Utilities Sales Tax Exemption for Manufacturers

Many manufacturers in Texas, and other states for that matter, are unaware that they can receive a sales tax exemption for utilities used in the manufacturing of tangible personal property that will be for ultimate sale. The exemption is due to the fact that the manufactured product will eventually result in sales tax collected from the end purchaser. Not every type of manufacturing qualifies. For example, if a company manufactures items used in construction, then those items are tax exempt to the purchaser. Therefore, that particular manufacturer cannot qualify for a sales tax exemption on utilities. On the other hand, if a company manufactures widgets that are ultimately sold to the public, then a utilities sales tax exemption may be granted.

You must have what is called a “predominant use study” performed in order to qualify. This is typically done by engineers who know how to analyze the utility usage of manufacturing facilities. They prepare a comprehensive report that backs up their findings, and they certify their findings to the comptroller in order for the client company to receive the exemption.

Another good thing about the study is it helps to document the portion of utilities used in the cost of goods sold deduction for the Texas franchise tax.

If you would like more information, let me know and I will point you in the right direction.