Reducing operating expenses without affecting efficiency is the goal of every business. One such commonly overlooked method of achieving this is through the utilization of a utility bill audit—a meticulous review of electricity, water, and gas bills to detect billing discrepancies, overpayments, and tax-saving opportunities. The audits not only save direct utility expenses but also reveal tax savings that improve the overall financial health of a business.
What is a Utility Bill Audit?
A utility bill audit is an in-depth examination of a company’s historical utility bills to identify errors, mislabeled rates, and possible exemptions. Experts leverage their thorough understanding of rate structures, tariffs, and tax laws to assist companies in paying only their fair share.
How Utility Bill Audits Result in Tax Savings
- Identifying Tax Exemptions
Some companies unwittingly pay sales tax on utilities which are exempted. Some sectors like manufacturing, farming, long-term residential, and non-profits are eligible for complete or partial exemptions on the use of electricity and gas. A utility audit identifies such missed exemptions, and then reimburses and saves on those future expenditures - Excess Taxes Paid Recovered
If a company has already been taxed on the utility bills that are to be exempted, it will be entitled to a refund of taxes. An audit provides proof needed in order to claim refunds and recovers overpayments. - Minimizing Taxable Income
Firms can invest the money saved in accomplishing utility audits, and at times, refunds can be claimed as deductions, thereby reducing taxable income and overall taxation. - Appropriate Tax Classification
Utility companies sometimes misclassify businesses, and this leads to overpayment of tax charges. An audit puts the company in the correct tax bracket, offering compliance without incurring unnecessary tax expenses.
Understanding Utility Tax Exemptions
Most state governments provide utility tax exemptions to attract and retain businesses. While each state has its own rules, most use three common criteria to qualify entities: qualifying activities, primary use, and financial disclosures.
Qualifying Activities for Exemptions from Utility Tax
Companies must participate in specific activities sanctioned by the state to be eligible for a utility tax exemption. Every state also has its own list of qualifying activities, though common ones include manufacturing, farming, non-profit endeavors, and extended residence. Companies must establish the proportion of their use of utilities that goes into these qualifying activities when applying for exemptions.
Predominant Use Requirement
If more than half of a company’s utility use benefits a qualifying activity—like production—it satisfies the predominant use requirement. This is one of the several essential conditions that most states require for tax exemption.
To ascertain customary use, there must be a customary use study, which must be conducted by experts in this field. Expert engineers guide certified energy managers in performing comprehensive analyses to enable companies to achieve the highest possible rate of exemption with the lowest compliance risk.
Financial Disclosure Requirements
Financial reporting responsibilities for companies seeking utility tax exemptions are also laid on some states.
If your company has never conducted a utility bill audit, you could be leaving behind valuable cost savings and tax savings. Not only does a well-managed audit reduce utility expenses, but it also maximizes tax deductions and refunds. Thousands of companies have already received utility tax exemptions and saved substantial amounts of money each year. Is it your company’s turn to save as well?
