Sales and Use Tax Compliance for Multi-State Manufacturers: What You Need to Know

Most manufacturers operating in multiple states know they need to collect and remit sales tax. What often gets overlooked, however, is how easily a small oversight can lead to substantial financial consequences. A missing resale certificate or an untaxed equipment purchase might not seem like a big deal until an auditor steps in with questions you can’t answer.

States are relying more on sales tax enforcement to close budget gaps. For manufacturers, this means greater scrutiny from state departments of revenue. If your operations involve shipping parts, purchasing machinery, storing inventory or hiring employees across state lines, your tax exposure increases with every transaction.

Getting sales and use tax compliance wrong is no longer just an administrative hiccup. It can cost real money, take up internal resources and put your business at risk for multi-state audits. In this article, we’ll walk through the areas where manufacturers tend to face the most challenges, along with practical strategies to stay compliant and protect your bottom line.

Why multi-state manufacturers face greater compliance risks

Sales and use tax rules are complex for any business. Manufacturers with multi-state operations face an even greater challenge, primarily because of nexus.

Nexus determines whether your business must register, collect and remit taxes in a particular state. Traditionally based on physical presence, nexus now extends to situations such as:

• Remote employees working in another state
• Warehousing inventory with third-party logistics providers
• Attending trade shows or providing services in other jurisdictions

States define nexus differently, making it possible that your business has tax obligations in numerous jurisdictions — each with its own registration standards, documentation requirements and return schedules.

The complexity is staggering. The Tax Foundation reports that there are nearly 8,000 sales tax jurisdictions in the U.S., each with unique rules and rates. This fragmented landscape makes multi-state compliance a serious risk.

On the audit front, the Multistate Tax Commission (MTC) has seen dramatic activity. In its fiscal year covering July 1, 2024, to June 30, 2025, the MTC’s Joint Audit Program completed multiple audits, resulting in proposed assessments of nearly $3.9 million in sales tax liabilities.

These trends underscore that sales and use tax compliance is not optional. As your operations expand into more jurisdictions, your tax strategy must become more intentional and tailored.

Understanding exemptions and resale certificates

Manufacturers benefit from specific sales and use tax exemptions, particularly on purchases that go into production. Most states offer manufacturing exemptions when the items you acquire are integral to creating tangible personal property for sale. These exemptions help protect your margins when acquiring industrial machinery or raw materials.

Resale certificates are equally important for manufacturers. When you purchase goods that will be resold in the regular course of business, presenting a valid resale certificate helps avoid unnecessary sales tax. States typically require the certificate to be on a state-approved form; many have adopted the MTC’s Uniform Sales and Use Tax Certificate, making multi-state compliance smoother.

Manufacturing exemptions and resale certificates demand careful handling and documentation. Some states operate under a strict liability standard, meaning you could be held responsible even if there was no intent to mislead. In other states, if the certificate is clearly valid, liability shifts to the seller.

To support compliance:

• Maintain a centralized repository of current exemption certificates for each state you operate in.
• Train staff to collect, verify and renew certificates as needed.
• Periodically audit your documents to avoid expired or incomplete certificates.

This level of control helps demonstrate good-faith compliance if audited and reduces financial exposure across state lines.

Managing use tax: The overlooked liability

Use tax is often the hidden counterpart to sales tax. It applies when you purchase taxable items from out of state and do not pay sales tax at the time of purchase. State law typically requires self-assessment of use tax based on your jurisdiction’s rate.

Manufacturers acquire a variety of items, equipment, parts and consumables from out-of-state vendors. If the vendor does not collect sales tax, your business bears the use tax responsibility. In many organizations (particularly multi-state entities), responsibility for this accrues across various departments, purchasing, accounts payable and operations, creating gaps and audit risk.

To reduce risk:

• Implement centralized accrual systems for purchase tracking.
• Educate your team on when use tax applies to avoid assumptions that “no sales tax = no tax due.”
• Regularly review returns generated by each location and consider automation tools that flag transactions triggering use tax.

Use tax compliance is often invisible until it is not. A proactive approach avoids penalties and positions your business for audit readiness.

Navigating state‑by‑state tax law differences

Tax exemptions for manufacturers are far from uniform; each state crafts its own rules on manufacturing machinery, raw materials and equipment. In Colorado, for example, manufacturers can take advantage of three key exemptions: the Machinery Exemption (for machinery, machine tools and parts over $500), the Component Parts Exemption (for items incorporated into the final product) and the Industrial Energy Exemption (for energy used in manufacturing purposes).

Other states also grant targeted exemptions. In Massachusetts, equipment used for research and development by manufacturing companies is exempt from sales tax, including laboratory devices and testing tools. Georgia offers exemptions on machinery and equipment used for pollution control, an incentive tied to environmental compliance.

TaxJar’s state-by-state guide highlights that exemptions may apply to machinery, equipment, raw materials and even environmentally oriented investments. And many states offer exemptions for materials used in industrial processing, consumables, parts and maintenance (including engineering, quality control and packaging activities).

Manufacturers should:

• Map out the specific exemptions available in each state where they operate
• Track documentation requirements, registration rules, and claim processes
• Update their tax strategy as laws and exemption qualifications evolve

A proactive, state‑specific approach helps manufacturers maintain compliance and maximize cost savings.

Technology and process improvements to reduce risk

Manual tax compliance processes are increasingly unsustainable. Data emerges from multiple departments and locations, and state rules change frequently. The good news is that modern technology offers significant advantages.

Embedded tax solutions that work within ERP systems can automate complex tasks such as tax calculation, reporting, and compliance. These tools use existing ERP data to improve accuracy, transparency and efficiency. Avalara’s integration with ERP systems like SAP delivers measurable improvements in operational speed and audit readiness.

Tax automation does not just reduce errors. These systems offer improved compliance, better integration of tax data across departments and more strategic alignment between finance and IT.

Earlier systems often require manually updated tax rate tables and rules. Without automation, companies must maintain these manually, creating vulnerabilities. Cloud-based indirect tax solutions offer standardized processes, accurate calculations and lower strain on IT resources.

Manufacturing‑specific tax solutions further enhance control. Commenda highlights that these tools automate tax calculations across thousands of jurisdictions, manage exemption certificates centrally, integrate with ERP systems for seamless compliance and provide analytics for visibility into liability and risk

To strengthen tax control, manufacturers should consider:

• Implementing tax automation tools integrated with ERP
• Centralizing exemption certificate management
• Using analytics dashboards to monitor tax positions and compliance status

These enhancements support both efficiency and audit readiness while reinforcing your confidence in sales and use tax compliance.

Is Your Manufacturing Business Falling Behind on Sales and Use Tax Compliance?

Sales and use tax compliance is a critical part of managing risk and protecting profitability. Manufacturers operating across state lines are particularly vulnerable to audit exposure, lost exemptions and overlooked use tax liabilities. The stakes are high, and the rules are constantly evolving.

Whether you’re evaluating current systems, expanding into new states, transitioning your business or facing an audit, the right tax guidance can make the difference between costly surprises and confident compliance.

At James Moore, we help manufacturers like yours develop proactive tax strategies that align with your operations and your goals. From exemption reviews to automation support, we’re here to support your business success.

Contact a James Moore professional to assess your current compliance process and explore ways to strengthen your tax controls.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.