Tax Planning for Manufacturers

New York State Eliminates Sales Tax Exemptions for Manufacturers

6.28.19

On April 1, 2019, New York State Legislators approved their 2020 fiscal year budget, which included several provisions that will adversely affect New York companies, especially manufacturers’ sales tax expense. The most notable item being the elimination of the sales tax exemption, previously in effect, that allowed commercial customers of Energy Service Companies (“ESCOs”) to receive electric and gas supply without paying sales tax on the transmission and distribution charges. An ESCO is a company that resells energy purchased from outside sources, rather than one that sells energy it produces (a Non-ESCO). If you received or start receiving increased sales tax bills, you are likely purchasing utilities through an ESCO.

As energy costs make up a large portion of any manufacturer’s production process, it is important for all manufacturers to understand how this provision will increase their utility costs and impact their sales tax bills in years to come. The short answer: Those items will increase significantly. Prior to the new provision, manufacturers did not pay any sales tax on utilities purchased that were used in the production process as they were exempt under the previous law.

Under new law, the raw cost of utilities used in the production process are still exempt for manufacturers; however, the transportation, transmission, or distribution of gas or electricity is not. Beginning June 1, 2019, manufacturers will start to see charges for sales tax on the delivery portion of their bills.

This can be burdensome for all manufacturers and especially those who have current contracts based on a fixed price as New York has added unexpected sales tax costs which will hurt their margins. The new law did not provide any other form of exemption for those affected by this provision as of the date of this writing.

Contact your accounting professional today to see how this provision will impact your manufacturing business as well as keeping up to date with sales tax returns and payments.