The manufacturing sector is often one of the most targeted industries by states to grow their economies and increase the number of good paying jobs for their residents. For years, one of the ways states have incentivized manufacturing companies to create and/or expand operations, assist in managing their operating costs or otherwise stay competitive with other states is to provide a variety of manufacturing sales tax exemptions. Nebraska is one of the states that is reducing sales tax rates that directly affect the manufacturing industry. This is how:
Nebraska- Kerford Limestone, NE Sup Ct. (3/14/14) – Any Manufacturing Use Qualifies For Exemption
In a very interesting case, the Nebraska Supreme Court ruled with the taxpayer that equipment principally used to maintain roads leading into a limestone quarry qualified for the manufacturing sales tax exemption because it was also used to maintain stock piles of rock inventory (an activity that qualifies as part of the manufacturing process in Nebraska). It did not matter that equipment was used principally for real property improvement services (i.e. maintain roads). All that is required for the exemption is that the equipment be used at least in part for manufacturing purposes. Therefore, manufacturers with Nebraska locations may want to review their purchases to see if additional items and equipment purchases can qualify for exemption from Nebraska sales and use taxes.
One thing to note: Each state often has its own unique application of these exemptions. This can create opportunities in select cases to possibly utilize exemptions which were previously thought not applicable. Unfortunately, it also creates pitfalls where exemptions are improperly used leaving manufacturers vulnerable to significant assessment of state sales and use taxes, plus related interest and penalties. Because of these complexities, manufacturers should perform periodic reviews of their sales and use tax procedures to make sure exemptions are appropriately taken on purchases and that sales taxes are collected or exemption certificates received from customers in states where physical presence exists.