Manufacturing Exemptions & Incentives

Posted on August 12, 2019

Across the United States, sales tax regulations and exemptions are determined by each individual state. Exemptions can range from a single item being considered non-taxable to an entire transaction exemption because of how the purchase is used by a business.

States look to manufacturers as a means of boosting their economy by bringing business and jobs to the area. Manufacturing is the process of converting raw materials into finished products to sell. As this is a highly sought-after industry, states create incentives for these types of businesses. Therefore, the manufacturing industry benefits from state sales tax exemptions.

These exemptions look at the taxability of sales and/or purchases of machinery used directly in manufacturing. Manufacturing exemptions are very complex, as each state has a different interpretation of how equipment, machinery, or supplies are used in the manufacturing process. For instance, taxability of materials that eventually become ingredients or component parts is one example of what is considered when reviewing these exemptions.

The state of Pennsylvania currently offers a sales tax exemption on equipment, machinery, parts, and supplies used directly in manufacturing. In addition, when a single piece of property is used in two different capacities (one used directly in manufacturing and the other is not) Pennsylvania determines the predominant use of the property. If the property in question is used in manufacturing or processing more than 50% of the time, it will be considered tax exempt. Maryland uses a similar process when reviewing manufacturing exemptions.

Additionally, there can be instances where a state offers a manufacturing exemption of sales tax but can impose an alternative tax that does not make the sale or purchase fully exempt. A prime example of an alternative tax can be seen in North Carolina. Prior to July 1, 2018, machinery directly used in manufacturing or processing was exempt from sales tax. However, the state imposed a privilege tax of 1% on the purchase or sale of the same machinery. As of July 1, 2018, North Carolina repealed the privilege tax and these items are now fully exempt.

Researching available manufacturing exemptions across the US can uncover tax savings for qualifying companies. Reviewing tax savings is an important business practice for not only manufacturers but all companies nationwide.

Tips for the Taxpayer

US business owners should review their practices to determine if their activities are defined as manufacturing. The definition of manufacturing will vary by state, as will the tax savings, due to the continuously changing exemption regulations.

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.

How Can We Help?

Allyn’s tax team is staffed with seasoned tax professionals experienced in all aspects of Federal, multi-state, and local tax compliance and consulting. We use our experience with large US and global corporations to your advantage! We interpret statutes and regulations to ensure any available exemption opportunities can be evaluated.

Allyn files ‘sales and use’ tax returns, as well as ‘business personal property’ tax returns in every US taxing jurisdiction. Our experts leave you free to focus on your core business while we focus on what we do best – taxes! Allyn can manage your return filing processes, review potential sales and property tax exemptions, and provide audit defense for your company.

Contact us today to see how we can provide your company with a customized cost-effective solution!

For further information on Allyn Tax services, please contact: tax@allynintl.com.

Contributor: Meghan O'Hehir


About Allyn International

Allyn International is dedicated to providing high-quality, customer-centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management, and global trade compliance. Allyn’s clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Our highly trained experts are positioned throughout America, Europe, and Asia. Our Allyn regional headquarters are strategically located in Ft. Myers, FL, USA, Shanghai P.R. CHINA, and Prague, CZECH REPUBLIC. For more information, log on to www.allynintl.com.


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