Predominant Use Study
What Is A Predominant Use Study?
Many states offer utility tax incentives to encourage companies
to operate facilities in their state. The qualifications for these incentives
vary from state to state. However, most states require that the majority
of consumption for each utility (e.g. electricity, natural gas, water,
propane) be used directly for a qualifying activity (e.g. manufacturing,
agriculture, long-term housing). This is referred to
as “predominant use”.
To prove predominant use, a predominant use study must be performed. A predominant use study is similar to a traditional energy audit. However, the end result of a predominant use study is the facility’s overall percentage of exempt utility usage. This percentage is then used to determine what level of exemption the facility qualifies for.
A predominant use study must be both accurate and comprehensive in order to minimize risk exposure. Centerprise Group distinguishes itself from other firms by using only certified energy auditors to perform usage studies. By going the extra mile, USTC ensures the highest level of accuracy and the lowest level of risk exposure for its clients.
Do I Need A Predominant Use Study?
In general, a predominant use study would be needed if one or more of the following applies:
- The monthly billing statement from your utility company shows charges for utility tax exceeding $50
- An existing exempt facility has been relocated to a new site
- An existing exempt facility has changed utility providers
- An existing exempt facility has been expanded
- An existing exempt facility has changed ownership or their business name
- The original Predominant Use Study that qualified the facility for a utility tax exemption cannot be found
What Other Benefits Do Predominant Use Studies Have?
Because of Centerprise Group’s comprehensive approach, our predominant
use studies have applications beyond utility tax exemptions and
refunds. Centerprise Group can organize the data collected from your
facility by cost center, product line, or any other factor. This allows
our studies to form the basis for a traditional energy audit and aid
management in the following
- Understanding where major energy costs are being incurred
- Identifying potential cost saving opportunities
- Quantifying the energy usage for each piece of equipment, process, or cost center
Exemptions & Refunds
Who Qualifies For An Exemption From Utility Tax?
There are a number of states where legislation exists for utility sales
tax exemptions. Companies located in these states can receive an exemption
from utility sales tax if they meet the state’s requirements. Each state
has its own set of parameters, but these are the most
- Qualifying Activity. For all of the states where legislation exists, the company must be engaged in a particular activity to qualify for the exemption. Typical qualifying activities include manufacturing, long-term housing, agriculture, and charitable work.
- Predominant Use. Most states require that the majority of energy consumed at the facility be used directly for the qualifying activity. This is referred to as “Predominant Use”. Predominant Use is established by the completion of a predominant use study.
- Company Financials. In some states, companies must meet specific financial requirements. For example, a state may require that the company’s energy costs exceed a certain percentage of their overall cost of production.
How Much Of A Refund Can I Expect?
Companies that qualify for an exemption from utility tax also qualify for a refund. The amount of the refund is affected by three main factors:
- State Limits. Each state sets a limit on the number of months of utility tax that can be recovered. This ranges from 24 to 48 months, depending on the state.
- Exempt Percentage. Once a company has proven that they qualify for an exemption, the state awards them with a percentage of exemption. In general, this is tied directly to the results of the predominant use study.
- Time on Tax. The amount of time that the company has been paying utility tax for a facility also affects the amount of the refund. If a facility was previously exempt, for example, the recovery period can only go back to the time when the exemption was lost.