Kentucky Sales Tax Exemption
Kentucky offers a partial exemption from state sales tax and the Utility Gross Receipts License Tax (UGRLT) on electricity, natural gas, and water used in manufacturing, processing, mining, or refining; provided the total cost of qualifying utility usage exceeds 3% of the facility’s cost of production (computed under KRS 139.480(3) and 103 KAR 30:140).
Qualifying Use & Eligibility
- Utility usage must occur during “plant facility” production operations, defined as a continuous, integrated process that begins with raw material input and ends with a packaged product ready for sale.
- Energy must be used during the manufacturing or industrial processing activity itself—you must not use it for non-production purposes like lighting, office HVAC, or storage facilities.
- The exemption applies only if the annual cost of energy or fuel and related services billed to the user exceeds 3% of the facility’s total cost of production; otherwise no exemption is available.
Utility Study
A predominant‑use study is required to validate exempt usage: identify every piece of utility‑consuming equipment, classify production vs non‑production, calculate total cost of energy, and compare to production cost. Cost of production includes raw materials and overhead, but excludes the cost of the energy/fuel itself.
Filing Requirements
Businesses must apply for Energy Direct Pay Authorization using Kentucky Form 51A109. Refund amounts may be claimed for a 48‑month lookback period.