Utility Exemption Studies

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For many manufacturers, processors, and fabricators, sales tax exemptions on the purchase of utilities, such as electricity, natural gas, steam, and water, can provide one of the single largest sources of tax savings in their operations. This tax exemption can result in hundreds of thousands of tax dollars saved annually. To lower your company’s utility costs through the reduction or elimination of sales tax, a predominant use or exempt use utility study may be required to support the claim for exemption.

The Cotocon Group provides utility exemption studies for companies across a variety of industries to support their claims for sales tax exemptions on the purchases of utilities, such as electricity and natural gas. Utility study detail and certification documentation requirements vary from state to state, but in most cases, the power consumed to operate exempt equipment is considered an exempt use of that power. In many states, meters that measure more than 50% of their power consumed operating exempt equipment generally qualify for a 100% exemption from sales tax. The Cotocon Groups’ experience and thorough understanding of all state and local tax laws and compliance requirements will ensure that your company submits an accurate utility exemption claim that substantiates the highest possible exemption percentage achievable.

A utility exemption identifies tax savings and uncovers refund opportunities to isolate potential areas of exposure. Particularly, if the company is experiencing any of the following:

  • Reduction increases, or changes in business activity that may act or eliminate an exemption, such as reduced output or number of shifts
  • Re-metering or relocating processes within a plant
  • Expansion or relocation of facilities
  • Changes in utility vendors due to deregulation
  • Mergers, acquisitions, bankruptcies, or changes in ownership
  • Vendor accounting system changes that may erroneously charge sales tax
  • Outsourced utility bill management where billing errors may be overlooked

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
  • Change of utility vendors due to deregulation
  • Acquisitions
  • Outsourced utility bill management
  • Erroneous vendor accounting systems

New York allows businesses to claim exemption on the portion of their utility used directly and exclusively to produce tangible personal property for sale. “Producing” includes: manufacturing, processing, generating, assembling, refining, mining and extraction.

Energy Study Requirement

In New York, a detailed energy study must be performed to identify the exact percentage of utility that is exempt from sales tax. This includes calculating the annual consumption for each device that is consuming the utility and then distinguishing between production devices and non- production devices