Sikich Tax Update: Sales Tax Exemption on Utilities
There are significant tax credit and abatement opportunities available for business owners.? Local, state, and federal government entities offer programs designed to incentive business behavior that achieves economic or social outcomes.? In this article, we explore utility sales tax exemptions, specifically focusing on gas, electricity, water and steam powered utilities and the types of businesses that might qualify for this exemption.
Particularly for businesses in the manufacturing industry, sales taxes on utilities can become a substantial expense. Certain states offer eligible businesses an opportunity to eliminate or reduce this tax burden. Let's take a closer look at how this works.
Industries That Typically Qualify:
Eligibility:
The utility sales tax exemption is available in 30 states across the United States (see highlighted states in map). It applies when utilities are recognized as necessary and integral to a business’s production process, meeting specific usage percentage requirements. Exempt utilities typically include gas, electricity, water, and steam. Existing or new businesses can be eligible and depending on the state, businesses may be able to obtain refunds of sales taxes paid on utilities if the statute of limitations is still open on sales taxes previously paid.
It's important to note that rules and regulations regarding this exemption vary from state to state. Our team is here to guide your company through the process and ensure you receive the exemption you deserve.
Obtaining the Exemption:
To qualify for this tax exemption, businesses must conduct an engineering study on their applicable utility meters. This study identifies the exact percentage of utility consumption that qualifies for the exemption. Once the usage report is submitted to the relevant state organization, businesses can expect a reduction or elimination of its utility sales tax burden.? Adding a new meter would require a new study for the utility sales tax exemption.
The Importance of Expertise:
Determining which portion of utility usage qualifies for the exemption can be complex. It is important to engage an experienced firm to audit the utility usage in the manufacturing and production process. When you work with Sikich, we will deploy experts that will conduct a meter engineering study and assess utility usage of all the machinery and equipment. Our team will also work with state and local officials to file and support the results of a study.?
Next Steps
Consider this exemption during significant business events, such as mergers, acquisitions, expansions, or selecting a new utility vendor. Call one of our experts in tax credits and incentives to assess whether this exemption may be an opportunity for your business.
Illinois does offer utility tax exemption through many of our incentive programs including Enterprise Zone, Reimagining Energy and Vehicles, Manufacturing Illinois Chips for Real Opportunity and the Quantum Enterprise Zone. Here is the Reimagining Energy and Vehicles webpage as an example for your reference: https://dceo.illinois.gov/businesshelp/rev.html