“No, not the dreaded ‘T’ word!” I can hear your wallet cringing from all the way over here. Yes, sales tax is a pain. Yes, it adds up fast for businesses and makes your already costly utility bill even higher. Luckily, there are two words that can make the word “tax” music to your ears: “exemptions” and “refunds.”
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.
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.
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.
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.
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:
- If your business should truly be sales tax exempt
- If you stand to receive a refund and how much
- 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.
