this problem is exacerbated.”

California Governor Arnold Schwarzenegger drew the disdain of members of the state Republican Party this month when he proposed a temporary 1-cent sales tax increase to offset a projected $15.2 billion budget shortfall. If passed, the California state sales and use tax rate would increase from 6.25% to 7.25% for a two or three year period of time, then return to the lower 6.25% rate. “Governor Schwarzenegger went against the grain by proposing this sales tax rate increase,” said Giles.

Colorado residents will be voting on increasing the sales and use tax rate 0.2%. The current Colorado sales and use tax rate is 2.9%. Amendment 51, which is the proposed sales tax initiative, will bring in an additional $186 million in revenue annually that will be earmarked for the developmentally disabled.  Giles said, “No one doubts the merits of helping these citizens, the question is how willing people will be to open their wallets to in order to pay for it.”

Appearing on November 4th ballot in Minnesota is a proposed sales and use tax increase of 3/8ths of 1% that would result in additional revenue of $300 million per year if passed. The Minnesota State Legislature’s legislative referral to raise sales taxes is being supported by the Vote Yes Minnesota group. The current Minnesota sales and use tax rate is 6.5%.

Increasing sales tax rates appears to be a growing trend among states. Within the past nine months Indiana, Iowa, Maryland and North Carolina have each increased their state sales tax rate. According to the Giles, a sales and use tax consultant, “It is too early to see the effect on consumer spending in the states that recently raised their sales and use tax rates, however consumers in each of the four states expressed displeasure with the change initially.”

Due to the revenue shortage predicted by Governor Martin O’Malley, Maryland was the first state to hike sales and use tax rates this year with an increase from 5% to 6%. The 20% increase is estimated to bring in additional revenue of approximately $700 million annually. In addition to increasing rates 20%, the list of services subject to sales and use tax was expanded to include computer services. “Maryland has predicted significant budget shortfalls and Governor O’Malley felt this was one of the best ways he could address them,” Giles said.

On April 1, 2008, Indiana and North Carolina both increased their statewide sales tax rates. House Enrolled Act 1001 increased the state rate for Indiana sales and use tax from 6% to 7% representing a 17% increase. The North Carolina sales and use tax rate increase was smaller in comparison to Indiana’s with rates moving up from 6.75% to 7%; a change of only 3.7%.

The state of Iowa sales and use tax rate increased from 5% to 6% on July 1, 2008. While this increase was statewide, it replaced the School Local Option Sales Tax (SILO) making the increase less painful for Iowa consumers. The Local Option Sales Taxes (LOST) of up to an additional 1% will remain in effect however.

While statistics show that 40% of sales and use taxes are paid by businesses, “many companies view it as a cost of doing business,” said Giles. “Consumers on the other hand feel differently. With the states of California, Colorado and Minnesota putting the decision in the consumers’ hands, it will be clear what they really value most — their own wallets or the funding the politicians feel the states need.” Whether or not the proposed sales tax increases are passed into law will be revealing.

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This Sales & Use Tax Press Release at PRweb

California Sales and Use Tax

Colorado Sales and Use Tax

Indiana Sales and Use Tax

Iowa Sales and Use Tax

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