Indiana – Exclusion From Tax for Certain Utilities

SALT Report 1531 – The Indiana Department of Revenue has updated its guidance regarding the taxability of utilities used in manufacturing, production, recycling, floriculture and arboriculture.  Under IC 6-2.5-4-5 “a power subsidiary or person engaged as a public utility is not a retail merchant making a retail transaction when it sells electrical energy, natural or artificial gas, and water, steam, or steam heat to a person for use in manufacturing, mining, production, refining, oil extraction, mineral extraction, irrigation, agriculture, or horticulture.” Therefore, since this law excludes certain utility sales from being retail transactions, these sales cannot be subject to sales or use tax.

Manufacturing and Production

Utilities will qualify for the exemption if they are used to power equipment that is an essential and integral part of an integrated production process.  Additionally, a utility service used to operate equipment that controls the environment so production can occur is also exempt.

Separately Metered or Predominately Used

The exclusion from sales tax applies only if nontaxable utilities are separately metered and are “predominately used” by the purchaser for qualified uses. Predominately used means more than 50% of the utilities are consumed for the exempted use.

Forms

To receive an exclusion taxpayers should complete Form ST-200. The form will be reviewed by the Department and, if the meter qualifies for the exemption, a validated ST-109 will be sent to the taxpayer to be forwarded to the utility company. The ST-109 is the only exemption form that will be accepted by a utility company.

Partial Exemptions

Any user who does not meet the predominate use test may still qualify for a partial exemption under IC 6-2.5-5.1 “for utilities that are directly consumed by the purchaser in the direct production of tangible personal property in the purchaser’s business.”  However, all sales tax must first be paid directly to the utility company and then a claim for refund request can be submitted to the Department using Form GA-110L.

For Further Information:

Indiana Department of Revenue – Information Bulletin #55