As a general rule, electricity along with water, gas, cable, and telephone utilities, are not exempt from tax.
But, there are instances when a state, due to important considerations, would exempt a taxpayer, whether corporate or individual, from payment of the said electricity tax. Other tax incentives may also be available such as sales and use tax exemption, exemption from personal and real property tax, depreciation costs for personal and real property, tax breaks, and tax refunds as well as tax credits. The state, or even private institutions, may also offer grants and subsidies to qualified taxpayers.
Why do they do this?
For this particular purpose, the state would want to protect the environment and natural resources as well as to promote energy conservation. So, by way of these tax incentives, they encourage the practice of energy efficiency among taxpayers. Of course, the state tax legislations and exemption privileges vary. But, if there is one thing that is common among them, it is that to be entitled to the tax exemption benefits, the taxpayer must be engaged in an industry that is recognized by the state to be tax exempt. This would be a specific instance when the state recognizes the purpose for the use of the utility by the taxpayer as tax exempt.
Some examples of these recognized industries enjoying taxing privileges include recycling companies, farm operators, livestock and orchard growers, as well as businesses engaged in natural gas extraction, production, and supply.
Other public utilities like restaurants and food processors; manufacturing companies in Texas; printing, mining, and farming businesses as well as other businesses engaged in rendering public utility services in Pennsylvania; and industries engaged in electro-thermal or electrolytic compounding or manufacturing in Alabama are also currently enjoying electricity taxing privileges from their respective states.
In Texas, manufacturing exemptions are given to taxpayers who fabricate, process, or manufacture tangible personal property for sale. The property exempt should be the raw material or machinery and equipment used to manufacture an item that is sold. More importantly, the exemption applies to transformers as well as cables, breakers, switches, regulators, and other related components, used by an electric generating plant, which increase or decrease the voltage of the generated electricity for sale.
In Pennsylvania, sales tax exemptions on the electricity used are available to qualified taxpayers. The Pennsylvania Tax Code, Section 32.25, grants exemption to the purchase of electricity directly and exclusively used in the taxpayer’s business engaged in processing, manufacturing, dairying, farming, mining, printing, photography, and offering public utility services. Even the use of electricity for their office, access roads, parking lots, entrances and exits, as well as in shipping and storage will render the taxpayer exempt from the aforementioned sales tax.
In Alabama, utility gross receipts tax and utility service use tax exclusions are granted by the Alabama Law, under Sections 40.21.83 as well as 40.21.103, for the use of natural gas or electricity in the electro-thermal or electrolytic compounding or manufacturing process.
The National Utility Consulting is a private institution that also offers support to the taxpayers, by helping them reduce their monthly expenses for electricity. Aside from cutting back on costs of your tax obligations in favor of your state, we will make it possible for you to save more by finding you new electricity providers and helping you get fairer and more reasonable electric utility contracts.