Many manufacturers know what they pay for raw materials, machinery, and labor. When it comes to utilities, they can offer an estimate at best. What if you found out that a meaningful share of your electric bill wasn’t supposed to be taxed in the first place?
If you’re assuming that utilities are just the cost of keeping the lights on and the line running, it’s time you knew about Wisconsin’s sales and use tax exemption. When documentation is complete and filed correctly, manufacturers can claim a refund for taxes they’ve already paid. We’ll walk you through what qualifies and what to do to claim it.
What is Wisconsin’s Utility Sales Tax Exemption?
A huge benefit for Wisconsin residents is that they do not pay sales tax on utilities. What many manufacturers don’t know is that this logic extends to the production floor, as well.
Wisconsin provides a sales and use tax exemption on electricity expenses used directly in manufacturing.
Why manufacturers need it:
- Tax savings: The top reason for claiming exemptions. If you qualify, you may be able to exempt a significant portion of your utility costs, and in some cases pursue refunds for prior tax paid in error.
- Energy management: Manufacturers can identify waste, understand their energy loads, and plan for energy-efficient upgrades.
Before manufacturers can claim the Wisconsin utility exemption, they must have qualifying activities first. Manufacturing activities only count from active raw materials on the plant floor until the finished product hits first storage.
Think of a piece of equipment that runs the moment materials enter production and shuts off when they’re boxed and shelved. That’s in exemption territory.
Utilities used in the following categories qualify for the exemption.
- Production machinery
- Processing equipment
- Testing and quality control
- Safety and environmental control
- Shipping and packaging
Some utilities remain taxable, like lighting and office heating. It’s good practice to check whether your utilities are used directly in your manufacturing process, since the line between “supports the plant” and “supports production” isn’t always obvious.
Manufacturers still face challenges when trying to claim these exemptions, including calculating how much utility energy is applied to the production process.
What are the Wisconsin Utility Exemption Requirements?
The Wisconsin utility exemption covers both manufacturers and residents, but the requirements look different for both users:
- At least 51% of the utility usage must be consumed in the true manufacturing process, calculated on a per-meter basis.
- You must conduct a utility usage study to calculate exact energy percentage.
- Submit the Wisconsin sales and use tax exemption certificate to your utility provider.
What is a utility usage study?
Since there is a minimum percentage requirement for direct energy to process usage, this study helps manufacturers support just how much they use. It examines utility meters and production equipment to distinguish between exempt and non-exempt utility uses.
Beyond that, you might be wondering what a utility tax study looks like in practice.
Typical candidates include food and agriculture production facilities, as well as equipment and pharmaceutical manufacturers.
Think of a freezer that you use to cool ingredients in your food manufacturing process. An auditor might think that it’s only used for storage, but you know it’s essential to manufacturing the actual item. Completing a utility tax study can help clarify how the equipment should be classified.
How can Wisconsin Businesses Support the Exemption?
A utility usage study tells you what qualifies, but afterward, you should still make sure the findings hold up. As with any other review process, there are steps manufacturers can take in advance to support the sales tax exemption.
- Conduct a utility usage study.
- Document exempt vs. non-exempt utility consumption.
- Identify all equipment that uses utilities directly.
- Maintain updated records of utility bills.
This is a good opportunity to connect with your CPA and start collecting your documentation and utility usage records, if you have not done so yet. As equipment changes on your production line, updating your records accordingly will keep your documentation audit-ready.
Common Questions About Wisconsin Manufacturing Sales Tax Exemption
Tax rules are not always straightforward, and the process can raise a handful of questions. Below are a few commonly asked questions about the utility sales tax exemption in Wisconsin.
What do we need to do to purchase our fuel and electricity without sales tax?
To purchase fuel and electricity exempt from Wisconsin sales and use tax, furnish each seller with a complete sales exemption certificate (S-211E or Form S-211).
Do we have to furnish an exemption certificate to the seller to purchase fuel and electricity without tax?
You generally must furnish a full completed exemption certificate to your utility provider. A direct pay permit holder has the option of providing one of the following:
- A fully completed exemption certificate.
- A written document including the following:
- Name and address of the direct pay permit holder.
- A statement of the purchases made using the direct pay permit.
- Direct pay permit number.
- Effective date of the permit.
- A copy of the direct pay permit with a written statement of whether the direct pay permit is for a single purchase or continuous use.
Can I receive a refund of taxes paid to the seller in error for purchases of fuel and electricity?
To avoid paying tax on future purchases, furnish the seller with a complete exemption certificate that claims the correct percentage as soon as possible. In addition, you may seek a refund through one of two options:
- Request a refund from the seller
- File a buyer’s claim for refund directly with the department
These questions tend to come up when a manufacturer realizes they’ve been overpaying. Start thinking about the next steps for gathering the right documentation and implementing new utilities studies.
Next Steps for Wisconsin Manufacturers
Wisconsin’s utility sales tax exemption is an overlooked opportunity available to manufacturers in the state. Between production schedules and day-to-day operations, digging into utility data to find tax exemptions only adds to the workload. Having a partnership with a manufacturing tax CPA can help do this alongside you.
If you think your facility may qualify, your first step should be to start the conversation with your CPA. They can help you:
- Determine your utility usage percentage
- Coordinate a usage study
- Prepare the correct exemption certificates
- Build a recordkeeping process
- Identify other tax savings opportunities
At MBE CPAs, we help Wisconsin manufacturers revisit their production processes to identify new tax qualifications. Reach out to our team to find out what a utility usage study would look like for your operation.