While out visiting farms this spring, Dennis Buffington discovered that a number of producers were paying the 6% sales tax on their commercial electricity usage. Stop doing that, urges the ag engineering energy expert at Penn State.
Farmers are exempted from paying sales tax on commercial rates, but not residential rates, he points out. "If you see a charge for 'state sales tax,' then you need to take action," he adds. "But don't confuse the state sales tax and the 'state tax surcharge.'
Confusing as it seems, you still must pay the tax surcharge – but not the sales tax. "In some cases, the tax surcharge is negative, so it actually provides a credit to your account."
To get the exemption – and refund
You need to provide your electric utility company with a copy of Pennsylvania's Tax Exemption Certificate. Get it from your tax adviser or download a copy at www.revenue.state.pa.us/revenue/lib/revenue/rev-1220.pdf along with instructions for completing the form.
The form is easy to complete. "If you have, let's say, a sales room, road-side market, or any commercial venture on the same electricity account as the farming operation, then the portion of the electricity used for farming purposes needs to be estimated to be listed as the exemption percentage," says Buffington.
"Once the utility company receives the certificate, it will change the records to match the exemption certificate. In the next bill issued, the company then will credit the two most recent amounts of sales tax collected."
Upon request, the company will prepare an affidavit showing the amount of sales tax paid on an account for the previous 36 months. Then you'll need to submit the affidavit to the state to request a refund.
Follow the rules, he counsels. "Do not subtract the state sales tax from the amount due on your monthly bill. Pay the full amount, then take the required action explained here to be relieved of this tax burden." Otherwise, you could "zap" your credit rating.