New York Utility Tax Exemption Opportunities

Utilities consumed in the state of New York are generally subject to sales and use tax. However, there are several utility tax exemption opportunities in the state of New York.

In New York, utilities include purchases of gas, electricity, refrigeration and steam. Below are discussions of some of the more common utility tax exemption opportunities in the state of New York categorized by three main industry groups.

Utilities, including fuel, gas, and electricity, sold to manufacturers within the state of New York are completely exempt from sales tax if they are directly and exclusively used in production.

The state of New York determines that a utility is used directly in production if it is either used to operate tax exempt equipment or machinery, used to create conditions necessary or required for production, or perform an actual step or part of the manufacturing or production process.

A utility is used exclusively in production if it is 100% used in the production process. Utilities used for lighting, heating or cooling of buildings, the storage of items of tangible personal property, and the preparation of food or drink do not qualify for New York sales tax exemption for manufacturing or processing. If the utility is not used 100% of the time in production, a manufacturer may allocate the use between exempt and non-exempt purposes.

In cases requiring allocation, the taxpayer must keep adequate records, such as a survey conducted by an engineer or the formula used in computing exempt usage.

More detailed information about how to compute the percentage of utilities used for exempt purposes can be found in New York Sales Tax Bulletin #TB-ST-917.

When requesting a refund of sales tax paid on qualifying exempt utilities, the exact percentage of the exempt usage must be known and reported in order to receive any New York sales tax exemptions on utilities. A manufacturer must submit a complete and properly executed Exempt Use Certificate ( NY Form ST-121 ) to their utility provider.

The New York sales tax exemption for utilities used in farming, agriculture or commercial horse boarding are broader than those offered to the manufacturing industry. Utilities including gas, electricity, refrigeration and steam are exempt for this industry.

In addition, purchases of non-highway diesel motor fuel will also qualify for the New York sales tax exemption. New York Sales Tax Bulletin #TB-ST-244 discusses the New York sales tax exemption for this industry, which include utilities as well as several other categories of purchases including machinery, equipment and supplies; vehicles; building materials; and some services.

To secure refunds for qualifying utilities, farmers and horse boarding entities should use NY Form ST-125.

Utilities sold for residential purposes are exempt from the 4% New York state sales tax. As long as 75% of the energy being purchased is used for residential purposes, all of the energy is tax exempt. Residential customers must present their utility provider with a certification of residential use of energy ( NY Form TP-385 ) that shows that at least 75% of the utility being purchased is used for residential purposes. This will exempt residential utility customers from the 4% state tax rate.

Common areas of multi-family housing should be excluded from the calculations when determining the percentage of qualifying exempt residential usage. Common areas are excluded from the calculation because they are areas which are used for both residential and non-residential purposes.

While utilities used for residential purposes are exempt from the state portion of the sales tax rate, local taxes, including those for the city and county, are only exempt in certain locations. The state of New York allows localities to determine if residential utilities are exempt or not.

The complete list for local jurisdictions that tax residential utilities can be found in New York Publication #718-R.

As with all sales and use tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Group’s sales tax consultants can be found on our page summarizing New York sales and use tax exemptions .

If you have questions, comments, concerns or would like to discuss the specific circumstances you are encountering in regard to sales and use tax, please contact our sales tax consultants at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.

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