Most CPAs know utility sales tax exemptions exist – but many don’t know how to identify and quantify the opportunity or realize just how often companies are unnecessarily being charged sales tax. In manufacturing, fabrication, food production, recycling, and other energy-intensive industries, utility exemptions can create immediate cash savings and ongoing monthly reductions that directly impact profitability.
The challenge? These savings rarely show up unless someone knows what to look for. You also have to determine if the client facility is located in a State that has the Predominant Use or Percent-of-Use exemption?
Here are 5 simple indicators CPAs can use to determine whether a client may qualify:
Significant Energy Use in Production
Any business where electricity, natural gas, or water is essential to producing a product or running equipment is a strong candidate. Common examples include:
- Manufacturers
- Fabricators
- Food and beverage processors
- Recyclers
- Machine shops
- Printers
- Cold storage facilities
- Restaurants (IN, IA, KS)
If energy is flowing directly into production equipment, there’s a good chance a portion should be exempt.
Multiple Meters – or One Meter Serving the Entire Facility
Utility exemptions are determined by analyzing how much of the utility is used in production vs non-production activities.
Two common red flags:
- A single meter that powers both production and office areas
- Multiple meters with unclear usage assignments
These situations almost always require a detailed meter engineering study to calculate the correct exempt percentage.
Recent Equipment Changes
If a business has:
- Upgraded machinery
- Expanded production lines
- Added automation
- Changed shift patterns
…their utility usage profile has changed too. That may open the door to increased exemption percentages – or reveal that they’ve been overpaying.
High Utility Bills Relative to Revenue
When a client’s electric or gas costs are unusually high compared to their output or revenue, it’s worth reviewing. Sometimes the issue is rate structure; other times, it’s improper taxation. Either way, auditing the utility bill often identifies savings opportunities.
Operating in a State With Refund Opportunities
Many states allow companies to reclaim overpaid utility sales tax for the last 24–48 months.
If a client:
- Has never had a utility study
- Has grown significantly
- Or operates across multiple facilities
There’s a strong chance that they will be eligible for the refund.
Partnering for Accuracy—and Maximizing Savings
Meter engineering studies are usually required to document the exempt percentage and secure both refunds and future savings. Most States require a meter study, which is used to separate the production vs non-production use on the meter.
For CPAs, this is an easy way to deliver meaningful value to clients without adding workload during busy seasons.
At Align Tax Consulting, we work directly with State Dept of Revenues and utility providers, gather the necessary data, and document exemptions so clients stay compliant – while capturing every dollar they’re entitled to.
If you want a quick review to see whether your client may qualify, we’re happy to help!