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​
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.
Sales Tax On Electricity Does Your Business Really Owe It Or Not Sales Tax On Electricity Does Your Business Really Owe It Or Not Reviewed by Henda Yesti on June 27, 2018 Rating: 5

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