Utilities: Manufacturing or Not?

For many manufacturing businesses located in the state of Pennsylvania, sales tax paid on electricity, gas, and water can add up quickly over the years.  The Pennsylvania utility sales tax exemption can result in thousands of dollars in tax savings.  To lower or reduce a company’s utility costs, a comprehensive utility study can be performed in order to claim these exemptions.

There are many types of utility exemptions for other states, so a specific state study would need to be conducted.  In most scenarios, the power consumed to operate most manufacturing or processing equipment in Pennsylvania can be considered in the study.

If manufacturing companies have meters for their manufacturing lines, a study may not be as time consuming as one might think.  A comprehensive utility study can include electricity, water, steam, and gas usage.  A manufacturing company may submit a utility sales tax exemption certificate to their utility supplier.  Once the certificates are received, the exemption is applied to the utility bills for either a full exemption or partial exemption based on utility usage.

The state of Pennsylvania has a “predominate use” manufacturing exemption. Pennsylvania defines production/manufacturing as “the performance of manufacturing, fabricating, compounding, processing or other operations by a business, which transforms tangible property into a form or into a composition, or character that is different than originally acquired, and then sold by the business.”

Basically the Pennsylvania predominate usage requirements state that over 50% of any meter’s consumption (KWH, CCF’s, or gallons), must be used for direct production instead of non-production activities.  Factors for determining direct use include:

• physical proximity of the property in issue to the production process in which it is used
• proximity of the time of use of the property in issue of the time of other property used before and after the production process
• active causal relationship between the use of the property in issue of the production of the product

Allyn gathered all required documents including utility statements for our client from the electric and gas suppliers.  Allyn assisted in the coordination with the utility consultants to engage in the utility review.  Our client received a 90% exemption for electricity and a 75% exemption for gas.

Allyn completed all the required documents and exemption certificates for the utility companies to apply the correct exemption percentage.  The outcome for our client was thousands of dollars in annual sales tax savings.

 

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.

How Can We Help?

Allyn’s tax team is staffed with seasoned tax professionals experienced in all aspects of Federal, multi-state and local tax compliance and consulting for large US and global corporations.  We use that experience to your advantage.  Contact us and we can provide a customized cost-effective solution to meet your company’s needs.  For further information on Allyn Tax services, please contact: tax@allynintl.com.

About Allyn

Allyn International Services, Inc. (Allyn) is a privately-held professional services firm established in 1992 dedicated to providing high quality, customer centric services and solutions for the global marketplace. Our core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management, and trade compliance. More information is available at www.allynintl.com.