Top Energy Tax and Tariff Tips

Scott Schoolmeesters

Manager, Commercial Services

U.S. Energy Services, Inc.

schoolmeesters@usenergyservices.com

usenergyservices.com

Topic: Technology

Although energy prices have remained low as the country continues to battle a deep recession, energy costs and volatility continue to be a top concern for businesses and manufacturers. Luckily, there are a number of methods available to help curb energy expenses by being more mindful of the sales tax and tariffs directly related to the sale of energy. 

In some cases, greater diligence in examining the savings offered through energy sales tax exemptions and tariff opportunities can save larger energy users tens of thousands of dollars annually and help accumulate even larger savings over a number of years. Knowing where to find the savings is the first hurdle companies need to clear.

1. State Tax Exemption Policies

Large energy users, like manufacturers and large office complexes, are often eligible for energy sales tax exemptions. Although each state has its own rules and tax laws regarding benefits to large energy users, it is common for many states to offer complete sales tax exemptions or a reduced or preferential rate for both electric and natural gas. 

In addition to knowing what sales tax incentives are available, a company must also know how the state requires the facility to measure and report its energy use in order to qualify for the exemption. This research may be time consuming, but the return is often worth the investment. Depending on the amount of energy consumed by a manufacturer, an exemption of energy sales tax could save a company $100,000 or more annually.   

2. Cash In on Potential Tax Refunds

If a company has not rightfully benefitted from sales tax exemptions, there are rules and opportunities to recover overpaid taxes. In some cases, even if a manufacturer has not claimed its energy sales tax exemption, it can still reap savings through energy sales tax refunds; however, like tax exemptions, tax refunds based on energy sales tax vary by state. For example, the state of Minnesota allows manufacturers to recoup overpaid sales taxes for more than three years prior, while other states will not only provide a company its rightful tax refunds but  will return it with interest. 

States that do allow tax refunds from overpaid energy sales taxes will most commonly provide rebates for natural gas and electricity. There are a few states that also allow companies rebates and savings on other energy sources, such as propane used in company equipment. 

3. Understanding Utility Tariffs

Larger companies or manufacturers can also find savings by exploring the variety of energy tariff alternatives offered by utilities. An alternative energy tariff, commonly referred to as an alternative energy rate, is predominately offered by investor-owned utilities (i.e. Xcel Energy) and can provide substantial cost savings for companies with flexibility in their energy consumption.

Alternative energy rates can be offered if a business chooses to consume energy during off-peak hours or days. By completing an analysis of a company’s energy use and load options during off-peak hours, a business can better determine which rate would be most cost effective.  For example, a manufacturer might be able to save up to 25 percent on its energy rates by running some of its processes during the evenings and on the weekends when overall energy demand on the grid is low, as opposed to 8 a.m. to 5 p.m. Monday through Friday when energy demand is at its highest.

By closely examining the potential sales tax and energy tariff options available in each state, a business can save a significant amount on its energy costs thereby directly increasing the bottom line.  Unfortunately, neither the state nor the utility companies will likely notify a business of the potential tax exemptions, sale tax refunds or tariff alternatives it might be eligible to obtain. Instead, it is incumbent upon the company to research the state policies and submit the necessary reporting and paperwork, or work with an energy management firm knowledgeable in tax and tariff policies in each state, as well as the rules for energy reporting.  

Scott Schoolmeesters is a manager of commercial services at U.S. Energy Services. For more information, Scott can be reached at sschoolmeesters@usenergyservices.com or visit www.usenergyservices.com.