Idaho Utility Sales Tax Exemption
Idaho offers a comprehensive sales and use tax exemption on the purchase of utilities and industrial fuels when they are used directly in qualified production activities. This exemption is part of Idaho’s broader Production Exemption program and applies to electricity, natural gas, propane, coal, steam, and other fuels that are consumed during eligible manufacturing or processing operations.
Qualifying Activities
To qualify, the taxpayer must be engaged in production-related business activities such as:
- Manufacturing or fabricating tangible personal property
- Mining and mineral extraction
- Farming and agriculture (including custom farming or ranching)
- Processing or refining goods
- Processing tangible property for use as fuel or for electricity generation
- Research and development when directly related to the production process
A business unit or separately operated segment must be primarily devoted to these qualified activities. That means over 50% of its activities must involve production.
Eligible Utility and Fuel Usage
The exemption applies only to utilities and fuels used directly in production processes, including:
- Electricity powering manufacturing equipment
- Natural gas used in kilns or furnaces
- Steam used for product sterilization
- Fuel used in generators or dryers that are part of the production line
Indirect uses do not qualify for the exemption, including: lighting, heating and cooling of office spaces, administrative operations, or break rooms.
Utility Study and Documentation
Businesses should maintain adequate records and calculations to show the proportion of utility usage tied to exempt activities. This is especially important when a single utility meter services both exempt and non-exempt areas or uses.
Typical documentation may include:
- A list of all equipment consuming utilities
- Estimates of runtime and load
- Calculations showing what percentage of total usage qualifies
- Maps or schematics identifying production and non-production areas
Filing Requirements
To claim the exemption, businesses do not need a separate exemption certificate specifically for utilities. Instead, they should provide vendors with a standard Idaho Sales Tax Exemption Certificate indicating use under the production exemption. This supports the seller’s records and allows them to remove sales tax at the time of purchase. When utilities or fuels are purchased from a utility provider, businesses should contact the provider to inquire about their procedures for accepting exemption documentation, as some providers may have their own internal forms in addition to the state certificate. If sales tax has already been paid on qualifying utility or fuel usage, businesses may file a refund claim with the Idaho State Tax Commission. Refunds can typically be claimed for taxes paid within the past three years.