Utility Sales Tax Exemption: Predominant Use Study

Are you paying sales tax on utilities used for tax-exempt purposes?

What Are Utility Sales Tax Exemptions?

Utility sales tax exemptions are a form of tax relief offered by many states across the United States to businesses that use utilities—such as electricity, natural gas, and water—predominantly for manufacturing, industrial production, or other qualifying activities. These exemptions are designed to reduce operational costs, promote economic growth, and encourage businesses to invest in facilities and production processes.
To qualify for a utility sales tax exemption, businesses must demonstrate that their utility usage is primarily (and in some states predominantly) tied to specific activities deemed eligible under state law. While definitions and requirements vary by jurisdiction, qualifying activities often include:

Manufacturing: Powering machinery, equipment, or processes used in the production of goods.
Industrial Production: Supporting operations like refining, processing, or assembling materials.
Agriculture and Food Processing: Utilities directly used for growing, harvesting, or processing food products.
Healthcare and Pharmaceuticals: Energy used in sterilization, production of medical devices, or related manufacturing.

Why Are Utility Sales Tax Exemptions Important?

Utility sales tax exemptions provide businesses with significant cost savings, particularly in industries where utilities represent a substantial portion of operating expenses. By reducing tax burdens, these exemptions free up capital for businesses to reinvest in growth, innovation, and sustainability initiatives.

At Walker Blue, we specialize in helping businesses navigate the complexities of utility sales tax exemptions. From conducting thorough predominant use studies to managing compliance and securing refunds, our team ensures that you maximize your benefits while staying fully compliant with state regulations.

Explore how we can help your business unlock savings and simplify the process of achieving utility sales tax exemptions. Contact us today to learn more!

Industries that Qualify For Utility Sales Tax Exemption:

Manufacturing (Automotive, Pharma, Textiles, Electronics, etc.)

Agriculture (Crop, Dairy, Poultry, Greenhouses)

Industrial (Food Processing, Paper, Plastic, Oil Refinery, etc.)

Housing Complexes

Assisted Living Facilities

Data Centers

Hotels

Mining

Recycling

Our Proven Process

Step 1: Gather Data

To provide a qualified manufacturing company with a utility tax exemption, the data gathering process involves compiling a comprehensive Request for Information (RFI) to collect the following key details:

Utility Consumption Records & Invoices
Facility Floor Plans
Equipment Purchase & Maintenance Details
Employee Records & Interviews
Operational Hours
Production & Process Data

This data is collected and submitted through the RFI form to ensure accurate assessment and verification for utility tax exemption qualification.

Step 2: Predominant Use Study

Following the collection of required data, an initial review will be conducted to determine the completeness and quality of information collected. If all data requirements are met, an energy study will be initiated:

Perform a comprehensive analysis of energy consumption by major equipment and operational processes.
Correlate utility consumption with production schedules to determine tax-exempt and non-exempt use percentages.
Identify areas of high energy consumption related to production, research, and any other qualified processes.
Determine Predominant Use as a percentage of total energy consumption, meeting either the 50%, or 100% refund criteria.

Step 3: Facility Site Visit

A site visit will be conducted to obtain photo documentation of the facility, including exterior, interior, machinery, and operating schedules to ensure sufficient data is obtained to conduct the predominant use analysis. The specific data required is:

Electricity Consumption:

Types of Machinery/Equipment:
- Production Equipment:
- Industrial Motors and Drives:
- Lighting Systems
- HVAC Systems
- Specialized Machinery
- Other Considerations:
  - Electrical meters or sub-meters, if available, for detailed tracking.
  - Power factor correction equipment (if the facility uses it).

Natural Gas Consumption:

Types of Machinery/Equipment:
- Industrial Boilers and Furnaces
- Kilns
- Steam Generation
- Dryers
- Other Considerations:
  - Track gas lines connected to exempt vs. non-exempt machinery.
  - Any other ancillary use of gas directly involved in the manufacturing process.

Water Usage (if applicable):

Types of Machinery/Equipment:
- Cooling Towers
- Process Water Systems
- Industrial Washers
- Other Considerations:
  - Water heating systems tied to production processes.
  - Segregate water consumption for administrative use (e.g., restrooms, break rooms).

Compressed Air Consumption:

Types of Machinery/Equipment:
- Air Compressors
- Air Dryers and Filters

Fuel Consumption (Diesel, Propane, etc.):

Types of Machinery/Equipment:
- Generators
- Forklifts or Material Handling Equipment
- Propane-Powered Equipment

Steam and Other Process Heating:

Types of Machinery/Equipment:
- Industrial Steam Systems
- Heat Exchangers

Ventilation and Exhaust Systems:

Types of Machinery/Equipment:
- Industrial Exhaust Fans
- Dust Collection Systems

Renewable Energy Systems (if applicable):

Types of Machinery/Equipment:
- Solar Panels
- Wind Turbines
- Battery Storage

Step 4: Request For Refund

After the energy study is complete, and predominant use is established, administrative processes will be initiated to complete the refund through the following steps:

File Required Exemption Forms
Submit Forms to Department of Revenue
Provide any Additional Documentation Requested
Approval & Refund

Step 5: Audit Support

In the rare case that a client gets audited by the State Department, Walker Blue will provide on demand, complete audit defense throughout the processes. With 100% success rate, rest assured that we can protect our clients and stand by our work.