Summer Sales Tax Savings for Indiana Manufacturers

Last Updated on May 15, 2023

Are You Leaving $100,000 on the Table?

By Clyde Gentry III

Every company looks to improve their bottom line and increase cash flow, but most don’t realize that savings can be found in the unlikeliest place: sales & use tax. Sales & use tax is not taught on a CPA exam; vendors charge tax unless they know otherwise; and State tax law is open to interpretation. But there is good news for manufacturers, especially in Indiana. 

Indiana is the most amenable state for taxpayer refunds of overpaid and over-accrued sales and use tax on fixed asset and expense purchases. While many states drag out issuing refunds, Indiana must issue a decision within 90 days of a filed claim to avoid paying interest. Indiana has a statutory period of three years, meaning that refunds can be filed for the past three years of historical purchasing. The State also goes by the calendar year, so those wishing to file refunds can do so from January 2020 to present.

Here are some areas that can create material refund opportunities for Indiana manufacturers:

Let’s say a simple expense purchase has $50 of overpaid tax. Now let’s say that same purchase is made three times a month. At 42 months of statute, that one $50 overpayment is now $6,300. Even a smaller manufacturer can recover not only $100,000 in tax, but sometimes substantially more.

So how does a taxpayer file for relief? It’s called a reverse audit or refund review whereby the taxpayer files for hard-dollar remedy directly from the State. To do so, a careful examination of accounts payable records is required: paid invoices, use tax accruals and general ledger detail. Taxability by usage is key, so sometimes pictures, video or a site tour by the field auditor reviewing the claim may be needed to illustrate exemption potential. Vendor support may be needed to substantiate a claim, and after all the suspect invoices are vetted out, a refund schedule is created with a narrative listing the Indiana codes/laws that show why those purchases should be exempt.

In the case of utilities, Indiana is called a predominant use State, meaning if more than 50% of the utilities are used in production, then all utilities are exempt from sales tax. To determine this exemption, a licensed engineer would be needed to perform a predominant use study during an onsite visit. This is the golden ticket needed by the State to grant this exemption. And while the study is a document of record for future savings, the taxpayer would need to file for refunds separately if the paid tax is under statute.

After refunds are granted, a review of the vendors and tax processes should lead to the implementation of exemption certificates. This process will safeguard those vendors from overcharging you on tax on future purchases, thus saving you more money in the future. 

Sales & use tax refund reviews should be a best practice employed by most companies, but especially for companies involved in manufacturing and R&D. Manufacturers may spend well over a million dollars over the course of one year to conduct their business, so even a nominal error rate in overpaid tax can lead to material savings. And best of all, a review will ultimately give you piece of mind that you are not leaving money on the table.

TaxMatrix is a leading sales and use tax recovery firm that works extensively with Indiana manufacturers to recoup overpaid tax, provide free process improvement training and avail a free Tax Help Desk for support. This service is performed on a success basis with no upfront fees or costs. For more information, contact Clyde Gentry at clyde@taxmatrix.com.