In Illinois, H.B. 4089 was recently introduced, proposing a new sales tax exemption. If passed, it would allow taxpayers engaged in the manufacturing of tangible personal property an exemption on their purchases of energy – electricity and natural gas – used in production.
This proposed legislation is a good reminder of potential savings to businesses engaged in manufacturing. Thirty states now allow for some form of sales tax exemption on purchases of energy used in production. And for many manufacturers, their purchases of electricity and natural gas can be a material cost to the business – particularly with increased automation in this industry.
It’s also good to keep in mind that even nontraditional manufacturers may be allowed these exemptions as well. Most manufacturers purchase raw materials, add them to the production process, and sell the finished goods to third parties. However, just last year, the State Office of Administrative Hearings in Texas allowed a taxpayer who made changes to tangible personal property owned by another business to claim the manufacturing exemption when the personalty was for ultimate sale by the other business, i.e., the purchaser of the processing services provided by the processor. In other words, the processor need not own the personalty processed in order to claim the manufacturing exemption, so long as the property will be ultimately sold by the other party. In addition, Clarus Partners has recently obtained six-figure sales tax refunds on energy purchased by a recycler. While recycling is not an activity typically considered to fall under the category of manufacturing, we were able to secure the exemption and refunds.
If you have any questions about the manufacturing exemption or any other sales tax issues, feel free to contact us.
Steve Hanebutt, CPA
Fort Worth/Dallas Office | 972-422-4530