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Are You Paying Sales Tax on Electricity?

Posted: June 11, 2009

Dairy farmers – and other farmers too – should not be paying Pennsylvania sales tax on electricity!

Dairy farmers – and other farmers too – should not be paying Pennsylvania sales tax on electricity! However, I was totally surprised to see a number of electricity bills over the past few months when I visited farms where the full 6% of sales tax was being charged on the electricity bills. The bills where I saw the taxes were for farmers who are on commercial rates (as opposed to residential rates) for the dairy farms and poultry farms. Examine your electricity bills now! If you see a charge for “State Sales Tax”, then you need to take action. But be sure that you do not confuse the “State Sales Tax” and the “State Tax Surcharge.” You must pay the tax surcharge but not the sales tax. In some cases the tax surcharge is negative so then it provides a credit to your account.

I was totally surprised to see a number of electricity bills over the past few months when I visited farms where the full 6% of sales tax was being charged on the electricity bills.

For a farmer to receive exemption from state sales tax, he or she needs to provide a copy of the Tax Exemption Certificate to the utility company providing electricity. Check with your tax advisor to receive a copy of the certificate or down-load from http://www.revenue.state.pa.us/revenue/lib/revenue/rev-1220.pdf along with instructions for completing the form. (If you cannot download the form, then contact me and I will send a copy to you.) It appears to be rather easy to complete the form. If farmers 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.

When the utility company receives the completed Tax Exemption Certificate, then the company needs to change their records to match the exemption certificate. The company will then credit the two most recent amounts of sales tax collected and credit that amount on the next bill issued. Upon request, the company will prepare an affidavit for the farmer showing the amount of sales tax that was paid on this account for the past 36 months. The customer needs to submit the affidavit to the state in order to request a refund.

You are already encountering many expenses in your farming operation. Do not pay any sales tax on your consumption of electricity. But do not subtract the state sales tax from the amount due on your monthly bill. Pay the full amount and then take the required action as discussed above to be relieved of this tax responsibility!

Dennis Buffington,  Department of Agricultural and Biological Engineering

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