New York Utility Sales Tax Exemption
New York offers a full or partial sales tax exemption on utilities including electricity, gas, steam, and fuel when used directly and exclusively in production, manufacturing, processing, assembling, or agriculture. To qualify, the utility usage must be directly tied to producing tangible personal property for sale. If less than 100% of the utility is used for exempt purposes, a partial exemption is allowed based on the percentage of qualifying use.
Utility Study Requirement
To substantiate the exemption, businesses must conduct a utility allocation study that:
- Identifies all equipment and systems consuming the utility
- Segregates usage by exempt (production) and non-exempt (e.g., lighting, office, HVAC) functions
- Calculates exempt usage as a percentage of total utility consumption
- Documents methods and assumptions used in allocation
- Is retained as part of the business’s tax records for audit purposes
- Failure to properly support the exemption may result in disqualification and assessment of back taxes.
Filing Requirements
To claim the exemption, business must provide Form ST-121 (Exempt Use Certificate) to the utility provider, indicating the percentage of exempt usage.If tax was paid on qualifying utility usage before the exemption certificate was provided, businesses may file a refund claim using Form AU-11 (Application for Credit or Refund of Sales or Use Tax) with the New York State Department of Taxation and Finance. Refunds are typically available for overpayments made within the past three years. Supporting documentation, including utility bills, Form ST-121, and the utility study, should be included with the claim.