Sales Tax On Electricity Does Your Business Really Owe It Or Not

Sales Tax On Electricity Does Your Business Really Owe It Or Not



Sales Tax on​ Electricity: Does Your Business Really Owe It...Or Not?
As utilities auditors and consultants,​ one of​ the​ most common overcharges we encounter is​ in​ the​ area of​ sales tax .​
Our consultancy is​ in​ New York State,​ where some commercial uses of​ electricity are taxable and some are not .​
Yet we find that many non-taxable uses of​ electricity are taxed,​ anyway .​
Evidently electric companies -- at​ least some of​ them -- elect to​ play it​ safe: when in​ doubt they collect the​ tax and turn it​ over to​ the​ taxing authority,​ whether it’s owed or​ not .​
Many business managers and financial people,​ who watch most costs like hawks,​ routinely approve electricity bills without knowing for certain whether the​ charges are correct .​
They don’t understand electricity bills,​ so they assume electric companies do the​ correct thing,​ and that their bills are error-free .​
Not so .​
We encounter all kinds of​ errors and overcharges -- real whoppers,​ some of​ them -- even going back decades,​ with improper sales tax charges high on​ the​ list .​
(See Electricity For Less: How Your Business Can Cut Costs And Stop Overcharges at​ www.saveelectricitycosts.com)
Most electric bills reflect charges for sales tax,​ or​ possibly a​ number of​ different sales taxes and surcharges .​
The patterns of​ taxes can vary considerably from one taxing authority to​ another.
In many areas,​ specific classes of​ users -- such as​ certain manufacturers,​ restaurants,​ nonprofit organizations and others -- are exempt from some or​ all sales taxes on​ electricity .​
In general,​ electricity used in​ the​ production of​ physical items is​ exempt from sales tax -- in​ those taxing authorities that allow exemptions .​
At this writing,​ over half of​ our states have enacted exemption legislation.
Some exemptions are based on​ what is​ called predominant use .​
Using this approach,​ if​ more than half the​ usage a​ meter measures is​ for an​ exempt activity,​ then all the​ billing for that meter is​ exempt.
Under the​ percentage of​ use approach,​ sales tax is​ applied only to​ that portion of​ the​ organization’s total electricity consumption being used for non-exempt activities .​
The remaining portion,​ used to​ support exempt activities,​ is​ not taxed .​
In some states,​ certain kinds of​ organizations are exempted entirely.
Because sales tax statutes across the​ nation change often,​ check the​ latest information in​ your state .​
Ask a​ qualified representative of​ your electric company,​ or​ better still,​ get a​ copy of​ the​ current sales and use tax statute from the​ sales tax division of​ your state’s department of​ revenue and taxation.
To determine the​ amounts of​ electricity being used on​ exempt and non-exempt activities,​ you​ may be required to​ have a​ study done by a​ licensed engineer .​
The engineer will measure the​ watts being used by each device that consumes electricity,​ and produce a​ usage study projecting exempt and non-exempt usage .​
(Some states,​ including New York,​ allow you​ to​ make this study yourself,​ without an​ engineer.) the​ electric company will collect sales tax from you​ based upon the​ result.
If you​ have been overtaxed in​ the​ past,​ apply to​ the​ taxing authority -- not the​ electric company -- for a​ refund .​
They will advise you​ what paperwork to​ submit,​ and how far back your refund may go.
The point here is: if​ your organization is​ being charged sales tax,​ don’t just assume you​ owe the​ tax .​
Check the​ law and make certain the​ charge is​ legitimate.




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