Utility sales including gas, electric, and water can be exempted from sales tax if used in processing or agriculture. Essentially, this means the sale of utilities, or energy, in these situations is not classified as a retail sale, which would be subject to regular sales and use tax. In order to receive an exemption of these sales tax items, you will need to fill out the appropriate form every three years identifying how the energy is used. Hiring a certified tax consultant specializing in tax code or an energy consultant might even help you identify and receive a refund on taxes paid over the past few years that should have been exempt.
The law on utility sales tax exemption in Iowa is applicable on qualifying energy use. Identifying the percentage of energy used that is eligible for exemption and filing for that exemption is vital to keeping your operating budget cost down. Iowa law specifies that energy used in processing or agriculture is exempt from sales tax. The energy types this applies to include heat, steam, electricity or gas.
Not exempt are energies used for general heating, ventilation and lighting. These types of energy use are common and not specific to the successful completion of processing or agriculture business. An example of non-exempt energy use would include the energy required to power lights, even if you use those lights to do your business with. Another example would be the energy used to heat the building you work in, as this does not pertain directly to the agriculture or processing and instead pertains to general atmosphere.
Those energy uses that pertain directly to processing or agriculture are exempt, and one example would be the energy used to dry grain. Another example listed on the form used to apply for the sales tax exemption is raising livestock. If you are unsure of whether your energy use is eligible for tax exemption, it would be prudent to receive specialized counsel. Someone who specializes in tax code or an energy consultant will be able to determine what utility use would be considered exempt and what would not be exempt.
Having a separate meter to track utility use that is exempt from sales tax makes the process simpler, but is not required. If you cannot have a separate meter for exempt utility usage, you will need to provide supporting documentation showing the percentage use of energy that is exempt from sales tax. In order to determine this percentage you will need to separate out how much energy you use that is not eligible for exemption and how much energy you use that is eligible for exemption. There are worksheets available to help you calculate this.
There are companies you can hire that will come out and review all your energy usage and create this report for you. They may even be willing to file the documentation and paperwork for you in order to receive the tax exempt status for your business. During this process they may be able to ascertain if you are owed any refunds on sales tax already paid. It can take anywhere from a few weeks up to several months to receive both the exemption status and any refunds. The complexities involved in this process make the expense of hiring someone who specializes in tax code or energy uses a worthwhile purchase.
The law regarding utility sales tax exemption in Iowa is complex yet important to understand in order to save money. Remember that every three years you will need to do a review of the energy usage and file a new study showing the correct percentage for utility sales tax exemptions. The report needs to be sent to the utility company for appropriate application of the exemption.
Source : articlesbase.com
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