Service
Paying Sales Tax on
Utilities in Manufacturing?
If you produce something, you most likely qualify as a manufacturer. Most states allow for a sales tax exemption on utilities (electricity, gas and some water) via apportionment (only the percentage used in production) or predominant use (if over 50%, the entire bill is exempt). If you feel you may need a utility study and/or refund of overpaid tax, contact us today.
The TaxMatrix 5-Point Value Proposition
- Review current utility invoices to determine if a sales tax exemption may be warranted given the state of operation and the client’s business.
- Clarify the production sites, square footage, meter usage and the equipment.
- Conduct a facility tour with a licensed engineer to perform the study.
- Present the study to the client and/or file for refunds of historical paid tax.
- Assist with process improvements to stop paying future tax, with exemption certificates provided to vendors.
Qualified Industries with Utility Exemptions
- Assembly and Auto Manufacturers
- Aviation and Aerospace Manufacturing
- Bakeries
- Beverage and Bottling
- Breweries
- Chemical Plants
- Commercial Residential
- Concrete and Asphalt Plants
- CNC and Lathe Shops
- Dairy Plants
- Food Processing
- Foundries
- Gas Pipeline Transportation
- High Tech Clean Rooms
- Machine Shops
- Meat Processing
- Media Printing
- Mining and Mineral Extraction
The Utility Study Process
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1
Engineering Study
A certified engineer determines usage by facility and equipment.
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2
Historical Review
Review 3 to 4 years of sales tax paid on utility bills.
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3
Calculate Refund
Determine the opportunity using study data and state rules.
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4
File Claims
Submit formal refund claims to the state.
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5
Future Benefit
Keep the utility exemption study as a document of record for 3 to 5 years.
Pricing
Our utility exemption studies are typically performed free-of-charge as part of a sales tax recovery exercise whereby the study is used to file a refund claim on prior sales tax paid on utilities used in the production process. However, stand-alone utility exemption studies are performed for a set fee.
Start Your Exemption Study Today
Contact us today for a FREE, NO OBLIGATION review of your electric, gas and water/sewer bills.
Identify Significant Tax Savings with a Utility Exemption Study
A utility exemption study will help identify opportunities for tax savings and isolate areas of exposure, including:
- Changes in business activity (up or down)
- Re-metering within plants
- Expansion/relocation of facilities
- Changes in utility vendors due to deregulation
- Acquisitions
- Outsourced utility bill management
- Erroneous vendor accounting systems
If you are interested in learning more about the impact a utility exemption study could have on your sales tax, get in touch today.
Exemption Types
Most states exempt utilities used in production under one of two methods.
Predominant Use
The entire utility bill is exempt if usage exceeds a specific percentage threshold, which varies by state.
Apportionment Use
Only the percentage actually used in manufacturing and/or R&D processes qualifies for exemption.
Utility Exemptions by State
Want to know if your state has utility exemptions? Find your state below and contact us with questions!
Additionally, you can consult our State-By-State Sales Tax Map to see a comprehensive view of your state’s sales tax laws.
Alabama – Exempt
Predominant Use: Water only (Over 50%).
Apportionment Use: Electricity and Gas (limited).
Arizona – Exempt
Predominant Use (Over 51% usage allows for 100% exemption if qualified).
Arkansas – Exempt
Beginning July 1, 2007, sales of natural gas and electricity to a manufacturer for use directly in the manufacturing process will be taxed as follows: From July 1, 2007 through June 30, 2008 the state tax rate will be four and one-half percent (4.5%). Beginning July 1, 2008, and continuing thereafter, the state tax rate will be four percent (4%).
California – Exempt
Electricity is exempt.
Colorado – Exempt
Apportionment Use (Only the % used in production is exempt).
Connecticut – Exempt
Predominant Use (Over 75% usage allows for 100% exemption).
District of Columbia – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Florida – Exempt
75% – 100% exemption, less than 75%, but greater than 50% – 50% exemption, less than 50%, no exemption.
Georgia – Exempt
Exempt if cost of electricity exceeds 50% of cost of all materials used in product, including electricity.
Hawaii – Taxable
This state has no utility tax exemptions.
Idaho – Exempt
100% exemption. There should be no sales tax listed.
Illinois – Exempt
Electricity is exempt.
Indiana – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
The Predominant Use exemption covers Restaurants.
Apportionment Use if R&D only.
Iowa – Exempt
Apportionment Use (Only the % used in production is exempt).
This exemption also applies to Restaurants.
Kansas – Exempt
Apportionment Use (Only the % used in production is exempt).
This exemption also applies to Restaurants.
Kentucky – Exempt
Exempt if the cost of energy or fuel exceeds 3%.
Louisiana – Taxable
Qualifying manufacturers pay sales tax at a reduced rate of 2%.
Maine – Exempt
95% of electricity is exempt for use at a manufacturing facility.
Maryland – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Massachusetts – Exempt
Predominant Use (Over 75% usage allows for 100% exemption).
Michigan – Exempt
Apportionment Use (Only the % used in production is exempt).
Minnesota – Exempt
Apportionment Use (Only the % used in production is exempt).
Mississippi – Exempt
Apportionment Use (Only the % used in production is exempt).
Missouri – Exempt
Predominant Use (Over 75% usage allows for 100% exemption).
Nebraska – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Nevada – Exempt
Gas, electricity and water, when delivered to consumers through mains/lines/pipes, are exempt.
New Jersey – Taxable
This state has no utility tax exemptions. Sales tax is already included in the cost of the utility.
New Mexico – Exempt
Apportionment Use (Only the % used in production is exempt).
New York – Exempt
Apportionment Use (Only the % used in production is exempt).
North Carolina – Exempt
Apportionment Use (Only the % used in production is exempt).
North Dakota – Taxable
This state has no utility tax exemptions.
Ohio – Exempt
No sales tax should be listed on electricity invoices.
Apportionment Use for gas only. Restaurants would also qualify for gas usage exemption.
Oklahoma – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Pennsylvania – Exempt
Apportionment Use (Only the % used in production is exempt).
Rhode Island – Exempt
Apportionment Use (Only the % used in production is exempt).
South Carolina – Exempt
Apportionment Use (Only the % used in production is exempt).
South Dakota – Taxable
This state has no utility tax exemptions.
Tennessee – Taxable
Qualifying manufacturers pay sales tax at a reduced rate of 1.5%.
Texas – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Utah – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Vermont – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Virginia – Exempt
Predominant Use (Over 50% usage allows for 100% exemption).
Washington – Taxable
This state has no utility tax exemptions.
West Virginia – Exempt
Apportionment Use (Only the % used in production is exempt).
Wisconsin – Exempt
Apportionment Use (Only the % used in production is exempt).
Wyoming – Exempt
Apportionment Use (Only the % used in production is exempt).
Additional services
How to start
A 20-minute free consultation can scope out the opportunity.
Every state is different with varying exemptions, statutes of limitations and procedures. We can discuss your business to see if it qualifies as a good candidate for a risk-free review.