Manufacturers report several common challenges to properly and efficiently filing, remitting, and reporting on taxable transactions. Tracking tariffs, tax rates, and product taxability rules across jurisdictions staying tax compliant while growing the bottom line, and managing exemptions in preparation for the inevitable audit are a few that frequently top the list. <\/p>\n\n\n\n
These\ndays, global trade wars, shifting supply chains, and increasing pressure to\nfind new avenues for growth are adding extra layers of complexity to tax\ncompliance challenges. Here we\u2019ll take a fresh look at how manufacturers can\nbest prepare for tax compliance given today\u2019s dynamic global and domestic\ncircumstances.<\/p>\n\n\n\n
Challenge: Tracking tariffs, tax rates,\nand product taxability rules across global and domestic jurisdictions <\/strong><\/p>\n\n\n\n Whether or not your\nbusiness is benefiting from recent global tariffs, there\u2019s no doubt the current\ntrade war is complicating compliance with international tax obligations. <\/p>\n\n\n\n As fluctuating tariffs change the price of goods and inputs, keeping track of which goods are subject to what tariffs and their current rates have become more difficult than ever. Following the news on international tariffs can be time-consuming \u2014 but miss an announcement and you could make mistakes that increase costs, penalties, or customs delays resulting in unhappy customers. <\/p>\n\n\n\n Increased prices due to tariffs are forcing many manufacturers to consider shifting their supply chain, however, these shifts often mean new compliance and product taxability rules and rates. Even with conscientious planning for new tax compliances, however, political uncertainty can make it difficult for business leaders to feel confident about where to make changes, or whether to make them at all.<\/p>\n\n\n\n The domestic tax\nlandscape has also changed significantly over the last year for many\nmanufacturers as states pass economic nexus laws that increasingly subject\nmanufacturers to sales tax under certain circumstances (see more on this below\nunder \u201cDirect Selling\u201d).<\/p>\n\n\n\n Challenge: Tax compliance while growing\nthe bottom line. <\/strong><\/p>\n\n\n\n Technological advances have enabled manufacturing businesses to\nimprove efficiency methods over the years. But as these efficiency measures\nbecome standard practice across the industry, many companies are exploring new\navenues for growth. Each new avenue for growth, however, is usually lined with significant,\nand often unfamiliar, tax compliance challenges. <\/p>\n\n\n\n Going global.<\/strong> Entering the international market means not only weathering global tariff fluctuations described above, but also learning and complying with a new set of terminology, systems, rules, and even consequences. Incorrectly reporting factors like Harmonized System Codes (\u201cHS\u201d codes), value-added-tax (VAT), goods and services tax (GST), and tariffs (import duties<\/a>) can include customs delays, increased scrutiny from tax authorities and auditors, and even costly fines and penalties. To help mitigate these compliance risks, manufacturers need to carefully plan new compliance practices. Many companies use intermediaries or export agents to complete cross-border transactions, but these additional costs to every transaction, reducing profit margins in the long run.<\/p>\n\n\n\n Direct selling.<\/strong> On the domestic front, manufacturers who sell products directly to consumers or\nthrough drop shippers in remote states must now be aware of the new and various\neconomic nexus laws states are passing. Most goods are now taxable in 45 states\nand more than 12,000 jurisdictions (with distinct sales tax rates), often\nmaking it necessary for businesses to register, collect, and remit sales tax in\nmultiple states and jurisdictions. This can quickly become overwhelming even\nfor seasoned direct sellers.<\/p>\n\n\n\n Services. <\/strong>Service offerings within such as installation, repair and maintenance, and equipment leasing are becoming as commonplace among manufacturers in the U.S. as the potential for incurring sales tax on those services. Taxability and rates are once again dependent on jurisdiction, however, determining the precise jurisdiction in which a service was performed can be problematic. Crossing state lines to perform a service can be enough to constitute nexus; using third-party vendors to do repairs and installations can also create nexus. <\/p>\n\n\n\n Challenge: Exemption\ncertificate management. <\/strong><\/p>\n\n\n\n Manufacturers encounter a variety of sales\nand use tax-exempt opportunities. Two of the most common are:<\/p>\n\n\n\n Exemption certificate management can be particularly difficult, especially when multiple states and\/or industries are involved. However, properly documenting and managing exemptions is known to be one of the best ways to reduce the risk of penalties during an audit.<\/p>\n\n\n\n In the case of resale\nexemptions, manufacturers and distributors must maintain\nexemption certificate information for each state or locality where the reseller\nreceives a product. The same rules apply for sales made by a manufacturer to a\ndistributor or forwarder who intends to either collect tax on their own direct\nsales, or who intends to sell the products to another reseller. <\/p>\n\n\n\n Direct pay permits require tracking where each item goes and for what purpose in order to establish the taxability of that item. This becomes even more complicated in cases where manufacturers make bulk purchases and items or parts are then shared among multiple plants or facilities. An item might be taxable in one state but exempt in another \u2014 even if used for the same purpose.<\/p>\n\n\n\n If an audit reveals a\nmissing, incorrect, or invalid certificate, the manufacturer or distributor\ncould incur costly fines on top of the uncollected tax. Ultimately, it\u2019s\nup to each business to correctly document which equipment, machinery, products,\nand uses a jurisdiction has allowed an exemption for and which are taxable. It\u2019s a lot to track and execute accurately. Businesses must obtain\nrequired signatures, record expiration dates, and renew certificates as needed.\nFollowing changes in taxability and nexus laws is equally important. <\/p>\n\n\n\n Other activities, such as drop shipping to a consumer on behalf of your customer, can also trigger the need to maintain careful documentation. Dropshipping can be further complicated by possible combinations of physical and economic nexus that can mean sales tax collection and remittance to a number of states. <\/p>\n\n\n\n Managing\ncompliance<\/strong><\/p>\n\n\n\n As we can see,\nmanufacturers domestically and abroad are facing a slew of tax compliance challenges.\nDepending on size and scale, these can range from manageable to overwhelming \u2014 even\non a good day. Compliance challenges needn\u2019t be daunting, however. There are\nsteps manufacturing companies can take to improve tax compliance efficiency and\nreduce risk.<\/p>\n\n\n\n Careful planning will help companies develop cost-effective compliance strategies. Planning should include comprehensive research studies that take into account political realities, foreign and domestic rules and regulations, up-to-date tax, and tariff rates, as well as the potential for state variations in sales tax nexus.<\/p>\n\n\n\n As with other\nmanufacturing processes, cloud-based automation can provide a repeatable,\nconsistent process for tax compliance along with a myriad of other benefits, such as: <\/p>\n\n\n\n Some critical\nfeatures to look for in an automated solution include:<\/p>\n\n\n\n Avalara\u2019s AvaTax provides\nseamless integration with your existing Enterprise Resource Planning (ERP) and\nother financial applications and gives you the control you need to implement a\nquality workflow process. <\/p>\n\n\n\n Learn more about the sales tax issues manufacturers confront when entering new channels \u2014 and how to best deal with them \u2014 in How Tax Compliance Is Changing for Manufacturers. Download it here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" Manufacturers report several common challenges to properly and efficiently filing, remitting, and reporting on taxable transactions. Tracking tariffs, tax rates, and product taxability rules across jurisdictions staying tax compliant while growing the bottom line, and managing exemptions in preparation for<\/p>\n... 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