Spare Parts

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Spare Parts Supplies Wheres the Beef?
Jim H. Turner, CPA
http//www.youtube.com/watch?vUg75diEyiA0
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Agenda

• Spare parts supplies Where is The Beef?
• Spare parts supplies situated at a
  manufacturing plant are always taxable right?
• Not necessarily
• Heres the beef
• At first glance you might not realize that a
  particular type of business maintains a material
  inventory of spare parts, supplies or fuels.
• Today I will show you where you can find the beef
  at 3 types of businesses whos potential material
  amount of spare parts, fuel supplies inventory
  might fly under your property tax radar screen.

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Spare parts situated at a manufacturing plant
exempt from taxation?

• Vendor-Managed Inventory (VMI) taxpayer
  contracts with a maintenance, repairs and
  operations inventory (MRO) vendor to manage spare
  parts inventory on the taxpayers premises.
• Third party MRO vendor retains ownership of
  spare parts. However, the spare parts are
  situated at the taxpayers place of business
• Industrial Supply Solutions (ISSI)
• Motion Industries
• MSC Industrial Supply Company
• Rockwell Automation

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Spare parts
Parts Vendor indicating that they have a program
whereby they own and manage a Companys parts
inventory.
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Vendor managed spare parts agreements

• The business personal property appraiser should
  ask for a copy of the agreement between the
  supply parts vendor and the taxpayer.
• Read the terms of the agreement
• Identify the inventory that the spare parts
  Vendor owns versus the inventory that the
  taxpayer owns.
• Ask questions, Does the taxpayer have to
  purchase the spare part if it remains in
  inventory for an extended amount of time. The
  agreement I was privy to had a six-month clause.

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Golf Course Spare Parts and Supplies

• Fertilizers (Granular Inventory)
• Pesticides (Granular)
• Sand (Granular)
• Fuel
• Irrigation supply inventory
• Golf cart spare parts
• Small Wares (when applicable)

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Golf Course Granular Inventory
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Golf Course Irrigation Spare Parts
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A Little Humor
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Supplies and Spare Parts at Beer/Wine
Distributing Company

• Promotional and sales inventory (POS)
• Replacement spare parts for delivery vehicles

• Fuel (onsite tanks for delivery vehicles)

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Manufacturers Fuel Inventory

• Kilns are thermally insulated chambers, or ovens,
  in which controlled temperature regimes are
  produced. They are used to harden, burn or dry
  materials.
• Manufacturing processes that utilize Kilns
• Brick manufacturing
• Rotary Kiln expanded slate
• Common fuels includes
• Coal
• Heavy fuel Oil
• Natural Gas
• Not so common fuel saw dust

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Summary

• The Beef
• Supplies owned by an unrelated third party vendor
  are exempt from property taxation if the supplies
  inventory is held for resale in the normal course
  of business. The inventory in this scenario is
  exempt even if it is held for resale on the
  premises of a manufacturer who is also the
  customer.
• Wheres the beef Almost all businesses have
  supplies. A few places where we have discovered
  a material supplies inventory include
• Golf Courses
• Beverage Distributors
• Manufacturers Fuel Inventory

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Questions?

• Has anyone in the audience ever experienced a
  situation where a third party vendor owned the
  supplies at a manufacturing plant?
• Do you any of you have examples, when to your
  surprise, you discovered a material supplies
  inventory?