Common Energy Sales Tax Mistakes (And How to Fix Them!)
If one thing is for sure, it’s that energy sales tax is one of the more confusing aspects of a manufacturing business.The confusing and complex nature of sales tax leads can lead to fines, overpayments, and quite the headache. Below are some of the most common sales tax mistakes made in the manufacturing industry and how to fix them!
Misunderstanding Exemptions
You’d be surprised how many people are either over or under paying sales tax on the basis of not understanding what laws and rules apply to them. Many businesses assume that all energy purchases are exempt from sales taxes (spoiler alert: it’s not).. Certain types of energy may be exempt (such as electricity used for manufacturing processes), while others (such as heating and cooling for the office spaces) may not be.
How to fix it:
Make sure to look into your state's specific sales tax rules and laws to understand which processes qualify for exemption. If you’re not sure, consider working with a firm (like us!) who lives and breathes this stuff and can help you identify exemptions.
Not Applying Exemptions
Even if your business is exempt from sales tax in certain circumstances, there’s a chance you’re paying it anyway. This happens for many reasons, a common one being simple oversight. Focusing on the operations of your facility will usually take up a majority of your time, so it’s quite common that we forget to do the smaller tasks, like applying these exemptions. We like to call this, “I’m too busy to deal with paperwork” syndrome.
How to fix it:
Ensure all your paperwork is filled out accurately and submitted to your supplier. Another way to simplify this process is by accurately documenting which energy uses are from the manufacturing process itself and which are from other instances.
Inaccurate or Improper Documentation
As stated previously, accurate documentation is extremely important when it comes to sales tax exemption. Without the proper documentation, your business will be unable to claim these exemptions and might as well be throwing money away. Additionally, you’ll have a whole lot of explaining to do in the event of an audit.
How to fix it:
Organize your paperwork and records into categories to ensure none of the important documents are lost. These can be divided by invoices, exemption certificates, communications with the energy providers, etc. Implementing an organized system for document tracking will lighten your workload in the future. You’ll thank us later.
At the end of the day, navigating sales tax exemptions requires a full understanding of the laws in your state. By staying informed on these rules, keeping accurate records, and applying the exemptions correctly, your business will avoid unnecessary spending. In many cases, a refund may be obtained in the event of overpaying.
And if you’re feeling overwhelmed? Call in the pros.