Do you know if your business qualifies for a sales tax exemption on its utility bills?
All states in America charge a sales tax on many different types of items. The sales tax percentage, however, is different depending on the state you live in. In Texas, the sales tax is 6.25% and applies to the lease and rental of many products, taxable services and retail sales. In addition, based on the district, county, city, etc., other types of sales tax can apply.
It should probably go without saying, but it’s required by law for all businesses operating in Texas to know and pay for any applicable sales taxes. However, many different types of manufacturing businesses and residential properties have a slight advantage. These types of businesses have the ability to take advantage of sales tax exemptions on their energy bills.
Eligible Manufacturing Companies
In the state of Texas, many manufacturing companies are eligible for sales tax exemption on their electricity bills. These companies belong to an incredibly wide range of manufacturing industries, some of which include:
- Oil & Gas
- Mining
- Golf Courses
- Steel Mills
- Agriculture
- Food Processors
- Print Shops
- Horticulture
- Clay Shops
- Electronics
- Chemical Plants
- Refineries
- Beverage Processors
- Audio Recording Production
- Video Recording Production
- Pharmaceuticals
- Textile Operations
- Medical Devices
- Wood Shops
- Bakeries
Eligible Residential Buildings
When it comes to residential buildings, many different types are also eligible to receive sales tax exemptions on utility bills. Some of these buildings include:
- Nursing homes
- Assisted Living Facilities
- Mobile Home Parks
- Apartment Buildings (with a master meter)
- Condominiums (with a master meter)
As you can see, the lists of eligible companies or properties is extensive, which means that many people in Texas can take advantage of sales tax exemption opportunities on their utility bills. The question is: how do these companies and residential building owners go about getting that money back?
How Do I Become Sales Tax Exempt?
By law, there is only one way for a company to prove that they are eligible for sales tax exemption on their utility bill, and that is to conduct a predominant usage study. This law is outlined in Rule 3.295 by the State of Texas and applies to manufacturing companies in addition to businesses that alter the form of a product.
Predominant Usage Study
A predominant usage study is conducted to prove whether or not 50% (or more) of the electricity used by the manufacturing business or residential property is consumed during production of the product(s). An appropriately accredited engineer can submit the results of the study to the appropriate utility, must conduct the study.
In the need for someone to perform your predominant usage study? Call us today at 800-974-3020 or contact us through the web.
What is a Predominant Usage Study?
When we go to a manufacturing company to conduct a predominant usage study, we have a list of required elements to work through. This purpose of this list is to provide proof to the utility (and government) that the manufacturing is legally entitled to a refund — or not legally entitled to a refund.
Some of the items on this list includes:
- A detailed run down of all appliances that use electricity. This list must be separated into two areas: non-processing items and processing items.
- Descriptions for each appliance, to define its purpose.
- Rating (kWh) for each appliance.
- Daily operating hours for the manufacturing company.
The manufacturing company must also provide some information to the engineer conducting the study. This information includes previous energy bills and certification of company ownership.
Predominant Usage Study Certificate
Once a predominant usage study is complete, the company or residential building should receive a certificate from the company that conducted the study. This certificate is an important document because it provides absolute proof to any organization or government entity that they qualify for sales tax exemption.
Refunds
If it’s found the company is eligible for a refund, we will send the information to the utility on the manufacturing company’s behalf. The utility will then send the refunded amount to the manufacturing company. Refunds can include amounts that go back 4 years (48 months). For manufacturing companies in Texas, it means they could potentially see a sales tax refund on electricity and gas utility bills anywhere between 6.25 – 8.25%.
Moving forward, the predominant usage study also proves to the utility that the manufacturing company is eligible for the refund. In addition, the government has proof that the manufacturing company is legally eligible for sales tax exemption on their electricity.
Exceptions to the Rule
As with most things in life, there are always some exceptions to the rule. While a business might classify itself as a manufacturing company, there might be a few regulations that they don’t follow. This means that they would not actually be eligible for sales tax exemption on their electricity bills.
Manufacturing Exceptions
According to Rule 3.295, acts conducted by the manufacturing company that relate to the preparation of production do not count towards sales tax exemption. The Rule defines “preparation for production” as, “a manufacturer gathering, arranging, or sorting raw material or inventory is preparing for production.” In addition, after the production of the item is completed, the Rule also states that, “maintaining the life of tangible personal property or preventing its deterioration is not a part of the manufacturing process.”
Processing Exceptions
There are also a few exceptions to the kind of processing that can receive sales tax exemptions. Based on Rule 3.295, processing exemptions are not applicable on anything that’s been remodeled or restored. In addition, “The mere packing, unpacking, or shelving of a product to be sold will not be considered to be processing of that product.”
Residential Exceptions
Residential exceptions to sales tax exemptions are a little bit different when compared to manufacturing or processing exceptions. Nursing homes were only included under Rule 3.295 starting after December 31, 1987. Also, residents occupying a home as a tenant must live in the space for more than 29 days in a row. If there is no contract between the tenant and landlord, only the period beyond the initial 29 consecutive days can be considered for exemption.