The Texas Comptroller’s Office allows companies located in Texas and engaged in manufacturing to purchase natural gas and electricity tax free. In order to qualify, a manufacturer must maintain proof of their eligibility in the form of a valid “Predominant Use Study” performed by a certified engineer.
Natural gas or electricity used during a regular monthly billing period for both exempt and taxable purposes under a single meter is either totally exempt or taxable based upon the predominant use of the natural gas or electricity measured by that meter. A study is performed to establish what percentage is being used for exempt purposes as defined by the Texas Comptroller. Additionally, current law allows the taxpayer to apply for a refund of all sales tax paid over the preceding 48 months or since the meter was connected, whichever is less. The study must be completed and on file at the location of the entity claiming the exemption at the time an exemption certificate is submitted to the utility company.
Each meter is evaluated independently from any other meters and must stand up to scrutiny. Equipment cannot be deleted or allocated so as to ensure qualification.
Although the study does not carry an expiration date, it should be updated anytime a “significant change” is made affecting that meter.
Without the study, the claim for exemption will be presumed to be invalid. Persons obtaining a sales tax refund or not paying sales tax without a valid study will be assessed tax penalty and interest by the Texas Comptroller on the full amount of the refund or amount of the assessment if the exemption is not proven.
Our team of certified engineers and former Texas tax auditors will analyze annual consumption, compile data, compute percentages, prepare documentation, and certify results. There is no disruption of your daily operations during this process. We complete and submit all necessary documentation to support our studies and, as needed, defend them against the Texas Comptroller’s office. If you are paying sales tax on utilities and your competitors are not, they have the advantage!
To prepare your study, we will need the following documents:
Typically, our fees are calculated as a percentage of the tax recovered from the State. We believe this type of arrangement is appropriate since fees will be based solely on qualifying meters. For a flat fee, we also provide update studies for those companies who desire to maintain their current exempt status after a significant change has altered the allocation of a meter.
Dan Martinez & Associates has never had a predominant use study overturned by the Texas Comptroller’s office.
For more information about our services, please contact us.