Complete Guide to
Utility Sales Tax Exemption
for Businesses

Learn how utility sales tax exemptions reduce costs on electricity, gas, and water. See who qualifies, how to apply, and state-specific rules.

Schedule a Free Consultation

Thank you for reaching out! Our tax specialist will get in touch with you in less than 24 hours

What is a Utility Sales Tax Exemption?

A utility sales tax exemption allows qualified businesses or individuals to avoid paying state sales tax on certain utilities, such as electricity, natural gas, water, or fuel, when they are used for exempt purposes like manufacturing, agriculture, R&D or residential heating

Who qualifies for a Utility Sales Tax Exemption?

Warehouse
Manufacturers and Industrial Facilities
Many states exempt utilities used directly in the manufacturing process. For example, if more than 50% of your facility’s electricity powers production equipment, the utility bill may qualify. A predominant use study is often required to verify this.
Agriculture
Agricultural Operations (Farms, Irrigation, Greenhouses)
Farms and agricultural businesses often qualify for exemptions on electricity, gas, or water used in irrigation systems, greenhouses, and other farming operations. These exemptions help reduce costs for food production and ensure competitive pricing in the agricultural sector.
Experiment
Research and Development (R&D) Facilities
Many states offer utility sales tax exemptions for R&D facilities when electricity, gas, or water is used directly for testing, prototyping, or research. Utilities powering lab equipment or clean rooms may qualify if most energy use supports research activities.

How do I apply for a Utility Sales Tax Exemption?

Most states require submitting a Utility Exemption Certificate to your utility provider. If only part of your usage qualifies, you may need a predominant use study (Utility Use Study) to determine the percentage of exempt consumption.

A Predominant Use Study determines what percentage of a utility (electricity or natural gas) is used for non-taxable activities. In Texas, when 51% or more of a utility’s usage qualifies as non-taxable, the entire utility bill is exempt from sales tax. This exemption applies to both the 6.25% state sales tax and any local sales taxes.

Our Team

Leyton helps determine whether your business qualifies for a utility sales tax exemption through a professional Predominant Use Study. We handle the entire process—from conducting accurate studies and managing state paperwork to filing with utility companies and securing refunds for past overpayments. Our experts ensure compliance, audit protection, and maximum savings, saving your business time, money.

Cedric Jame

Director of Commercial Real Estate

Brian Ess

State & Local Tax Practice Leader

Large Manufacturing Facility
Case Study

The company operates a 250,000-square-foot manufacturing plant with heavy energy demand. OH allows for a complete exemption if over 50% is used in the manufacturing process, which could translate into substantial annual savings

Background

Industry: Automotive parts manufacturing
Location: Ohio, USA
Utilities Used: Electricity and natural gas
Annual Utility Cost: $3.8 million

Electricity: 90% of total consumption used in production (CNC machines, robotic welders, paint lines)
Natural Gas: 80% of total consumption used in production (furnaces, curing ovens, drying systems)

Only 10–20% of the utilities were used for non-production activities like lighting, HVAC for offices, and breakrooms.

Financial Impact

Before exemption:
Sales tax rate: 6.75%
Annual utilities: $3.8 million
Tax paid: $256,500 per year

After exemption:
Electricity and natural gas are now completely exempt
Total annual savings: $256,500

Can I get a refund for past Utility Sales Taxes Paid?

In states that allow for the exemption, you may file for a sales tax refund or credit for taxes paid in prior periods

(usually up to 3–4 years).

How can we help Clients
with Utility Sales Tax Exemption

Leyton’s end-to-end Utility Sales Tax Exemption service combines engineering precision with tax expertise. From initial eligibility checks to refund recovery and compliance support, we handle it all – ensuring clients secure every dollar of eligible savings with confidence and accuracy.

check

Initial Consultation & Eligibility Check

We meet with the client to understand their industry, operations, and current utility usage.
We review state-specific tax laws to confirm whether exemptions are available (manufacturing, agriculture, nonprofits, residential, etc.). At this stage, we identify potential savings opportunities.

Assignment

Predominant Use Study (if required)

Many states require proof that more than 50% of utility usage is for exempt activities. Leyton In-house electrical engineers conduct a predominant use study – measuring utility consumption across production equipment, HVAC, lighting, office use, etc. This ensures we can certify the exact percentage of exempt usage.

Edit_Document

Documentation & Filing

We prepare the necessary state exemption forms or utility provider certificates. Our team ensures all documentation meets state Department of Revenue requirements. We file these with the utility companies so exemptions apply directly to future bills.

Attach_Money

Refund & Recovery of Past Overpayments

Many states allow 3–4 years of look-back refunds for sales tax paid in error. We file refund claims with the state tax authority to recover past overpayments. Clients often see substantial checks or credits returned.

Call

Ongoing Compliance & Support

We monitor changes in state sales tax laws that may affect exemptions.
Provide renewal support (some states require exemption certificates to be updated periodically).
Offer ongoing consulting to ensure maximum tax savings and continued compliance.

If I already have a utility exemption certificate, do I still need a new utility study?

Yes – even with a certificate in place, it may be necessary (or required) to recalculate your exempt utility usage when your exemption certificate expires or major changes occur. This includes:

switching utility providers, merging with another business, altering your production process, adding new machinery, adjusting manufacturing output, receiving a new meter, orrelocating/expanding your facility.

These changes can affect your exemption status, so keeping your study current helps ensure compliance and maximizes savings.