Question 1

What is a Predominant Use Study and why do you need one?

Accepted Answer

Your company can qualify for an exemption and refund of sales-taxes (up to 8.25%) on qualified purchases of electricity and natural gas. A Predominant Use Study is an Energy Audit that establishes whether the majority consumption of electricity or natural gas consumption through a given meter is used for sales tax exempt purposes, such as manufacturing. If over 50% of the electricity or natural gas consumed through a single meter is used for tax exempt purposes, all consumption through that meter is tax exempt.

Texas Administrative Code, Title 34 Public Finance, Part 1 Comptroller of Public Accounts, Chapter 3 Tax Administration, Subchapter O State and Local Sales and Use Taxes, Rule §3.295, Natural Gas and Electricity, (f)(1) says: “Natural gas or electricity used during a regular monthly billing period for both exempt and taxable purposes under a single meter is totally exempt or taxable based upon the predominant use of the natural gas or electricity measured by that meter.

Question 2

Can I perform my own Predominant Use Study?

Accepted Answer

Yes, if you or someone in your company is a licensed engineer, or has an engineering degree from an accredited engineering college, and can certify the KWH and/or BTU ratings, duty factors, and electrical and/or gas computations in the study.
 
Texas Administrative Code, Title 34 Public Finance, Part 1 Comptroller of Public Accounts, Chapter 3 Tax Administration, Subchapter O State and Local Sales and Use Taxes, Rule §3.295, Natural Gas and Electricity, (g)(1)(C) says: “The kilowatt rating or BTU rating, duty factor, where needed for cycling equipment, and electrical or natural gas computations must be certified by a registered engineer of a person with an engineering degree from an accredited engineering college.”

Question 3

I am not paying sales taxes on my utility bills now. Do I need a Predominant Use Study?

Accepted Answer

Yes you will, at least eventually. The Texas Comptroller of Public Accounts regularly audits utility companies and other businesses and, if you are not being charged sales taxes on your electricity and natural gas bills, you will be requested to provide a copy of a valid Predominant Use Study. If you change electricity or natural gas utility service providers, your new supplier is required to ask for a sales-tax exemption form and a copy of a valid Predominant Use Study that backs up your tax-exempt claim. And, if you are ever audited by the Texas Comptroller of Public Accounts, the auditor will ask for a copy of a valid Predominant Use Study if you are not paying sales-taxes on your electricity and/or natural gas purchases.

Question 4

How long does it take to perform a Predominant Use Study?

Accepted Answer

The time required depends on the availability of the needed information, how much equipment utilized in your facilities, how many electric or natural gas meters serve your facilities, and the size of your facilities. For most facilities, we normally complete studies in six weeks or less, but we can negotiate faster turn times if required.

Question 5

How long does it take to get exemptions and refunds after the study is completed?

Accepted Answer

Your utility service provider(s) will need a signed and certified sales-tax exemption certificate and a copy of the Predominant Use Study to grant your exemption(s). Your utility service providers will cease charging sales-taxes on exempt meters as soon as they process the exemption certificate(s).
 
Refunds of past sales-taxes paid over the last four years (48 months) may be credited to your account by the utility service provider. Otherwise, you can file a refund request with the Texas Texas Comptroller of Public Accounts. The processing of refund requests normally takes a few weeks, depending on the backlog in the comptroller's office.

Question 6

Will preforming a Predominant Use Study disrupt production or other operations?

Accepted Answer

No, we conduct a comprehensive site-survey of all of your electric and/or natural gas-powered equipment to obtain all the loads information needed to complete a Predominant Use Study. This can normally be accomplished without affecting operations in any way. We regularly work in industrial environments, understand how to avoid disrupting operations, and wear the proper safety and protective gear. We are fully insured and carry both $1,000,000 of General Liability coverage and Workman's Compensation.

Question 7

What if none of my electric and/or natural gas meters are determined not to be exempt?

Accepted Answer

If we perform a study and determine that none of your meters are exempt, no fees will be due. This provision is included in all our written quotations.

Question 8

Will obtaining an exemption cause an audit?

Accepted Answer

Texas law allows for sales-tax exemptions on the purchase of electricity and natural gas for manufacturing and certain other types of business operations. Ostensibly these provisions of the law are intended to promote manufacturing and other types of businesses in the state. Sales-tax exemptions on electricity and natural gas work the same is any other kind of raw materials, etc. Obtaining an exemption on the purchase of electricity and/or natural gas should not put you at risk of an audit any more so than obtaining an sales-tax exemptions on other commodities.

Question 9

What happens if I am audited?

Accepted Answer

We are very conservative in our approach to performing Predominant Use Studies. If there are any questions regarding whether a particular load might be exempt, we don’t count it as exempt if it makes little or no difference in the outcome of the study. In other words, we avoid any controversy over any gray areas while still showing the maximum percent predominant use as possible. This reduces the possibility of having our studies called into question by an auditor.

In the case of an audit, and as part of our service, we regularly answer questions from state auditors regarding the data, methodology, and assumptions used in performing our studies. Over the years, we have leveraged these interactions with state auditors to continuously improve our studies. Although the Comptroller will not endorse either a study or firm, we have received positive feedback from state auditors on our studies, and we have never had a determination of predominant use reversed in any of our studies.

Question 10

Do Predominant Use Studies expire?

Accepted Answer

There is no expiration date, but studies must be kept up to date to be valid. If you have significantly changed your facility, equipment, schedule, or operations since the study was performed, you should have it updated. In our experience, the state comptroller will question if a study needs to be updated if it is more than five or six years old. We can normally update studies we performed for much less than performing a new study.

Question 11

I have a valid Predominant Use Study, but I am being charged sales-taxes on purchases of electricity and natural gas. How do I fix this?"

Accepted Answer

You need to file a sales-tax exemption form with your respective utility service providers. These forms must be certified by the engineer who performed the study. We certify exemption forms for facilities we have performed studies at no extra charge, as long as the studies are still valid. This frequently becomes necessary when you change utility service providers.

Question 12

How do I obtain my sales-tax exemptions and refunds after the Predominant Use Study is performed?

Accepted Answer

You can follow our step-by-step guide to obtaining electricity and natural gas exemptions available for download on this website. Or, we can quote developing the exemption and refund request packages for you as part of our service.

Question 13

How much does it cost to have a Predominant Use Study performed?

Accepted Answer

See our "ROM Pricing" page.

Question 14

I am moving into a new facility (or I have been in my facility for less than a year), can I still obtain a sales-tax exemption on exempt purchases of electricity and natural gas?"

Accepted Answer

Yes, you can. Predominant Use Studies are required to be based on 12 consecutive months of actual usage. But you can obtain an exemption with a Predominant Use Study based on 12 months of projected usage. The study will need to be updated when 12 months of usage data becomes available to continue to be valid.
 
Texas Administrative Code, Title 34 Public Finance, Part 1 Comptroller of Public Accounts, Chapter 3 Tax Administration, Subchapter O State and Local Sales and Use Taxes, Rule §3.295, Natural Gas and Electricity, (f)(1)(B) says: “Twelve consecutive months of utility usage must be a part of the study.” Paragraph (f)(2) says: “A person in business less than 12 consecutive months may still apply for a sales tax exemption if a registered engineer or a person with an engineering degree performs a natural gas or electric utility study based upon projected uses of the natural gas or electricity which shows the predominant use to be exempt. A person claiming an exemption based upon projected use must be able to support the claimed exemption with a study of actual use after 12 consecutive months of operation if requested by the comptroller.”

Question 15

How much will my refund of past sales-taxes be?

Accepted Answer

You can obtain a refund for up to four years (48 months) of state, county, and local sales-taxes on exempt purchases of electricity and natural gas.
 
Texas Administrative Code, Title 34 Public Finance, Part 1 Comptroller of Public Accounts, Chapter 3 Tax Administration, Subchapter O State and Local Sales and Use Taxes, Rule §3.325, Refunds and Payments Under Protest, (b)(1) says: “Unless otherwise indicated by this section, a claim for refund must be made within four years from the date on which the tax was due and payable as provided by Tax Code, §151.401.”

Question 16

I have more questions, who can I ask?"

Accepted Answer

Please contact us at 682-651-7568, email us at info@texeng.com, or schedule a free consultation. We would be happy to answer all your questions.

Frequently Asked Questions (FAQs)