Sales Tax On Electricity Does Your Business Really Owe It...Or Not
Below is a MRR and PLR article in category Business -> subcategory Management.
Sales Tax on Electricity: Does Your Business Really Owe It?
Summary
Overcharges related to sales tax on electricity are surprisingly common. Many times, non-taxable uses of electricity end up taxed, as some utility companies choose to err on the side of caution, collecting and submitting taxes whether they are owed or not.Article
As utility auditors and consultants, we frequently encounter overcharges for sales tax, particularly in states like New York where tax regulations vary for different commercial uses of electricity. Often, non-taxable electricity uses get taxed. Some electric companies adopt a cautious approach by collecting and submitting tax regardless of its necessity.
Surprisingly, many business managers and financial professionals, who meticulously monitor costs, often approve electricity bills without confirming their accuracy. They assume electric companies are error-free in their billing practices.
This assumption can be costly. We frequently uncover a range of billing errors and overcharges, including inaccurate sales tax charges that sometimes date back decades.
Electric bills often include sales tax charges, which can differ significantly depending on the taxing authority. In many regions, specific groups like manufacturers, restaurants, and nonprofits enjoy exemptions from some or all sales taxes on electricity. Generally, electricity used in the production of physical goods is tax-exempt in jurisdictions allowing such exemptions. Currently, more than half of the states have enacted exemption laws.
Some exemptions operate on a "predominant use" basis. If over half of the electricity measured by a meter supports an exempt activity, then all charges for that meter are exempt. Alternatively, the "percentage of use" method taxes only the electricity consumption used for non-exempt activities, leaving the rest tax-free. In some cases, specific organizations are entirely exempt from these taxes.
Since sales tax laws change frequently, it's essential to check the latest regulations in your state. Consult a qualified representative from your electric company or obtain the current sales and use tax statute from your state's department of revenue and taxation.
To accurately determine tax-exempt and taxable electricity usage, a study by a licensed engineer might be required. This study will measure electricity consumption by each device and project exempt versus non-exempt usage. Some states, including New York, allow businesses to conduct this study independently. Based on the study results, the electric company will adjust the sales tax collection.
If you discover past overcharges, request a refund from the taxing authority?"not the electric company. They will instruct you on necessary documentation and the period eligible for a refund.
In conclusion, don’t automatically assume that the sales tax charged on your electricity bill is justified. Verify the law to ensure the charges are legitimate and avoid unnecessary expenses.
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