Predominant Use Studies
One important aspect of energy management is a Predominant Use Study.
A predominant use study is an evaluation of your company’s electric and natural gas consumption that can potentially allow you to receive a state and local sales tax exemption. Qualifying customers can not only receive future tax exemption status, but can also recover past sales tax expenditures if deemed applicable.
Roughly 30 states have enacted a law that allows businesses to qualify for sales tax exemption status upon having a predominant use study performed. If the study reveals that over 50% of your natural gas and electric usage qualifies, you can receive this sales tax exemption status.
Customers that work in the following industries may qualify:
- Manufacturing and fabricating
- Food and beverage processing, bakery, and assembly factories
- Nursing homes, assisted living facilities, and retirement homes
- RV Parks, mobile home parks, and apartment and condominium complexes
- Agricultural and horticultural uses, golf courses, oil and gas operations, mining
- National defense operations, and infrastructure repair operations such as railroad and aircraft engine repair
In order to get further information about predominant use studies and further information about qualification, contact a professional energy consultant.
Predominate Use Studies Further Explained
A Predominant Use Study is a state and local government initiative that allows many companies to apply for utility sales tax exemption. While the requirements can vary between states, one of the basic standard qualifications is that the majority of electric or natural gas consumption is used by a company for particular or specific activities.
This is known as predominant use.
To prove that the utility is in predominant use within your company or business, you are required to complete a Predominant Use Study. This study is a complete analysis of the electricity and/or natural gas used by your company to determine the type of sales tax exemption your company should receive.
There are many American manufacturing and other companies in many different states that qualify for certain tax reductions or even exemptions on sales taxes paid for utilities. These exemptions and reductions can apply at both a state and local level.
Many different companies in many different industries can qualify for this exemption status including,
Fabricating and manufacturing: this includes fabrication, processing and assembly from small shops to larger facilities and factories. Some specific examples include: semi-conductor plants, chemical plants, refineries, print shops, and video recording production.
Other subcategories of manufacturing and industries that can also qualify include:
- Bakery and assembly factories
- Food and beverage processing
- Retirement homes
- Nursing homes (and assisted living facilities)
- Condominium and apartment complexes
- RV and mobile home parks
- Oil and gas operations
- Agricultural and horticultural
- National defence operations
Currently, there are approximately thirty states where businesses like the ones mentioned above can qualify. Some of these states include:
- South Carolina
Predominant Use Study – How Does it Work?
In order to officially qualify for these sales tax exemptions, your company must hire a licensed professional (like us) to complete a Predominant Use Study. A Predominant Use Study is an important part of determining whether or not your company or elements of your business qualify for sales tax exemptions, and even refunds. The reason why you might require a Predominant Use Study is to legally prove to the government that your company complies in required areas.
The Predominant Use Study looks at several energy elements. It determines the kilowatt per hour electricity consumption at each electric meter, and the cubic foot of gas used at each gas meter. It also includes the volume of water transmitted at each water meter. The study then investigates all of the gas, electricity and water used from applicable equipment. This evaluation process separates the equipment into one of two categories: processing or non-processing. The important bit comes in understanding and then identifying where those tax sales savings apply.
In general, if over 50% of your electric and/or natural gas usage qualifies under the above mentioned evaluation, it is possible for your company or business to receive a sales tax exemption status.
Updating a Predominant Use Study
Once a Predominant Use Study is completed for your business or company, you do not need to update it unless you experience the following:
- Change in ownership
- Change of business/company name
- Increase or decrease in number of hours of equipment use
- Change in the type of business offered or products that are produced
- Increase in support in support or office areas
To summarize, if there is a significant change in the amount of electricity or natural used on a daily business (either an increase or decrease) it is time to re-evaluate and update your current Predominant Use Study.
Benefits of a Predominant Use Study
There are three main reasons why you should investigate whether or not your company would benefit from having a licensed consultant conduct a Predominant Use Study.
Energy Cost Management & Savings – The major benefit to having a licensed consultant conduct a Predominant Use Study comes down to the savings in tax exemptions that your company can receive. In many cases, you can get a refund in sales tax that includes saving for (and up to) the past 48 months. Many consulting firms will also only charge you a percentage of those savings, or a flat fee. If you don’t qualify for any sales tax reductions or exemptions, some firms will not even charge your company for a basic evaluation.
The result of the study also identifies areas where you spend the most on energy costs. This is done through quantifying the electric or gas usage for all equipment and other areas of major energy consumption. The study then provides several strategies to put into place for further opportunities to save.
Improve Energy Management – While identifying areas of cost savings, the Predominant Use Study also highlights areas where your company can improve energy management processes. For example, if your company uses equipment 24 hours a day, there might be times where you can actually reduce the number of hours and still qualify for sales tax exemption.
Documentation – Having a professional work with your company to complete this study will give you the appropriate documentation you need to continue to receive exemptions or reductions on the utility sales tax you pay. These documents are mandatory in order to legally support your claims.
Here are a few other reasons why this type of study might benefit your business:
- Your electricity and/or natural gas utility billing statement has charges for sales tax that reaches above $50/month.
- If you switch to a new energy provider for lower energy costs, they will require a copy of your company’s tax exemption certificate to apply appropriate exemptions and savings.
- If your business has moved to a new location or recently switched or changed ownership.
- If your business expands to include the installation of new electricity or gas meters.
Predominant Use Study Consultants
Eisenbach Consulting, LLC is one of the leading consultants in the United States.
The government requires an expert to complete the evaluation to determine your sales tax savings. This means that you need to find a competent and licensed consultant to perform this analysis.
In most cases, hiring a firm such as ours to conduct this type of study will include most if not all of these services:
- Review of invoices from various vendors, suppliers and leasing companies – line by line.
- Handling of refund requests with the appropriate parties. The amount is refunded back to your company and is made up of taxes that should not have been paid.
- For future purchases, documentation is prepared to reflect your company’s sales tax exemption amount. You can submit this documentation to your suppliers, vendors, leasing companies, etc. to reflect this exemption amount on your invoices.
- Look into current utility service metering at your facility.
- Investigate plant operations and equipment use through communication with appropriate employees.
- Develop appropriate study documentation, which includes a summary of equipment and percentage of energy used.
- Organize and assist with processing the correct material needed to apply for exemption and refunds.
If you are unsure as to whether or not your company qualifies for sales tax reductions or exemptions for utility use, there is no harm in taking the time to find out. Contact us today and we’d be happy to assist you and your company.