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With electricity and natural gas costs putting pressure on business budgets, companies are looking for practical ways to improve cash flow. One opportunity, however, is already hiding in their utility bills: businesses and property owners may qualify for sales tax exemptions on certain utility expenses, depending on how energy is used and the state where the property operates. A predominant use study identifies potential refunds for past payments and helps reduce taxes on future eligible utility bills.
KBKG Insight
Businesses often overlook sales tax charged on utility bills. KBKG’s Predominant Use team combines engineering and state tax expertise to identify qualifying utility usage and potential savings across manufacturing, processing, and other energy- intensive operations. New York apartment building owners may also qualify for reduced taxes on residential energy. A study can uncover refunds for eligible past payments and savings on future utility bills.
Background: How Does a Predominant Use Study Work?
In many states, businesses may qualify for a utility sales tax exemption when more than 50% of the usage on a particular meter supports qualifying production activities. A predominant use study documents how electricity, natural gas, steam, or other utilities are consumed to determine the percentage of usage that qualifies. The applicable threshold and qualifying activities vary by state.
For example, imagine a business spends $500,000 annually on utilities and pays a hypothetical 7% sales tax. If a study establishes that 60% of the taxed utility usage qualifies for an exemption, the potential annual savings would be $21,000. Under the same assumptions, three eligible prior years could represent another $63,000 in potential refunds, subject to state refund rules and supporting documentation.
These are two separate benefits: recovering eligible past payments and reducing future utility taxes. Actual results depend on the business, utility usage, applicable tax rates, and state requirements.
Refund-Window Checklist by State
Refund deadlines are limited and vary by jurisdiction. KBKG guidance indicates that eligible claims may reach back as far as 48 months, depending on the state.
| State | Refund-window review |
|---|---|
| Texas | Generally four years for eligible sales tax refunds. |
| New York | Confirm applicable refund deadlines and utility exemption rules. |
| Wisconsin | Confirm applicable deadlines and documentation requirements. |
| Georgia | Confirm applicable deadlines and metered-energy requirements. |
| Florida | Confirm applicable deadlines and qualifying utility-use rules. |
| Ohio | Confirm applicable deadlines and primary-use requirements. |
Each state has distinct utility exemption and documentation requirements. Deadlines should be verified for the specific claim before filing.
Which Businesses Should Take a Closer Look?
Manufacturers, food and beverage processors, fabricators, chemical and pharmaceutical companies, plastics producers, packaging and printing operations, data centers, and other energy-intensive businesses may have qualifying utility usage.
New York apartment building owners may also have an opportunity to reduce utility costs through sales tax savings. Electricity and natural gas purchased for residential use may qualify for New York’s 0% state sales tax rate. For mixed-use properties, the qualifying residential portion may need to be separately allocated, and local tax treatment can vary by jurisdiction.
A study typically reviews utility bills, meters, equipment, operating hours, and qualifying activities to establish the appropriate exempt percentage.
Conclusion
A predominant use study helps businesses and property owners turn utility expenses into a cash-flow opportunity by identifying eligible refunds and reducing future sales tax. Reviewing utility accounts now helps capture refunds before filing windows close while establishing appropriate exemptions for future bills.
Action Steps
Schedule a free, no-obligation consultation with KBKG to discuss your utility expenses, potential sales tax refunds, and opportunities to reduce future costs. KBKG’s team combines engineering analysis and tax expertise to evaluate utility usage, substantiate qualifying exemptions, and navigate state-specific requirements.
For more information, visit KBKG’s Predominant Use Study service or read our related article, When Should Manufacturers Update a Predominant Use Study?.