Minnesota Utility Sales Tax Exemption
Minnesota provides a sales and use tax exemption for utilities such as electricity, gas, water, and steam when used directly in qualifying industrial production, agricultural operations, or other exempt uses under Minnesota Statutes § 297A.68. To qualify, more than 50% of the utility must be used in an exempt activity. When this threshold is met, 100% of the utility usage may be exempt.
Utility Study
To substantiate the exemption, businesses should conduct a utility usage study that:
- Identifies all equipment and processes using the utility
- Determines which uses are exempt vs. non-exempt
- Calculates the percentage of total utility use attributable to production
- Includes detailed engineering estimates or metering, as needed
- Supports the conclusion that over 50% of the utility is used for qualifying activities
Accurate and well-documented studies are critical for compliance and must be updated if production processes or utility usage change significantly.
Filing Requirements and Refunds
To claim the exemption businesses must submit a completed Minnesota Form ST3 Certificate of Exemption, to the utility provider. The certificate must clearly state the reason for exemption and describe the nature of the exempt use. If sales tax was previously paid on qualifying usage, a refund may be requested from the Minnesota Department of Revenue. Refunds can generally be claimed for up to 3½ years from the original date of payment. Businesses should maintain detailed documentation, including the exemption certificate, utility bills, and usage studies, to support both exemption and refund claims.