Below you may find some questions that are on your mind ...
Which states offer a sales tax exemption for electric, gas, water/sewer expenses that are used in production?
At last compilation for this FAQ, the following states offered sales tax-exemptions on utility expenses to some degree: Alabama (for electrolytic or electro-thermal manufacturing), Arkansas, California, Connecticut (for fabrication), Colorado (for producing or processing tangible personal property), Delaware, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Jersey (very limited), New York (except NYC), Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Wisconsin, Wyoming. Contact Enguard for specific, detailed information as laws are constantly changing.
What types of businesses qualify for the utility tax exemption?
The type of businesses that may qualify for a utility tax exemption varies from state to state. For example, the Indiana utility exemption provides for an exclusion from sales tax on purchases made from a public utility company by a manufacturer or an industrial processor, provided that the electricity, gas or water is at least partially consumed directly in the process. For the purpose of this exemption cooking is manufacturing; therefore, restaurants qualify for the exemption. By contrast, the state of Alabama allows the exemption only for electrolytic or electro-thermal manufacturing in certain situations.
Could a company’s entire electric bill be exempt from a sales tax?
The utility sales tax exemption only applies to that portion of metered utility costs that can be verified as used in a production process. And even then, different states may require that certain criteria be met. For example, Missouri requires that utility costs exceed 10% of the cost of production.
Employees may be critical to production. Are climate controls to provide for employee comfort exempt from the sales tax on utilities?
Typically, no. The exemption only applies to energy used directly in the production process. That is, the electricity necessary to power a conveyor belt would be exempt as opposed to electricity for climate control, lighting or utilities consumed in administrative duties.
How is the portion of utility costs that are exempt calculated?
We start by looking at all the utility consumption being measured by a specific meter and then identify all activities that are pulling energy through that meter. We then determine what percentage of the energy is being used for tax-exempt production purposes as defined in that particular state.
Can't we just 'guesstimate' what portion of our utility costs go to production?
To avoid having pay the entire tax savings back later (as well as any penalties and accrued interest) you need to be able to provide your state Department of Revenue detailed documentation of how energy was consumed by your company as it relates to production of specific goods. With the Utility Study by Enguard application, you won’t ever have to fear a state audit of your sales tax exemption claim.
Is the documentation provided through Utility Study by Enguard accepted everywhere?
So far, documentation of sales tax exemption by Enguard clients using our web-based application has been accepted in 20 different states—everywhere and every time its findings have been submitted as justification for exemption. We are confident that Utility Study by Enguard will soon have a record of accepted usage in every state that exempts sales tax on utility costs for production.
Is the Utility Study by Enguard application complicated to use?
Not at all. Our online application walks you through a step-by-step process of determining what percentage of energy usage is going for production. But if you ever find yourself getting 'stuck,' we have staff available to provide the personal assistance you need to complete the review.
Will I need to file the paperwork with my state Department of Revenue?
No, we take care of the paperwork for you … saving you time and the hassle of dealing with state bureaucracy while also providing your documentation with Enguard's imprimatur of credibility. We also keep your documentation stored on file for you for future reference.
