in Texas, the state sales tax is 6.25% (i.e., the sale price x 0.0625). In addition, depending on your locale, a district, county, city or other type of sales tax may apply.  It may not look like a big number, but when you pay an extra 6.25%-8%+ per month those points really start to add up!

Luckily, there are several industries and property types that are eligible for sales tax exemptions on their utility bills. Even better: if your business has been charged sales tax on your utility bill and your business is actually exempt, your entity may qualify for a sales tax refund.

In addition to negotiating a great rate and undertaking efficiency measures, there are other ways to impact your bill for the better.

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Do Your Business Qualify for a Sales Tax Exemption?

Now for the big question: Does my business qualify for a sales tax exemption and refund on its energy bills?

Truth be told, the coveted circle of who’s eligible for sales tax exemptions and refunds isn’t as small as most people think. Many types of businesses and residential properties do qualify.  In fact, here are just a few of the eligible industries.  Some may surprise you:

• Agriculture
• Audio & Video Production
• Bakeries
• Beverage Manufacturers
• Chemical Plants
• Clay Supply
• Electronics
• Food Manufacturers
• Golf Courses
• Horticulture
• Lumber Supply
• Medical Device Manufacturing
• Mining
• Pharmaceuticals
• Oil & Gas
• Printing
• Refineries
• Textiles

With regard to residential properties, the following types of entities may qualify to receive sales tax exemptions – and maybe refunds – on utility bills:

• Apartment Buildings (must have master meter)
• Assisted Living Facilities
• Condominiums (must have master meter)
• Mobile Home Parks
• Nursing Homes

This list is not exhaustive, so consult with a trusted energy advisor to see if your business qualifies for tax exemptions.

Many business owners automatically self-select out of these industries because of their own conceptualization of their companies. Also, some business owners do not want to spend time and money on required studies and paperwork.

However, your business may be considered a member of one of these industries without you realizing it. Similarly, the measurement and study requirements may not be as onerous as you might expect.

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How Do I Benefit From Sales Tax Exemptions?

If you recognize your business in that list above, that’s a great first step. However, simply knowing you’re in a sales tax-exempt industry isn’t enough to drop that charge from your utility bill.

Like all good things in life, you have to make it official.

According to the State of Texas’s Rule 3.295, all businesses that manufacture goods or otherwise alter products must conduct a predominant usage study before being able to benefit from sales tax exemptions.

According to the Texas Administrative Code, a predominant usage study must determine the portion of your business’s electricity usage that is required to power the production or transformation of products or other tax-exempt activities.

If 50 percent or more of your utility bill goes towards tax-exempt operations, you’re in luck! You qualify for a sales tax exemption.

However, if you’re not a certified engineer, you cannot DIY. Predominant usage studies require the seal of an engineer to be deemed valid.

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Is My Business Exempt Forever?

Not necessarily. Technically speaking, predominant usage studies do not have a specified time frame for expiration. If there have been substantial changes to your business operations, facility, or machinery, it’s likely you will need a new study. Some retail electric providers (REPs) crack down on businesses with old predominant usage studies – and it’s their prerogative to decide what qualifies as “old.”

If you haven’t done an update on your predominant usage study in the past few years and your business has gone through one of the major changes listed above, or there’s been a change in ownership, you may need to have your predominant usage study updated.

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I Think I Qualify! Where’s My Refund?

If you discover that your organization qualifies for sales tax exemptions, you may be able to recover up to four years – yes, 48 months! – of paid taxes in the form of a refund.

However, there are several factors to consider before jumping on that refund opportunity. For example, there’s a fee to complete a predominant usage study. In many cases, there are ways to off-set or completely cover the cost of the study with a refund or as part of a broader energy management program.

Also, you will need to find and select an engineer or firm to conduct the study, and, unfortunately, you can’t just send in the study and get a check! Someone will have to prepare your refund request in compliance with IRS rules, submit it, and work with the comptroller to obtain approval.

However, don’t just toss this item into the “too hard” basket. Consult with a trusted energy advisor to determine:

1. If your business should truly be sales tax exempt
2. If you stand to receive a refund and how much
3. The best, most cost effective way to get a predominant usage study and a check from the IRS.

It may be much simpler than you think and a terrific way to impact your operating budget now and for years to come.

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If you haven’t yet made the switch, now may be a good time to figure out the best strategy for your business.

Over the next several years, the federal income tax credit (FITC) percentage will be decreasing, which means businesses investing in solar will receive less and less of a solar investment tax credit with each passing year. On the other hand, the cost of solar power systems is also going down as time marches on.

More commercial businesses are investing in solar to benefit from long-term fixed power costs, a positive impact on load shape, and lightening the burden on the environment – to name just a few.

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Here are the key factors you need to consider when deciding when to go solar.

Solar Investment Incentives, Tax Credit & Depreciation

There are three major sources of value to consider when making a solar investment:

1. Utility-Based Incentives – Your utility company may give you some form of preferential credit as a thank you for going solar.
2. Federal Income Tax Credit (FITC) – The federal policy that has incentivized purchasing solar power systems by providing up to a 30% tax credit.
3. The Modified Accelerated Cost Recovery System (MACRS) – According to SEIA, “Qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85 percent of his or her tax basis.”

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Utility-Based Incentives

While utility-based incentives are an added bonus, they’re not nearly as sophisticated or impactful as the FITC or MACRS. Also, because utility-based incentives vary from region to region, it’s difficult to predict how they may impact your business’s bottom line.

For example, businesses based in Austin, TX, may benefit from a performance-based incentive (PBI) rate this year, but this opportunity is scheduled to be phased out soon. Similarly, CPS Energy in San Antonio and Oncor in the DFW area each offer great incentives that can significantly boost the performance of your solar investment.

However, these incentive programs are fleeting and there are several factors involved in whether or not your business will be eligible and able to obtain funds.  Consult with a trusted energy advisor to determine how much your business may obtain and how to finesse the often tedious process of getting the incentive funds your project deserves.

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Federal Income Tax Credit

The FITC is a true solar investment tax credit that has the potential to dramatically impact your business’s financial health. In addition to the potential for reduced electricity costs and more reliable energy, going solar can also provide your business with a bit of relief when Uncle Sam calls his tab.

Since its establishment in 2015, the FITC policy has promised that the potential solar investment tax credit a business can receive will gradually decrease over the next several years. The peak of the solar investment tax credit will be 30% in 2019 and will step down to 10% by 2022.

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Many companies hesitate (understandably) to go all-in on big investments like switching to renewable energy. However, the current FITC drastically improves the ROI on such projects, particularly in areas of the country where energy costs are lower than the national average – like Texas.

Translation: 2019 is the year to capitalize on the biggest solar investment tax credit that will likely ever be available.

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MACRS

The Modified Accelerated Cost Recovery System (MACRS) is another system with the potential to drive the ROI of your solar investment.

With the MACRS, your business can claim a depreciated value on the physical property of your solar power system and receive annual tax deductions that can help your business.

According to SEIA, “Qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85 percent of his or her tax basis.”

Couple this with the recently decreasing cost of solar installation and it’s clear that now is the time to make the switch to get the biggest savings from all sides.

Going solar may seem like a big leap. However, with a solar investment tax credit, utility-based incentives, and depreciation deductions, your business can get into solar right now with and ROI that creates a big bang for your bottom line.

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Still have questions? Consult with a trusted energy advisor to make sure you’re making the smartest move possible for your business.