Staying compliant with constantly changing sales tax laws across multiple states and jurisdictions is an operational headache for many manufacturers. Sales tax management can suck up significant resources through manual reporting, disparate systems, and reliance on error-prone spreadsheets. However, optimizing your sales tax processes can help streamline this burden. In this post, we’ll explore tips for optimizing your manufacturing sales tax processes and staying compliant.
Centralize Sales Tax Management
Rather than managing sales tax at the individual facility or business unit level, centralize all sales tax processes through a dedicated compliance team. Research found manufacturers with centralized sales tax management spend 56% less overall than decentralized approaches.
For example, after centralizing their sales tax management into a shared services group, the industrial manufacturer SPX Corporation reduced their tax compliance costs by over 40% according to their VP of Tax.
Centralization promotes consistency, accountability, and efficiency. Empower the tax team to monitor changing regulations, update systems company-wide, lead training, and consolidate filings into a single entity-wide return for each state. They gain expertise to spot redundant efforts and continually optimize workflows.
Automate Reporting and Calculations
Excel spreadsheets and manual reporting are highly error-prone processes that burden manufacturing tax teams. According to the American Institute of CPAs, 90% of spreadsheets contain material errors. Relying on manual calculations across multiple jurisdictions opens the door for penalties and overpayments.
Instead, implement automated sales tax solutions that integrate tax rate data directly into existing ERPs and billing systems. This eliminates post-transaction review and adjustments. One automotive manufacturer reduced the time spent on monthly sales tax reporting by over 80% after implementing automation.
Automation also enables advanced reporting for audit defense. Software solutions can generate custom reports on taxability decisions, exemption certificates, and sourcing logic to answer auditor questions.
Seek Exemptions and Incentives
Manufacturing provides some of the most generous sales tax exemptions due to economic development incentives. For example, a Wisconsin manufacturer of fabricated metal products was able to exempt purchases of equipment, tools, and certain raw materials from sales tax – saving them over $450,000 annually.
Seek out and apply for any relevant manufacturing exemptions within the jurisdictions you operate. Stay on top of any new incentives and re-evaluate existing operations to leverage savings. State and local development agencies may even provide incentives for manufacturers to relocate facilities and hire locally.
Review Nexus Annually
As your manufacturing footprint evolves, your sales tax nexus exposure will too. Regularly review nexus thresholds across all jurisdictions. Nexus triggers include physical locations, inventory, payroll, and economic activity.
By completing an annual nexus review, you can identify upcoming filing and remittance obligations before non-compliance penalties are set in. This allows you to allocate resources proactively to meet the sales tax requirements in newly established nexus states.
Sales Tax DataLINK Offers Manufacturing Sales Tax Solutions
Sales Tax DataLINK offers outsourced sales tax management services designed specifically for manufacturers to help optimize compliance. Our team of CPAs and Accountants monitor changing laws nationwide and provide up-to-date taxability data for all jurisdictions manufacturers operate and ship to.
Our solution also enables integrations to sync tax data into ERP and billing systems to automate reporting and calculations. Our dashboards, mapping tools, and exemption certificate management simplify the entire sales tax management process for manufacturers.
The extensive experience our company has serving manufacturers provides industry-specific insights to reduce compliance costs and audit risk. Our full-service offering handles filings, system updates, and proactive law monitoring so manufacturers can focus on core operations rather than sales tax burdens.
Optimized sales tax processes reduce compliance costs and risk. For manufacturing companies struggling with sales tax management, explore how Sales Tax DataLINK can provide relief.
