Project Tax Recoveries
Pumping out tax recoveries in complex
environments has been a consistent producer of SUPERIOR RETURNS for
clients. Below are explanation of some of the complexities,
concepts, and processes used to generate nearly $8 million in
savings and cost recoveries to date.
Sales & Use
Tax Recovery Audits
Projects are a Source of Recoveries
Manufacturing Capital Projects -
Taxing authorities limit manufacturing equipment exemptions,
yet there are tremendous savings in this area
Construction Contracts - State
laws or regulations define a contractor as the consumer,
making him responsible for taxes on materials that would
otherwise be exempt to the owner.
Installation Contracts - There are
usually recoverable taxes which are buried in material costs
Operating Costs - Discovery of
exemptions for expansion projects which apply to ongoing
Tax Changes - New legislation,
court cases, and administrative rulings may create
opportunities to request refunds or expand exemptions.
bountiful harvest in manufacturing operations
Product ingredients or raw
materials - Sometimes there are chemicals or other materials
which contact the product but which may not remain a
component throughout the process
Packaging Materials- Treatment of
these vary between states, confounding tax accounting
Equipment Installation Contracts -
Labor is usually exempt. There may be recoverable taxes
which are buried in material costs. (Some restrictive states
tax both labor and material.)
Freight - The taxability cost
component can produce substantial savings
Repair parts - Such parts are
taxable in some states, yet are exempt in others
States have pollution control
exemptions for air and water effluent control systems
Pollution control exemptions are
generally broader than manufacturing exemptions - for
example South Carolina exempts everything within the fence
of a qualifying facility.
Materials - Treatment chemicals
and other operating materials may be exempt
Sales/Use Tax is a lucrative area for recoveries
of 4 to 10% are imposed on thousands of transactions
Corporations with multi-state operations find it nearly
impossible to program tax payment systems geared to the
unique tax laws and regulations of the various states
tax is one of those areas for which no single corporate
department has control or responsibility
Overwhelmed tax department professionals can only deal with
revenue audits focus on tax underpayments, not overpayments.
The company can negate tax assessments by conducting a
counteraudit and applying for refunds.
of limitations range from 6 months to 5 years, limiting the
window of opportunity.
the recovery potential?
of tax recovery efforts by CRW
These illustrated examples are
taken from recovery efforts undertaken by CRW, Inc. and
those conducted by CRW founder Al Gray during his tenure as
a capital projects auditor.
capabilities of tax accounting systems used by
construction management firms, general contractors, or
large subcontractors to handle project requirements
may be limited.
Client A had sustained
multiple changes in sales/use tax accounting for a $50
MM project. The systems had lost the ability to track
and secure an expected refund of $325 M.
Client B had undergone
explosive growth in its business. The tax accounting
systems were inadequate to record, bill, and recover
sales/use tax payments.
CRW downloaded 22,000
transactions subject to tax, analyzed the data,
restated the tax accounting for the project,
identified additional exemptions and applied for
refunds of $1.2 MM. Client A received refunds totaling
$950 M .
CRW loaded all material
taxable transactions into a database, restated the tax
accounting for 4 projects exceeding $75MM, and
provided reports which facilitated the recovery of
more than $500 M in taxes.
Manufacturing operations are complex. Sales/Use tax
laws and regulations are also complex. The compounded
complexity creates tax payment errors, particularly
for clients with multi-state operations.
Client C had similar
operations in 5 states, with most of the plants being
sited in North Carolina. A plant in Georgia had
undergone expansion projects of more than $110 MM. The
client felt that there were potential tax recoveries
of $80 to $100 M.
The client engaged CRW to
evaluate and pursue cost recovery options.
CRW evaluated the capital
spending and operations costs which had occured at the
plant within the statute of limitations.
Several categories of
operations purchases were found to be exempt in
Georgia despite being specifically taxable in North
CRW submitted a refund claim, resulting in recovery of
more than $365 M for the client.
states exempt manufacturing equipment, yet there is a
body of law and regulation in each state that limits
the exemptions, usually to equipment "used directly"
Manufacturer D had applied
for exemptions for all of the major systems in its new
$100 MM facility. The state Department of Revenue
ruled several of the systems to be taxable on the
basis that the equipment was not used directly in
The capital projects auditor
researched the tax issue further.
The case law, regulations,
and available rulings related to the type of
manufacturing were reviewed.
The specifications, functionality, and location of the
equipment were reviewed.
The auditor found previously undiscovered exemptions
and revised applications for existing ones. A revised
application for exemption was submitted and approved,
savings more than $1.1 MM
avoidable buried taxes in your construction contracts?
Manufacturer E had secured
exemptions for all of the major systems and equipment
for its new $85 MM facility. The manufacturing process
equipment that "E" purchased directly was exempted.
However, contractors were supplying additional exempt
equipment and systems for which no tax planning had
been performed. Contractors had paid the taxes and
buried them in the lump sum price of the construction
Working with the owner,
general contractor, and mechanical, electrical, and
HVAC subcontractors, CRW was able to secure refunds of
$172 M. Substantial refunds are available on nearly
every sizable manufacturing project and on some
building projects in states which allow refunds of
building materials used in government projects.
changes can produce increased exemptions, IF THERE IS
SOMEONE TO RECOGNIZE THEM! Process changes can also
Manufacturer F was a heavy
user of river process water. Incoming water supply
piping was determined to be taxable up to the initial
point of treatment. An engineering change subsequently
was approved which moved the injection of treatment
chemicals 1 mile closer to the river.
The project auditor noted
the change a successfully pursued a refund claim of
Contractors (in some
Why use a
firm like CRW?
successful CRW Sales Tax Recovery Method can be summarized as
- Determine the extent of
existing tax avoidance methods by reviewing revenue rulings,
tax accounting systems, and interviewing personnel
responsible for tax administration.
- Review the current scope of
the project versus the original scope to identify any
additional exempt scope.
- Research the exemptions
available in the state, how rulings have modified those
exemptions, and whether there are additional exemptions
- If necessary, request a
revenue ruling approving the new exemptions from the state
- Review the scope of all major
subcontracts to identify those incorporating potentially
exempt materials, estimate the percentage of exempt
materials, determine whether taxes have been paid.
- Provide the client with a plan
to secure refunds, an estimate of the recoverable taxes and
an estimate of the costs of performing the recovery effort.
- Perform the recovery process
if the effort will provide an adequate return and it is
approved by the client.
CRW produces returns of a
MINIMUM OF $3:$1 by using proven systems, a wide
body of knowledge, research, and an emphasis on superior
returns for its clients.
Prospective clients who
wish to avoid the necessity of applying for refunds and
achieve maximum should consider a thorough
planning effort for their projects which is coupled with
project auditing function.
CRW produce such attractive returns on tax reviews?
Capability to quickly assess the potential for recoveries.
Experience testing for multiple factors during a single pass
of the drawings, specifications and transactions. Hours are
dramatically reduced as a result
on proactive measures achieves quantifiable savings for
future projects or ongoing manufacturing operations.
Reasonable fees with performance incentives insure that the
client obtains results. Reviews judged to be unproductive
are swiftly terminated at no charge to the client.
Utilization of contract auditors and temporary accounting
clerks lowers average hourly costs.
tax recovery methods employed in the southeastern states
including the use of tax databases, spreadsheets, and
restate the tax accounting for an entire project, if
required, to achieve results!
Contingency fee reviews are welcomed. With our record of
results we will gladly accommodate clients who desire a
ZERO RISK solution.