Most manufacturing companies are aware of sales tax exemptions for purchases of machinery and tools used in their manufacturing process, but there are also exemptions available for utilities. Considering utilities are a high cost within the manufacturing process, this exemption is a must-have for eligible businesses in Connecticut, and other eligible states.
CT Statues: 12-412(3) & 12-412(16) – Connecticut exempts the sale of gas, electricity and heating fuel that is used directly in the fabrication of a product to be sold, provided it is a metered building, and not less than 75% of the gas, electricity or fuel is used in the manufacturing process.
Connecticut CERT-115 – exemption form to complete and submit to utility providers. A blanket certificate that covers all purchases of gas, electricity or heating fuel.
Breaking this down in simple terms. Are you eligible for sales tax relief?
Full Exemption: The full exemption does not apply to all utilities by the manufacturer. The utilities used directly and exclusively in the production process are exempt from sales tax. This equates to utilities being used directly through main lines for:
- Agricultural Production
- The fabrication of a finished product to be sold; or
- An industrial type manufacturing plant
Partial Exemption: The utilities, if not used directly, must not be used less than 75% in these production activities. Utilities used for administration, distribution, and other non-production equipment are typically subject to tax. If there are no main utility lines within the facility directed to production, the taxpayer must perform an allocation in order to claim the exemption. This allocation must reflect not less than 75% of utilities being used directly in production. Allocation methods must be provided on the exemption form for submission.
The manufacturer may want to seek assistance in determining an accurate method to allocate utility usage in mixed-use facilities – Utility Study.
There are two acceptable methods of allocating utility usage for exempt certification:
75% or more of the gas, electricity or heating fuel consumed at a location, building or premises where fabrication of a finished product to be sold, or production in an industrial manufacturing plant takes place, is used for the manufacturing or fabrication (usage test); or
75% or more of the area of a building, location or premises served by that meter or tank is used for manufacturing production or fabrication of a finished product to be sold (square footage test).
Once the taxpayer has determined eligibility:
CERT-115 is prepared and sent directly to the utility company’s business service for processing. The utility will then send a letter of acceptance and will then eliminate sales taxes being charges on utilities used in the manufacturing process. This certificate remains in effect for three years and must then be re-submitted.
Connecticut also offers an exemption of the first $150 in electric charges to any business not otherwise exempt.
Are you eligible for the sales tax exemption, or do you have questions regarding your eligibility?
Please do not hesitate to contact an Innovative CPA Group team member.