In many states, a business’ utilities used for manufacturing and processing are nontaxable. The utility sales tax exemption in Iowa and other states is not new—nevertheless, not many companies know about it. After all, the burden of proof is on the taxpayer. Most of the time, it seems easier to just pay taxes on all of the utilities than to figure out the exact percentages of utilities that were used for these processes. But here are four things you should know about this exemption. |
Restaurants Qualify for the Exemption Although the utility sales tax exemption is common for manufacturing and processing, some states also include restaurants in this ruling. But the tricky part is that you have to figure out the percentage of utilities that are actually used for the cooking process.
Whatever type of business you have, it's important to be able to make the appropriate distinctions in your utility usage. For example, water used for cooking food sold to customers may be exempt from sales tax, but water used to make coffee for your employees is probably not. And that is just the tip of the iceberg.
You Probably Paid Too Much Utility sales tax represents quite a large percentage of your bill. Additionally, your utility bills are probably also large and numerous. The exemption applies to electricity, water, and gas used in the manufacturing or processing process. The bottom line is that if you didn't ask for a partial exemption, then you're probably paying too much. If you're curious about the amount of money you could potentially save, you may want to take a look at the amount of money you paid in sales tax on your bills last year. You might be surprised.
Your CPA Won't Do It You may have already hired a CPA to take care of all of your tax filings. However, most CPAs don't concern themselves with utility taxes. Generally, they're more worried about helping you reduce your income tax burden. Despite this, figuring out what percentage of your utility bills is tax exempt doesn't have to take up any of your own time. There are reputable companies that will conduct a predominant use study to help you save money over time by finally taking advantage of the tax exemptions already in place.
It's necessary to share some basic information about your company, your processes, and your overall setup in order to arrive at the exact percentages. But once you know what they are, you can enjoy the exemption for as long as it's in place.
You Have Nothing to Lose The great thing about taking advantage of the exemption is that you have nothing to lose. It's obvious that some, and perhaps a lot, of your utilities are used for your business manufacturing or processing, so at least some of your utility bill would be exempt from sales tax. Depending on the total amount of your bill, this could be quite a large savings. Therefore, it's worth the effort to figure out how to take advantage of the utility sales tax exemption for your Iowa business.
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