What do a golf course, print shop and a nursing home all have in common?
They could all be exempt from paying state sales and use tax on their electricity and natural gas consumption. The specific industries that qualify for tax exemption are diverse. The three listed above illustrate that diversity. Does your business qualify?
Texas is among 37 states that have enacted tax laws which allow certain manufacturers, processors and others an exemption or reduction of otherwise applicable sales tax. If the predominant use (more than 50%) of the utilities are used for tax exempt purposes, the entire usage through that meter is exempt from sales and use tax.
What are some examples of businesses that are sales tax exempt?
- Print shops, wood, clay and plastics products pharmaceutical, medical device, electronics, semi-conductor plants, machine shops, chemical plants and refineries, steel and textile operations and audio/video recording production
- Food and beverage processors and bakeries
- Agricultural and horticultural operations, including irrigation, feedlots, animal food processing, fruit and vegetable growing processing and plant nurseries;
- Golf courses, for electricity used in pumping irrigation water and charging golf carts;
- Repairs to railroad “rolling stock,” jet aircraft engines and national defense-related “platforms;”
- Oil, gas and mining operations.
There are some interesting exceptions. For instance, a bakery that makes its product in the back and then sells it from the front counter would not qualify. However, if the product is delivered to another location for sale, the production process would be considered exempt.
There are also some interesting additions to what type of business qualifies: nursing homes, Alzheimer units, assisted living and retirement facilities, RV and mobile home parks where the average tenant stay exceeds 30 days and apartment buildings and condominiums where there is a master meter for all units and the apartment/condo pays the bill. These types of businesses fall into the residential exemption.
In the early years of this exemption, a business could “self-certify” their qualification. Unfortunately, too many questionable circumstances arose and the state changed the law to require an engineering study be done to qualify and quantify a company’s eligibility.
How it works:
The process of obtaining this predominant use study starts with the collection of data from the company (lists of equipment used, utility bills, hours of operation of each piece of equipment and so forth) followed by an on-site analysis. The on-site portion of the study can take as little as a few hours to a couple days or more, depending on the size and scope of equipment and processes. Once the data is collected, the percentage of energy use is calculated. If it meets the 50%+ qualification, an exemption certificate will be issued. A copy of this certificate must be sent to your electricity or gas provider in order for the exemption to be granted.
In Texas, if you find that your business meets this standard, it is possible to receive a refund of previous taxes paid for up to 48 months. Other states have different time periods.
Keep in mind, if you change locations, change energy providers or have a substantial change in equipment, this could affect your exemption status. In addition, you may need to provide the exemption certificate to a new provider. Protect that certificate as if it was cash!
The other good news is that there is no out-of-pocket expense to your company. The fee for the study is based on a percentage of the tax savings. If the study proves you do not qualify for exemption, there is no cost.
Find out if your business is eligible.
If you believe your company could qualify for an exemption of sales tax on utility bills, contact an energy consultant to learn the next steps. This is another example of how we strive to help our customers save money. Contact us today a 800-977-4020.