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Tax Exempt on Finishing Equipment?

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  • Tax Exempt on Finishing Equipment?

    Do you have to pay sales tax on finishing equipment? The last piece of equipment we purchased our supplier gave us a "Sales Tax Exemption On Purchases Of Machinery And Machine Tools" which gave us tax exempt since we were purchasing a machine for manufacturing. Now we are purchasing a different piece of finishing equipment but this time talked with our accountant. They did not consider a slitter/cutter/creaser part of manufacturing. We run a quick digital print shop in Northern Colorado and the form we filled out last time was a DR1191. Has anyone else run into this? Anyone else pay tax on finishing equipment or is this something you don't pay tax on? Any insight is much appreciated.

  • #2
    We are in NY and do not pay sales tax on production equipment (including finishing equipment). Basically if it's used in the production of a taxable product you don't pay tax

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    • #3
      The DR 1191 appears to be the proper form.

      If you read it carefully, there are 5 conditions that must be met. The purchase must:
      1. Be used in Colorado,
      2. Be used directly and predominantly to manufacture tangible personal property for sale or profit.
      3. Be of a nature that would have qualified for the federal investment tax credit under the definition of section 38 property found in the Internal Revenue Code of 1954, as amended. This includes tangible personal property with a useful life of one year or more and limits qualifying purchases of used equipment to a maximum of $150,000 annually,
      4. Be included on a purchase order or invoice totaling more than $500,
      5. Be capitalized.

      Normal circumstances for a purchase and use of a cutter/creaser/scorer would meet all 5 of these conditions. Just make sure that the finishing equipment is noted on your books as an asset that depreciates in at least one year.

      If your accountant has problems with understanding the use of the machine, bring them down to your shop, show them what is done with it, let them touch it, and show them the 5 bullet points on the back of the form. If they still say it doesn't qualify, ask them WHY it doesn't. (I cannot think of a single reason, under normal circumstances.)

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      • #4
        Thank you for the responses! I talked with our first supplier who gave me the tax exempt paperwork and he gave me the exact same info. If it is used to produce a finished printed product that you will sell and be taxed, then the equipment is purchased without tax. This helps a lot because we have paid tax on all our production equipment in the past. Now I know that it is incorrect to pay tax and this will save us a lot of money in the future.

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        • #5
          (Oh, and by the way, printing IS manufacturing. We make things that are tangible. We have to file Census reports on our "manufacturing" activities if the Census Bureau asks us to.)

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          • #6
            That was the first thing I did, looked up printing/manufacturing and saw just that. Census Bureau has Commercial Printing under Manufacturing. We have been in business for almost ten years and have paid tax on ALL of our production and finishing machines. Our Duplo 616 was the first machine that our supplier told us was tax exempt. All that money we could have saved... Now we are purchasing the Duplo 150 Digital B.M.S. and the sales person, and their team, just found out about tax exempt for commercial use. Apparently no one in their office even knew about this. We leased a color production machine and are being taxed on that as well. Time to start getting all this fixed.

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            • #7
              Originally posted by inkworksfc View Post
              We leased a color production machine and are being taxed on that as well. Time to start getting all this fixed.
              Depending on the legal jurisdiction (I am not an attorney and certainly am not up to date on Colorado laws), sales taxes STILL may apply on your leases.

              I would suggest, though, that you try to keep as much business as you can with that firm that alerted you to the sales tax exemption in the first place. They did you a favor, seem to be intelligent, and deserve "extra credit".

              That's what "value added" is all about. Do unto others as you'd have them do to you.

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              • #8
                Originally posted by inkworksfc View Post
                That was the first thing I did, looked up printing/manufacturing and saw just that. Census Bureau has Commercial Printing under Manufacturing. We have been in business for almost ten years and have paid tax on ALL of our production and finishing machines. Our Duplo 616 was the first machine that our supplier told us was tax exempt. All that money we could have saved... Now we are purchasing the Duplo 150 Digital B.M.S. and the sales person, and their team, just found out about tax exempt for commercial use. Apparently no one in their office even knew about this. We leased a color production machine and are being taxed on that as well. Time to start getting all this fixed.
                Just think of all those taxes you paid to the government so they could give grants to those startup printing companies.

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