New York Issues Guidance on Exemption for Utilities Used in Production

Friday, April 24th, 2015

 
 
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The New York Department of Revenue and Taxation issued a bulletin discussing the exemption for utilities used in production. Utilities include gas (natural gas, propane, etc.), electricity, coal, refrigeration, steam, and wood.

Utilities that are used exclusively (100% of the time) and directly in the production of tangible personal property for sale are exempt from tax. Production begins with the handling and storage of raw materials and ends where the goods are packaged and ready for sale. To be "directly used" in production, utilities must be used to (1) operate exempt production machinery or equipment, (2) create conditions necessary for production, or (3) perform an actual part of the production process. Utilities used in administration or distribution do not qualify for this exemption. For example, utilities used for lighting or heating buildings and for the storage of completed products are taxable.

If a separate meter is used to track exempt utilities, the purchaser should provide an Exempt Use Certificate (Form ST-121) to the service provider. However, if the utilities are received in bulk or in a continuous flow and used for both taxable and exempt purposes, the purchaser has two options. The purchaser can pay sales tax and apply for a refund for the portion of the utilities that is exempt from tax. Alternatively, the purchaser can purchase the utilities exempt from tax using Form ST-121 and then pay use tax on the portion not used for exempt purposes.

http://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/utilities_used_in_production.htm


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