Are You Overpaying on Utilities? Understanding Utility Exemptions for Businesses

Last Updated on November 5, 2025

Utilities are one of the largest recurring expenses for manufacturers, processors, data centers, and industrial operators — yet most businesses are unknowingly paying sales tax on utility usage that legally qualifies for exemption.

While companies often focus on recovering overpaid tax on equipment, services, or use tax, utility exemptions are one of the most overlooked areas of Sales & Use Tax Recovery. In many states, a significant portion of electricity, natural gas, water, steam, or fuel used directly in production is partially or fully exempt from sales tax — but you don’t get the exemption unless you prove it.

In our previous blog, we discussed how businesses can uncover hidden profits through Sales & Use Tax Recovery. One of the biggest contributors to those refunds?
✅ Utility Exemptions.

Let’s break down why this matters — and how much your business may be leaving behind.

Why Utility Exemptions Are So Commonly Missed

Unlike other tax exemptions, utility exemptions can’t be claimed by simply filling out a form. States require detailed proof, including:

• A utility study or predominant-use analysis
  
  
• Meter readings showing tax-exempt vs. non-exempt consumption
  
  
• Engineering-based breakdown of production vs. non-production usage
  
  
• Line-by-line energy allocation tied to manufacturing processes
  
  

Because the process is technical and varies by state, most businesses simply pay the full tax — resulting in hundreds of thousands (or millions) in recoverable refunds over time.

How Utility Exemptions Work

Most states allow a utility exemption when power, gas, or water is “directly used in manufacturing, processing, research, agriculture, or production.”

That means the utilities used to:
✔ Run machinery
✔ Power production lines
✔ Operate processing equipment
✔ Maintain environmental control for products
✔ Support refrigeration, welding, curing, or chemical reactions

…may legally qualify for partial or full tax exemption.

However:
✘ Office HVAC
✘ Lighting for admin areas
✘ Employee break rooms
✘ General facility usage
…do not qualify.

A Utility Study determines the percentage split between the two — which is the key to filing refunds and securing ongoing exemptions.

How Much Can Businesses Recover?

Typical refund ranges we see at TaxMatrix:

The bigger the facility, the bigger the utilities — and the bigger the refund.

Why a Sales Tax Recovery Partner Matters

Most companies don’t have an engineer, tax analyst, or multi-state exemption expert on staff — and that’s what a utility study requires.

A Sales Tax Recovery Partner like TaxMatrix provides:

✅ Engineering-based Utility Studies
✅ Multi-state exemption qualification
✅ Documentation + refund filing support
✅ Audit Defense if the state challenges the numbers
✅ Zero upfront cost — fees based ONLY on refunds won

The result?
Recovered tax + future exemption = permanent bottom-line savings.

In our last blog, we explained why choosing the right recovery partner saves time and millions.

Utility exemptions are one of the biggest reasons why.

➡️ Not all firms handle them.
➡️ Not all firms understand the engineering + tax combination required.
➡ ️ And not all firms defend them during audit.

This is exactly where TaxMatrix leads the industry.

If you missed it, read the previous post here:
Why Choosing the Right Sales Tax Recovery Partner Saves Time and Millions

If you are paying sales tax on your electric, gas, or water bills — and you are a manufacturer or commercial operator — there is a high chance you are overpaying.

The money won’t come back automatically.
The state will not notify you.
Your utility provider will not advise you.
Your CPA is not running a utility study.

But TaxMatrix will.

Stop overpaying. Start recovering. Protect your bottom line.

FAQs

1. What is a Utility Study?
   A technical analysis that measures how much utility usage is tied to production vs. non-production activity — required to claim exemption or refunds.
2. How many years back can utility refunds be filed?
   Most states allow 36–48 months of historical refunds.
3. Does every business qualify?
   No — mostly manufacturers, processors, agricultural operators, labs, cold storage, and certain data centers.
4. How does this connect to Sales & Use Tax Recovery?
   Utility refunds are one of the top contributors to high-dollar refund claims in recovery projects. They are part of a complete Sales & Use Tax Recovery strategy.
5. How does this relate to choosing the right recovery partner?
   Only a qualified partner can:
   ✔ Perform a compliant utility study
   ✔ File the exemption properly
   ✔ Defend the claim during audit
   ✔ Secure ongoing exemption to stop future overpayments

This is why TaxMatrix handles Sales & Use Tax Recovery, Audit Defense, and Utility Exemptions — together.