Power Consumption and Business

[Glenn]

From a non-related craft.

Power used in non-production areas like accounting and the sales office are taxable. Power used to produce the product is exempt from sales tax. The products could not be created for sale without these uses of power. By contrast, power is consumed in accounting and sales areas without any connection to producing the product.

In New York we submitted our engineering study, which was the inventory of electrical usage showing wattage and hours, to the sales tax bureau on their forms and received an exemption letter in return. We then sent a copy of the sales tax exemption letter to the utility which removed sales tax from all future power bills.

Now we calculate the sales tax to be paid to the state and add that amount on the periodic sales tax return. However, that cash payment for us is at the end of the sales tax reporting period rather than paying the utility which has use of our sales tax money interest free until the utility remits to the state at a future date. So we have also improved our cash flow.

This may be directly applicable to those that run high electricity usage devices such as induction forges, welders, air compressors, pneumatic hammers, etc. Anyone knowledgeable in this area?

[Fe-Wood]

I'd like to hear more!
I run my shop on off road diesel fuel with no road tax BUT there is sales tax. My space is for production only, no suport staff etc. It hadn't occured to me that to look into this. Thanks Glen :)

[Glenn]

If you pay sales tax on your power, or sales tax on the gas (natural or propane) used in a heating appliance such as a forge, or sales tax on any other item used to produce a product, that becomes part of the total cost of the product. Then when the finished product is sold to the consumer, sales tax is charged again. That is double taxation, and illegal, but you may nevertheless be incurring the double tax.

The business end of things can get complicated fast. There a point of no return (pun intended) where the business of counting beans for the government over runs production, and results in no income. How do you educate yourself on what details to chase down?

[Francis Trez Cole]

dose it have to do with a retail sale licence, In florida if you have a retail you are not charged tax when purchasing but you must file taxes monthly. That is why I elected to operate as a service I pay the tax up front and the client pays for my service of fabericating.

[Glenn]

This was to get folks to thinking and asking questions. If you purchase electric do you pay taxes on that electric to run the air compressor for the pneumatic hammer to mash metal? If so, should you be entitled to NOT pay those taxes (as it is used in producing the product) or apply those taxes (prepaid) to reduce the taxes owed to the government? As Fe-wood suggested, what about the sales tax on fuel for the forge? He can get the road taxes rebated, but what about the sales taxes?

Where are the accountants in the group?
Ok it is still early in the morning LOL.

[Glenn]

And while we are looking into taxes and other hidden costs, what about the taxes associated with the phone (land line) and cell phones for the business?
What about the taxes added to the invoice for the computer internet connection used to research a specific traditional joint for a project?

[Mills]

CPA solves a bunch of my problems like that. She is aproachable and friendly. She has a lot of experience and works with other experienced CPA's. Difficult quetions may cost me but an inquiry like this will net me a answer along the lines of "if your consumption is more than.." and a call to the tax commission if it seems to be worthwhile.