Penn State Live - Farmers should not be paying sales tax on electricity, ag expert says

Farmers should not be paying sales tax on electricity, ag expert says

Thursday, June 18, 2009

Dennis Buffington

Farmers should not be paying Pennsylvania sales tax on electricity, according to an energy expert in Penn State's College of Agricultural Sciences.

However, some are, noted Dennis Buffington, professor of agricultural engineering.

"While visiting farms over the past few months, I was surprised to see that a number of producers were being charged the full 6 percent of sales tax on their electricity bills," he said. "The bills were for farmers who are on commercial rates (as opposed to residential rates) for their dairy farms and poultry farms."

Buffington advises farmers to examine their electricity bills immediately. "If you see a charge for 'state sales tax,' then you need to take action," he said, "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 actually provides a credit to your account."

For a farmer to receive exemption from state sales tax, Buffington explained, he or she needs to provide a copy of the Tax Exemption Certificate to the electric utility company. Farmers should check with their tax adviser to receive a copy of the certificate, or they can download a copy at http://www.revenue.state.pa.us/revenue/lib/revenue/rev-1220.pdf along with instructions for completing the form.

It is easy to complete the form, Buffington noted. "If a farmer has, 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," he said.

"When the utility company receives the completed Tax Exemption Certificate, then the company needs to change their 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, Buffington said, the company will prepare an affidavit for the farmer showing the amount of sales tax that was paid on an account for the previous 36 months. "The customer needs to submit the affidavit to the state in order to request a refund," Buffington said.

Farmers are encountering rising expenses in their operations, and Buffington said they should not be paying any sales tax on their consumption of electricity. "But they should not subtract the state sales tax from the amount due on their monthly bill," he said. "They should pay the full amount and then take the required action explained here to be relieved of this tax burden."