As you run your business, you’re always looking for ways to save money and improve your bottom line. While there are some costs you can easily shave down, others are necessary and inflexible. One of the best ways to save money on these essential expenses is through utility sales tax exemptions.
At Utility Consultants & Associates (UCAA), we perform predominant use studies for Texas based businesses in a variety of industries. Through a predominant use study, we determine if you’re eligible for a sales tax exemption on electricity and or natural gas. In addition to future tax exemption status, you can also recover up to four years past utility sales tax expenditures.
A Texas Predominant Use Study is completed in compliance with State of Texas Administrative Code, Comptroller Rule 3.295 (Natural Gas and Electricity: amended to be effective March 7, 2017, 42 TexReg 1034), Texas Tax Code 151.317, Gas and Electricity, and Rule 3.300 (Manufacturing; Custom Manufacturing; Fabricating; Processing (Tax Code, §§151.005, 151.007, 151.318, ) statutory requirements.
A predominant use study examines several elements of energy usage. Utility Consultants engineers will determine the kilowatt per hour of electricity and/or the cubic foot of gas consumption of each load bearing device used at each utility meter. We then determine the electricity and natural gas used by all equipment and categorize the equipment into non-exempt and exempt categories, as specified by the Texas Tax Code.
Utility Consultants will perform an onsite survey of your facility documenting all uses of electricity and/or natural gas. Our field engineer will take approximately 30 minutes of the facility manager’s time to do an initial walkthrough and then do the documentation with no interruption to production.
The survey starts at the meter to verify the meter number then all breaker panel information is documented. Then every device that uses electricity and/or natural gas is documented by identifying operation hours, volts, amps, phase, kilowatt rating for electricity devices and BTU rating for natural gas, followed by duty factor for cycling equipment, and categorized as taxable or tax exempt.
For example, we count indoor and outdoor lights, HVAC, all office equipment, breakroom, water heaters and all production and non-production related equipment. In other words, a full inventory of everything powered by each utility meter is documented.
UCAA engineers have bachelor degrees in electrical engineering. Utility Consultants obtains twelve consecutive months of usage from the utility service provider, as this is a requirement stated in Texas Tax Rule 3.295 and is part of the predominate use study. The documentation is assembled then engineering calculations performed resulting in a utility tax exemption study. As stated in Rule 3.295 the predominant use study must be certified by a registered engineer or a person with an engineering degree from an accredited engineering college, as specified in Rule 3.295.
UTILITY TAX EXEMPTION
Once the predominant use study is completed and finds that 51% of utility usage is sales tax exempt, the Texas Sales Tax Exemption Certification is completed and certified by our engineers. The sales tax exemption certificate is forwarded to the utility provider, who will tag the meter as exempt from paying state sales tax (and local tax where applicable).
To qualify for the exemptions the electricity or natural gas must be sold to the company using the utility. Whether the utility is exempt or taxable is based on the predominant use of the electricity or natural gas.
The utility provider does one of two things; issue the sales tax refund as a credit on the utility bill or send to the company an “Assignment of Right to Refund” authorizing the account holder to request the refund from the Texas Comptroller. This is at the discretion of the utility provider.
Where an Assignment of Right to Refund is issued by the utility provider, Utility Consultants’ staff will gather the necessary documentation and assemble the refund request with the appropriate justification relative to the qualified exempt usage as required by the Texas Comptroller. It seldom happens but if the Texas Comptroller examiner or auditor requests a field verification examination, Utility Consultants, at our cost, will accompany them and provide justification for the refund. Utility Consultants stand behind our predominant use study and will use our knowledge and expertise to assist the auditor’s field examination. Utility Consultants has never had a refund denied.
The Texas Tax Code specifies the following industries may be exempt from paying state sales tax, and in some instances local sales tax:
Manufacturing and fabricating: Fabrication, processing and assembly whether in a small shop or large factory. For example, machine shops, chemical plants, refineries, print shops, semi-conductor plants, and video recording production.
Subcategories of manufacturing and other industries that may also qualify are:
- Residential (Apartment Complexes/Home Owners Associations/RV Parks/Retirement Homes/ Nursing Homes/Assisted Living Centers)
- Asphalt/Concrete Plants
- Food and beverage processing
- Bakeries/Donut Shops
- Cathodic Coating /Powder Coating
- Machine Shops/Fabrication
- Mineral extraction from the earth (stone, sand, water, and gravel)
- Non-Profits (501(c)(3),(4),(8),(10),(19)
- Oil and Natural Gas (Manufacturing and Production)
- Plant Nurseries
- Plastic Molding (Blow, compression, injection, rotational, thermoforming)
- Printing, publishing, video and sound recording studios
- Technology (Epitaxy, printed circuit boards and software development
- Defense or national security-related electronics, classified intelligence data processing and handling systems