Would I be tax exempt under Industrial processing. - Page 2
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  1. #21
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    Quote Originally Posted by Portable Welder View Post
    I didn't know the tax law when I asked the question, sometimes when you ask questions like this to other professionals in the same industry, they themselves have asked the same question to their accountant and have found out what the rules are on a particular subject.
    I would imagine that most guys here have a forklift, so I replied back to let others know what I found out based on the literature my accountant sent me that I spent an hour reading through to educate myself, hopefully others here can save a substantial amount of money on their next purchase of a forklift if part of what their using it for is deemed to be considered Industrial processing, since new forklifts can cost $60,000 - $ 80,000.00 on average the potential savings on sales tax could be $ 4,800.00.
    AS a (long retired) finance/accounting guy, the only thing not clear to me is why there is less than 100% business allocation of a forklift truck.

    Surely you don't take it shopping for beer, show it off in antique motorcar parades, charge kiddies to ride it, or drag-race the f*****r on weekends?

    Pickup truck used for a mix of personal transport, off hours, and hauling materials or welding gear, working hours, I can grok.

    But even if you rent it or move other-people's goods for-hire, where's the NON business use in a FL?

    Sitting idle, even a majority of the time, or moving even barely related materials should NOT disqualify it as a integral part of your process. "Support" OF said process - moving stuff about to make it possible or even just faster or more efficient - is a part OF the delivery of that process or service.

    Rules are meant to be interpreted - so long as the interpretation will legitimately "stand audit" and is not an ultra vires action..

    Taxing agency want to play hard ball?

    "Some folks"... might buy a junker FL, or keep an older one already in-place, allocate it 100% to all things deemed NOT "process". Then buy the new one, allocate it 100% to the process ONLY.. come out money ahead, even with support costs of two machines, rather than one, and also gain backup / redundancy should either be down on a given day, a task be at some other site, or a load needed finessed with both machines.

    For the money to be tied up? Others among us might just lease a FL. Not many would buy brand-new, either, taxation issues quite aside. Let some OTHER Pilgrim take the first few years of resale value loss.

    Thats how we "bean counters" earn OUR crust.

    Never, ever forget.. every dollar you take in at gross sales is diminished by taxes, costs, and overheads. Lucky if you keep 4% to 12% out of it.

    Every dollar now spent that you can AVOID spending? That dollar, Pilgrim, goes straight to your "bottom-line" at 100 cents on the dollar.

    Had you wanted my approval on CAPEX for a new FL? CAPEX is simply borrowing your own money from yourself and/or a Bankster, the amortization an installment plan loan payback you have to be certain you can MAKE - current conditions. Or new and unexpected ones.

    You would have had to show me an improvement in earnings that pays for it IN ONE YEAR.

    Can't do that, you wudda had to find a cheaper one. Or do without.

    F**k a buncha MBA's calculating "IRR". This is how the winners cut risks and remain winners.

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  3. #22
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    Monarchist, My question was about sales tax, not about whether it is a write off 100%, we will write 100% of it off whether it be this year or over time is for the accountant to decide how that is done.

    If you would like me to fax you the pages that describe what and how the break down goes for what is considered taxable and what isn't taxable based on Michigan law, I would be happy to fax this to you.
    Keep in mind, I'm speaking about sales tax.

    This goes for any one who would like to see the break down, I will be happy to fax this material to anyone, I thought it was funny that they actually use forklifts as their example.

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    If someone would like to look this up, type in State of Michigan, Department of Treasury, Revenue Administrative Bulletin 2000-4 Sales Use and Tax-- Industrial Processing.

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    Quote Originally Posted by Portable Welder View Post
    Monarchist, My question was about sales tax, not about whether it is a write off 100%, we will write 100% of it off whether it be this year or over time is for the accountant to decide how that is done.

    If you would like me to fax you the pages that describe what and how the break down goes for what is considered taxable and what isn't taxable based on Michigan law, I would be happy to fax this to you.
    Keep in mind, I'm speaking about sales tax.

    This goes for any one who would like to see the break down, I will be happy to fax this material to anyone, I thought it was funny that they actually use forklifts as their example.
    It is actually more readily available to me online, thanks. And I AM retired and prefer to remain that way. For one thing - I know all too-well how many hours a day it takes to remain "current", even if one was up to speed the day before, and has a support team of over 30 finance and taxation specialists.

    For another, I happen to have a superbly competent CPA on retainer, recent few years now. Rate is about a third of of what my own rates were. Over 20 years ago.

    "Day Job" operated one hundred and fifty three bodies Corporate, three per each US State, the others the holding Companies, primarily to take best advantage of taxation rules.

    Your OWN Financial and Accounting advisors should be working easily as hard now to sort your strategy as mine did, then. Up to you to insist on getting your money's worth of that. No longer my rice-bowl, and I class myself the better for it.

    Old Iron is still fun and interesting. Old Tax filings, Transaction reports and General Ledgers, not so much!

    No one in their right mind ever took up Accounting as a retirement HOBBY, least of all a competent Welder, Fabricator, or Machinist.

    Executive Management and Finance paid far better than Machinist or Toolmaker, so I "migrated". Because I was very, very good at it. Not because I actually LIKED it.

    I no longer have to .... suck that... up for a gilt crust. So I do not.

    I'd actually rather rebuild the brakes on a clapped-out forklift, to be honest. Hence the hired CPA.


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    Monachist, the accountant that I have has started letting me down, so I have found a new person, so I'm switching accountants after 20 plus years, the new accountant is who I got the info from.

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    Quote Originally Posted by Portable Welder View Post
    Monachist, the accountant that I have has started letting me down, so I have found a new person, so I'm switching accountants after 20 plus years, the new accountant is who I got the info from.
    You can double-check the advice yerself. Sales tax only a small part of it, as I'm sure you know.

    Holding a CPA ticket means you are educated, have clocked a minimum amount of experience in a defined situation, and sat exams. Doesn't necessarily mean one is smart. Some are dumb as a box of rocks, "situational awareness" wise. Bookkeeping is dreadfully boring. Accounting only barely less so. Open the books. Post. Close the books. Repeat 13 times each year. Izzat repetitious? Or what?

    It isn't until one is in Finance - once again a "player" and decision-maker rather than mere scorekeeper, that the fun returns.

    Fired a few, big Corp. Hard to believe possible, given the Collitch degree and all, but one kept bringing me spreadsheets that did not "cross foot". EG: down, then across did not add up to across, then down. Third go, told the CPA who was Accounting Mangler either he replaced her, or I replaced HIM. Got fixed.

    Fired another CPA personally, smaller corp. Ethnic HKG Chinese, US citizen, US CPA, returnee to HKG but wanted to do the books per US rules!

    Would not listen to "f**k no!"

    WTF? HKG Chinese owned company, British Crown Colony at the time. HONG KONG rules. No Fine wiggle room on that.

    Had her head up. And locked. Just because the Managing Director (Ich) was ethnic Yank and she figured he HAD to for US IRS. Sorry - I didn't OWN the firm, I just ran it.

    Expat Scot "Chartered" Accountant I replaced her with didn't set a foot wrong, kept me out of grief, next sixteen years.

    Sometimes the first pair of a new brand of underwear proves to be a bad fit.
    One just fixes that.

    Yer OWN balls and ass have to be your first priority. The others can get their own damned coffee.


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  9. #27
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    To keep yourself safe and avoid any future tax penalties and interest, you'd be wise to first get an opinion from either a CPA who's familiar with businesses like yours, or from a tax lawyer, to determine whether or not you are actually considered an industrial processor. Very few people are capable of reading over a few state documents and making an accurate determination of their status when the business in question is one that falls into a grey area of the law where it might or might not fall into the exempt class.

    NC has sales tax exemptions for manufacturing that are very similar to those Carbide Bob mentioned for MI. But, I can tell you with absolute certainty that your business would not be classed as manufacturing, nor would it be exempt from sales tax, if you were operating here. You would be classified as construction services and all materials and equipment would be subject to full sales tax.

    Example of how cloudy the definitions can be.....

    In the HVAC contracting business, we "manufactured" about 400,000# of sheet metal ductwork per year on average. At current prices, it takes around $250K worth of equipment to do that efficiently and profitably. Every piece of equipment and every dollar of sheetmetal and related supplies is taxable at the full rate. In doing fixed price contract work like we did, there is no separate line item for sales tax. IOW, the customer ends up paying sales tax on the bare cost of materials. The contractor is not required to pay or collect sales tax on any material markups, labor, or overhead that may be a part of the finished product.

    But, if we used the same shop and equipment and employees to manufacture the same quantity of ductwork, which we then sold to HVAC contractors, we would've been considered a manufacturer. At that point, all materials would've been tax exempt and all equipment would've been subject to either 1% or 2% sales tax (can't remember which) rather than the full 7%. We would then collect 7% sales tax on all sales since contractors are specifically excluded by law from using sales tax exemption numbers on anything they purchase, and would have remitted that amount to the state. In this case, the customer's sales tax will be based on the full sales price of the finished product just the same as a boiler or chiller or pump or any other manufactured product.

    Now, to further complicate things, if we as a contractor did a time and material job then the customer would pay sales tax on the marked up price of equipment and materials, and we would remit to the state the difference between the amount of sales tax we paid for the stuff and the amount we collected from the customer, or IOW, sales tax on the amount of markup.

    Now, if we did a job for a government entity or legitimate tax exempt non-profit, we still paid sales tax on whatever went into the job. Then we maintained a log of all sales tax paid in conjunction with that job and submitted it to the customer so they could file it with the state and receive a refund of that tax.

    Simple enough isn't it

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    Quote Originally Posted by metlmunchr View Post
    Simple enough isn't it
    It would have - take that back - SHOULD have been an order of magnitude SIMPLER for the branch of our firm that needed those three separate corporations per-each US State.

    Sole product of that division was voice Telecommunications traffic sold to business-only, not residential, and billed at per-minute rates.

    Full STOP.

    Why three bodies corporate, then?

    - One owned the switchgear that enabled the service. Had zero staff

    - One leased, rented, or purchased space, and the utilities to serve it. Had zero staff

    - One had staff for sales, admin, Managerial and technical/networking roles to contract-serve the first two. This one didn't OWN so much as a paperclip, roll of bumfodder, or a plastic bin-liner. Those belonged to "Numbah Two".

    It is NOT "cheap" to operate a body-corporate. There are audits, tax filings, Corporate Secretary filings and associated fees that exist, even if zero business activity has been conducted. More yet - taxes especially - if it has been active.

    We needed expertise in each State as well as Federal expertise, per-each of the 153 bodies corporate, and it was in-house expertise, not contracted.

    Even so, separating each function so as to fit a specific tax category covered those costs and produced many millions of dollars in savings each year, continental USA net (we chose not to operate in HI or AK).

    Complex enough, isn't it

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    In Texas when questions come up that the accountants or store personnel are not knowledgeable, you call or write the state comptroller. Last went through that when we purchased kerosene, normally taxed in heaters, should be tax free when used to clean parts for resale or thinning cutting oil. You get a written opinion or the location of a previous opinion.
    The tax laws have become very complex as the legislature tries to plug loop holes.

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  14. #30
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    Quote Originally Posted by Portable Welder View Post
    I didn't know the tax law when I asked the question, sometimes when you ask questions like this to other professionals in the same industry, they themselves have asked the same question to their accountant and have found out what the rules are on a particular subject.
    I would imagine that most guys here have a forklift, so I replied back to let others know what I found out based on the literature my accountant sent me that I spent an hour reading through to educate myself, hopefully others here can save a substantial amount of money on their next purchase of a forklift if part of what their using it for is deemed to be considered Industrial processing, since new forklifts can cost $60,000 - $ 80,000.00 on average the potential savings on sales tax could be $ 4,800.00.
    i've been through a sales tax audit. first-if they find anything they think is wrong (and they WILL) it's also reported to anyone else that can fuck with you. second - (at least in florida) they have this pro rate thing. example: they found a sales ticket that did not have sales tax on it. it was about $15. truth was i shipped it to sc so it was exempt but the customer had a fl address. back then i did not keep copies of ups records to back it up so they said i must have done that X amount of times a day/week/month so just that brought over 3k in owed taxes. it was a big battle

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    i also did paint work and charged the customer for paint supplies which was taxed. they fucked with me on that because i did not itemize every small item (although they don't itemize when the inflict penalties which is ANOTHER battle i went through). i had to pay my cpa 1K to make the argument, which got taken off, as they would not take my argument. so i won that little battle at the price of 1k and my time. point is stay below the radar

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  18. #32
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    As a sand and gravel producer my equipment that is used for the manufacturing process and only the manufacturing process is tax exempt. For example a large wheel loader that just feeds the crushers and screens is tax exempt. A loader that loads trucks is not. Now a forklift can be partially used for the manufacturing process but more than likely moving finish product around. That falls in extremely grey area. I never heard of prorating the sales tax like you mentioned above. If it was me pay the freaking tax and be done. The last thing you want is a pissed off tax man. By prorating it they might expect you to document the time spent on it.

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