Grumblings Over Sales Tax Discounts

Earlier this week, KPRC Channel 2 here in Houston did an "investigators" report into the millions of dollars of sales tax money that stay with the retailers rather than end up in Austin.  The way the headline of the story reads "Why Are Retailers Keeping Sales Tax Money", you would think that the retailers are stealing.  What they are referring to is the 1/2% discount that businesses who collect sales tax receive if they file their reports and remit their collections on time.  According to the report, it amounts to about $90 million a year, the largest retailers such as Walmart receiving the bulk of this because of the sheer volume of their sales tax receipts (about $7 million in their case).  Apparently Texas is only #2 to Illinois when it comes to these rebates.  Here is the complete study released in November.

All I know is that among my clients, the sales tax discounts result in a paltry amount...definitely not enough to compensate them for complying with the law.  After all, sales tax is assessed on the consumer and the businesses have the burden of collecting and reporting it.  Businesses also have the burden of dealing with frequent sales tax audits, and I can tell you that these happen more regularly than IRS audits.  In fact, I just had a conversation with a worker's comp auditor and we were discussing how sales tax auditors like to park themselves for days at a time compared with other auditor types.  I would like for those "investigators" to do a study on the dollar figure in sales tax penalties paid by businesses each year who are late to file.  Even one day late can mean a hefty amount depending on the tax.  Add to those numbers the cost of compliance which sometimes means hiring programmers to make sure the computers have the correct taxable product codes and localities, hiring tax preparers for report preparation, and maybe even hiring someone for audit representation.  Once we have those numbers, then we can talk. 

Utilities Sales Tax Exemption for Manufacturers

Many manufacturers in Texas, and other states for that matter, are unaware that they can receive a sales tax exemption for utilities used in the manufacturing of tangible personal property that will be for ultimate sale. The exemption is due to the fact that the manufactured product will eventually result in sales tax collected from the end purchaser. Not every type of manufacturing qualifies. For example, if a company manufactures items used in construction, then those items are tax exempt to the purchaser. Therefore, that particular manufacturer cannot qualify for a sales tax exemption on utilities. On the other hand, if a company manufactures widgets that are ultimately sold to the public, then a utilities sales tax exemption may be granted.

You must have what is called a “predominant use study” performed in order to qualify. This is typically done by engineers who know how to analyze the utility usage of manufacturing facilities. They prepare a comprehensive report that backs up their findings, and they certify their findings to the comptroller in order for the client company to receive the exemption.

Another good thing about the study is it helps to document the portion of utilities used in the cost of goods sold deduction for the Texas franchise tax.

If you would like more information, let me know and I will point you in the right direction.