There are numerous ways that a manufacturer can reduce its operating costs if they only know where to look and what to do.  The location of the manufacturing plant will determine the extent of the manufacturing cost reductions, because not all states are equal.


Depending on the state, there are can be eight easy ways that a manufacturer can reduce its operating costs, and these eight cost reducing steps are listed below:


1.      Refunds on erroneously paid taxes – Nine times out of ten manufacturers over-pay transaction taxes on their purchases of equipment and consumable supplies either by paying sales tax in error to a vendor, or incorrectly paying use tax to the state and/or local taxing authorities on these same purchases.  Manufacturers should consider having a refund analysis performed on its purchases of consumable items and its capital purchases, especially if they had a large expansion of their operations within the last three years.

2.     Identify tax exemptions on consumable items and capital purchases – Many smaller manufacturing operations have their accounts payable person making tax decision on its purchases of complex equipment and consumable items.  Many accounts payable clerks do not have the necessary expertise to make the proper tax decisions.   Manufacturers should consider a detailed examination of their purchases and develop a tax decision matrix for all of its routine consumable purchases and its purchases of capital equipment.  This tax decision matrix will act as a quick reference to the accounts payable clerk as he/she reviews purchases invoices and will assist with accurate tax decisions.

3.      Appeal real and personal property taxes – Real and personal property taxes can many times make up to 30-40% of a plant’s operating costs.  And, many times the manufacturer is paying significantly higher property taxes than they should be paying.  Manufactures may misclassify equipment in the wrong useful life category, may not consider exempt pollution control devices, and may also not take into consideration obsolete equipment.  A careful review by a property tax consultant that specializes in complex industrial properties can many times dramatically lower a manufacturer’s property tax burden.  And, the manufacturer will generally receive the added benefit of reduced future property taxes as well.

4.     Secure cash and non-cash incentives from state and local governments– Planning on building a new plant or expanding an existing plant?  Why not discuss property tax and/or sales and use tax exemptions at the state and local level?  Many states and local government have all kinds of incentive programs that may include abating non-educational ad valorem taxes for a certain period of time; usually around ten years or so.  Some states will also abate the sales tax associated with the capital improvement costs of the new or expanded facility.  Although not all localities may provide tax exemption incentives, some localities may instead provide infrastructure incentives.

5.      Reduce your utility costs – Some utilities may provide electricity and natural gas for manufacturing operations at reduce rates.  However, you’ll have to ask for it.

6.     Obtain Federal alternative fuel tax credits – Do you use any propane-powered forklifts?  If so, this can be easy money for you.  Although maybe a bit of a hassle initially because the IRS will require propane uses to register as an “Alternative Fueler” and obtain an alternative fueler number before you can receive any income tax credits for your propane purchases.  This is a refundable income tax credit of $0.50/gallon.

7.      “Go Green” – Purchase renewable energy equipment – Is your company already planning to purchase new equipment to generate electricity?  Some states provide generous tax exemptions that may include sales/use tax exemptions, income tax credits, or property tax abatements associated with equipment used to generate electricity.  And, you’ll get a going-forward bonus on reduced utility costs by producing electricity from wind, solar or geothermal sources.

8.     Seek employee tax credits – If you plan on expanding operations where additional employees need to be hired, you should check with your state to see what type of employee tax credits are available.  Some states use a tier approach where the credit differs depending on the county where employees live or work.  Counties with historically high unemployment rates generally provide the largest credit for each new employee hired.

Discuss these eight easy ways to reduce your company’s manufacturing costs with your tax consultant or accountant, or contact Silver Oak Advisors, LLC for a detailed discussion of opportunities available for your company.

When you engage Silver Oak Advisors you are guaranteed lower fees, higher customer service and greater property tax savings.