Does saving 5% on your energy bill interest you? What about 8%? No one wants to leave money on the table, but many businesses are doing just that by not understanding their exemption status of Sales tax on energy costs.
If your business is tax exempt, you can reclaim tax that you've previously paid and not pay tax in the future on your energy bills. Although each state is a little different, there are three main steps to getting your rebate.
Determine if you are eligible
To start, let's be clear about how big of an opportunity this presents and what industries this exemption could affect. Check your states government website or utility to see if you're in a state that allows exemptions on energy bills. They will have a list of who's sales tax-exempt. In the meantime, here's a list of common tax-exempt organizations and businesses:
- retirement homes
- nursing homes
- assisted living facilities
- apartment complexes
- RV/mobile home parks
- material extraction from the Earth
- food and beverage processing
- printing or engraving
- chemical plants
- pharmaceutical plants
If you're a manufacturer, things are a bit different and can be a little more complex. Be sure to double check your state's exact exemption requirements. Typically it's only the energy used for manufacturing that's exempt.
If you are a business owner and in one of these sectors, then you are probably wondering how you go about getting this exemption?
Find out how much energy your business uses
If your organization has tax-exempt status, you may be able to skip this step, since all of your energy should be tax exempt. For manufacturing, it's a different story. Usually only the portion of energy used in manufacturing is exempt.
The first step is to determine how much electricity your business uses for manufacturing. Most states require a utility study, also known as a Predominant Use Study. Energy managers use the study to identify the percentage of a certain utility that is consumed in manufacturing versus general & administrative activities.
The utility study helps the state to decide what percentage of your energy should be tax free. Not to mention, it is always good to have concrete data to protect against audits. For example, if the utility study finds your business uses 10,000 kWh per month, and 50% goes to the actual manufacturing, then 5,000 kWh would be tax free.
While you can do the analysis yourself, most businesses work with a consultant since predominant use studies can be tricky depending on the size and complexity of your business.
Find your state's form & submit the refund application
If you have tax exempt status, but are still paying sales tax, you'll also need to submit a tax-exempt status form.
If you're in manufacturing, once you've calculated your energy usage, you'll need to complete any refund forms and send it in to start to see a reduction in energy costs.
No hassle. No worry. Let Incite Energy do all the heavy lifting for you. Get a free Sales Tax Report and Audit.
What about the taxes on energy I already paid?
If you discover that your business has been paying too much for multiple months, don't panic! You can file for a petition with most states that could possibly refund you all the extra money you have been paying in sales tax on energy.
Be sure to check out your state's tax policy for more information on your state's process. You may also need to gather up your previous bills and calculate how much tax you're owed to include with your application.
Once you've submitted all the necessary forms, the state should reimburse any sales tax you've paid and stop charging you tax on energy that's exempt. Though it can take some time to do, a tax rebate and exemption is one of the best ways to benefit the bottom line. Its free money!