Predominant Use Study – Introduction
Utility tax exemption is an incentive employed by authorities, to encourage company operations in their state. The requirements for these incentives vary from one state to another. However one basic qualification that most states require is ‘Predominant use’. When majority of consumption for utility is being used directly for qualifying activities, it is known as Predominant use. In order to prove the predominant use of each utility, a company is required to undergo Predominant Use Study. It calculates the overall percentage of exempt utility usage and helps in determining the level of exemption a company qualifies for. To minimize exposure to risk, it is important that a utility management company is hired. A distinguished utility cost management company like SM Engineering is available to deliver the best accuracy, highest exemption levels and lowest exposure to risk. Our Certified utility auditors conduct comprehensive predominant use study and ensure accuracy of the entire process.
How can I Qualify for a Utility Tax Exemption?
For a company to receive utility sales tax exemption, it should qualify by legislations of the state. Though qualifications for Utility Tax Exemption vary from state to state, there are a few common ones:
Predominant Use – As discussed earlier, predominant use refers to majority of utility consumption employed for the facilitation of qualifying activity. To prove predominant use comprehensively, the company should hire a Utility management company and conduct a predominant use study. SM engineering has a proven track of excellence since 1982!
Qualifying Activities –To prove predominant use, a company is required to be engaged in qualify for utility tax exemption. Qualifying activities differ from state to state but often include charitable work, long-term housing, manufacturing and agriculture.
Financials – Some states, companies are also required to comply with certain financial requirements.
Can I earn refunds as well?
Very often the companies that qualify for utility tax exemptions can also obtain refunds. The amount of refund, which can be availed, depends on three basic factors:
• The first factor that affects the refunds is the ‘Statue of Limitations’. These limitations are set on the number of months, wherein utility tax can be restored. Every state has its own limitation, which ranges from 24 – 48 months.
• Then comes the utility exempt percentage. Once the company conducts a predominant use study and proves its qualification for utility tax exemption, it is awarded with an exempt percentage, which lays major effect on refund amounts.
• The duration of time in which the company has been paying tax also plays an important role in the refund process. For instance, if a certain facility had received an exemption previously, the recovery period can only go back to the time when the certain exemption was lost and not before.
Today with correctly applied predominant use studies, thousands of companies are qualifying for utility tax exemptions and saving thousands of dollars every year! When are you?
