Growing manufacturers face increased tax compliance complexity

• Tax compliance complexity typically increases as manufacturers grow. Expansion amplifies tax obligations across procurement, production, and distribution, increasing exposure to customs duties, property taxes, and sales and use tax in multiple jurisdictions.

• Tariffs, property tax, and sales and use tax can create the greatest compliance burdens. Volatile tariffs, fragmented property tax rules, and evolving sales tax nexus and exemption requirements demand significant time and specialized expertise. And money, of course.

• Manual compliance doesn’t scale. As tax obligations multiply, relying on spreadsheets and ad hoc processes can raise costs and audit risk; automation is increasingly necessary to manage compliance efficiently and accurately.

Indirect tax obligations vary across the manufacturing cycle.

Procurement. For U.S. manufacturers, the end-to-end process of sourcing, acquiring, and managing inputs may involve customs duties and import taxes as well as use taxes. Since many purchases qualify for sales tax exemptions, procurement also often includes validating vendors and managing exemption certificates.

Production. Machinery, tools, and even office equipment are subject to personal property taxes in many states. The taxes are assessed annually; the property depreciates over time; and property tax requirements vary from jurisdiction to jurisdiction. 

Distribution and sales. Manufacturers selling goods directly to customers may need to collect and remit the applicable sales tax on those transactions. Businesses selling to customers that qualify for an exemption must validate exempt transactions with the appropriate exemption or resale certificate. Manufacturers with international customers may need to comply with customs duties and import taxes, value-added tax (VAT), and electronic filing obligations. 

As manufacturing businesses grow, so do these types of tax requirements.

The manufacturing industry is inundated with all sorts of tax obligations, like many industries. Three of the most troublesome tax types for manufacturers are customs duties (tariffs), personal property tax, and sales and use tax.

Customs duties

Cross-border tax complexity reached new heights in 2025, dramatically complicating compliance and increasing costs for manufacturers. Many supplies that were duty free or subject to low tariff rates in 2024 faced significant rates of duty in 2025. The tariff on Canadian steel, a key input for many U.S. manufacturers, is now 50%. 

In addition to paying more for materials, manufacturers must now devote more time to managing international tax compliance. For instance, higher duties on Canadian and Mexican imports are impelling businesses to certify products that qualify for duty-free status under the United States-Mexico-Canada Agreement (USMCA). Many businesses didn’t bother to USMCA-certify products before the tariff upheaval of 2025 because the benefits didn’t outweigh the costs.

The volume and volatility of the 2025 tariff changes also took a toll, and it’s looking like tariffs in 2026 will be similar.  Manufacturers need strategies that will help their business thrive despite the challenging environment. An automated cross-border tax compliance solution can help enormously.

Personal property tax

The property tax compliance burden is real. Different  jurisdictions have different definitions for real property vs. personal property. Rules related to valuation and depreciation are inconsistent and can vary by type of asset as well as by jurisdiction. Returns must be remitted in every county where you have an obligation, and filing due dates, discounts, and penalties vary by jurisdiction. 

Lawmakers in many states have introduced legislation to reduce or eliminate business taxes on real or tangible personal property, and some of their efforts have succeeded. But since state and local governments cannot eliminate property taxes without recouping the tax revenue, property taxes will remain a burden for many manufacturers for years to come. 

Avalara Property Tax simplifies property tax management by automatically capturing and validating historical assessment factors and other vital data points from over 20,000 assessing and collecting jurisdictions. It’s a secure, comprehensive, cloud-based property tax management solution that scales with your business as it grows. 

Sales and use tax

Manufacturers have always had to navigate sales and use tax obligations and validate exempt transactions. Both tasks can eat up a lot of resources. According to an Avalara/Potentiate survey of businesses with less than 500 employees, manufacturers estimate spending $2,817 and 29.2 hours per month on exemption certificate management alone, and $3,353 and 35 hours on consumer use tax. 

Identifying tax obligations (nexus) can also be challenging. Businesses in the manufacturing industry estimate spending $1,272 and 13.3 hours per month identifying state sales tax obligations and filing requirements, per the Avalara/Potentiate  survey. These tasks include but aren’t limited to:

• Knowing where exempt sales count toward economic nexus thresholds

• Tracking when and where their activities trigger nexus

• Updating their systems to meet new obligations

Calculating tax rates and preparing and filing returns is also burdensome. The Avalara/Potentiate survey found that businesses in the manufacturing industry estimate spending $2,773 and 29.2 hours per month on tax rates and calculations, and $4,041 and 42.4 hours per month on returns. 

All these hours and dollars add up: The surveyed businesses with less than 500 employees spend an average of 147 hours and more than $14,000 per month on tax compliance activities. Skimping on compliance can lead to sales and use tax errors that state tax authorities often identify in audits.

Automating compliance with AI-powered sales and use tax software helps businesses cut compliance costs, increase efficiency, and reduce audit exposure.

Automating tax compliance can help growing manufacturers boost efficiency and reduce risk. It lowers the likelihood of underpaying or overpaying customs duties, property taxes, and sales and use taxes; helps manage exemption certificates; and helps ensure you pay the taxes you owe when they’re due. 

In short, tax automation saves time, frees resources, and reduces disruptions so manufacturers can focus on customers, production, and growth. Learn how Avalara sales and use tax solutions for manufacturers can help streamline your compliance.