Frequently Asked Questions
What is a Predominant Use Study and why do you need one?
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 if the majority consumption of electric and/or natural gas utilities are consumed 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, such as manufacturing, 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.
Can I perform my own Predominant Use Study?
Yes, if you or someone in your company is a registered 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.”
If someone from outside your company certifies the KWH and/or BTU ratings, duty factors, and electrical and/or gas computations in the study, they must be a registered engineer.
The Texas Occupations Code, Title 6 Regulation of Engineering, Architecture, Land Surveying, and Related Practices, Subtitle A Regulation of Engineering and Related Practices, Chapter 1001 Engineers, Subchapter A General Provisions, Section 1001.004(c) says: “The legislature intends that: (1) the privilege of practicing engineering be entrusted only to a person licensed and practicing under this chapter; (2) only a person licensed under this chapter may: (A) engage in the practice of engineering; (B) be represented in any way as any kind of “engineer”; and (3) this chapter be strictly complied with and enforced.”
I am not paying sales taxes on my utility bills now. Do I need a Predominant Use Study?
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.
How long does it take to perform a Predominant Use Study?
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.
How long does it take to get exemptions and refunds after the study is completed?
Your utility service provider(s) will need a signed and certified sales-tax exemption form and a copy of the Predominant Use Study to grant your exemption(s). Your exemption(s) can normally be in place by the next billing cycle.
Refund requests of past sales-taxes paid on exempt meters are processed by the Texas Comptroller of Public Accounts. The processing of refund requests normally takes about three to six months.
Will preforming a Predominant Use Study disrupt production or other operations?
No, we conduct a comprehensive site-survey of all of your electric and 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.
What if one or more of my meters are determined not to be exempt?
If we perform a study and determine that one or more of your meters is not exempt, we do not charge for the work associated with these meters. This is written into agreements. If none of your meters qualifies, there will be no charge.
Will obtaining an exemption cause an audit?
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 exempt 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.
What happens if I am audited?
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 first place.
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.
Do Predominant Use Studies expire?
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, you should have your study updated. We can normally update studies we performed for much less than performing a new study.
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?
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.
How do I obtain my sales-tax exemptions and refunds after the Predominant Use Study is performed?
Follow our step-by-step guide to obtaining electricity and natural gas exemptions available for download on this website.
How much does it cost to have a Predominant Use Study performed?
See our pricing guide posted on this website.
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?
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.”
How much will my refund of past sales-taxes be?
You can obtain a refund for up to four years of state 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.”
I have more questions, who can I ask?
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.