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Wisconsin Department of Revenue

Exemption for Fuel and Electricity
Consumed in Manufacturing

  1. Our company consumes fuel and electricity in our manufacturing processes. What do we need to do in order to purchase our fuel and electricity without sales or use tax?
  2. Our company holds a direct pay permit issued by the Wisconsin Department of Revenue. Are we still required to furnish an exemption certificate to the seller in order to purchase fuel and electricity without tax?
  3. When did the sales and use tax exemption for fuel and electricity consumed in manufacturing tangible personal property go into effect?
  4. I am a manufacturer of tangible personal property in Wisconsin and some of my purchases of fuel and electricity qualify for the exemption from sales tax. I do not hold a direct pay permit. What happens if I do not furnish an exemption certificate to the seller?
  5. I failed to furnish my fuel supplier with an exemption certificate, and I erroneously paid sales tax to the seller on purchases of fuel and electricity consumed in manufacturing tangible personal property in Wisconsin. What should I do?
  6. If I pay sales or use tax on fuel and electricity consumed in manufacturing tangible personal property in Wisconsin after January 1, 2006, even though I qualify for the exemption, can I still claim the sales tax paid as part of a claim for the manufacturer's sales tax credit for the tax year beginning in 2005 or 2006?
  7. On the exemption certificate we previously furnished the electric utility, we claimed that 75% of the electricity billed for a specified meter is exempt as it is consumed in manufacturing tangible personal property in Wisconsin. Since that time, we have modified our manufacturing process and purchased new equipment. We now estimate that 65% of the total electricity billed for that meter is exempt. Do we need to do anything?
  8. Our company has issued an exemption certificate to our supplier claiming that 85% of natural gas we purchase after December 31, 2005 is consumed in manufacturing tangible personal property in Wisconsin. In January 2007, we determined that 78% of the natural gas we purchased in 2006 was actually used for the exempt purpose. The balance was used for taxable purposes. Do we need to do anything?
  9. Our company is a corporation filing its franchise tax return on a calendar year basis. We have issued an exemption certificate to our supplier claiming that 80% of natural gas we purchase after December 31, 2005 is consumed in manufacturing tangible personal property in Wisconsin. In February 2007, we determined that 86% of the natural gas we purchased in 2006 was actually used for exempt purposes. The balance was used for taxable purposes. Can we obtain a refund of the sales and use taxes we paid on the additional 6% of natural gas purchases in 2006 we determined to be exempt?
  10. We hold a direct pay permit and remitted use tax based on 65% of fuel purchased in 2006 being consumed in the manufacture of tangible personal property in Wisconsin. In February of 2007, we determined that our exempt use of fuel purchased in 2006 was 76%. Can we obtain a refund of the use tax we paid on the 11% of the fuel purchases we subsequently determined was used in an exempt manner?
  11. We are a seller of fuel and electricity. Since January 2006, we have received fully completed exemption certificates from various customers claiming the exemption for fuel and electricity consumed in manufacturing tangible personal property in Wisconsin. These exemption certificates are marked "continuous." Based on the exemption percentages claimed on the exemption certificates, we do not charge tax to these customers. At a later date, it is determined that all or a portion of the fuel and electricity was used in taxable manner. Are we liable for any tax on these sales?
  12. Does the state require manufacturers to purchase a third party "utility usage study" as documentation for the percentage claimed to be used in manufacturing? If not, what evidence is acceptable?

Note: Additional information about the exemption for fuel and electricity consumed in manufacturing is provided at http://www.revenue.wi.gov/faqs/ise/exemptn2.html.

  1. Our company consumes fuel and electricity in our manufacturing process. What do we need to do in order to purchase our fuel and electricity without sales or use tax?

    You must furnish a properly completed sales tax exemption certificate to each seller from whom you purchase fuel or electricity that is exempt from Wisconsin sales and use tax because it is consumed in manufacturing tangible personal property in Wisconsin.

  2. Our company holds a direct pay permit issued by the Wisconsin Department of Revenue. Are we still required to furnish an exemption certificate to the seller in order to purchase fuel and electricity without tax?

    A direct pay permit holder has the option of either providing (a) a properly completed exemption certificate which includes the name and address of the direct pay permit holder, a statement that the purchases are being made without tax using the direct pay permit, the direct pay permit number, and the effective date of the permit; or (b) a copy of the direct pay permit and a written statement indicating whether the direct pay permit is for a single purchase or continuous.

  3. When did the sales and use tax exemption for fuel and electricity consumed in manufacturing tangible personal property go into effect?

    January 1, 2006. For purchases of natural gas or electricity consumed in manufacturing tangible personal property, the exemption applies beginning with the first billing you received with a billing date on or after January 1, 2006, regardless of when the natural gas or electricity was actually delivered to you. If the billing is mailed to you, the billing date is the date it is mailed. If the billing is sent by means other than mail, the invoice date is the billing date.

    For purchases of fuel other than natural gas, the exemption applies to purchases where you take possession of the fuel from the seller or the seller's agent on or after January 1, 2006. A common carrier or the U.S. Postal Service is deemed to be an agent of the seller, regardless of any f.o.b. point and regardless of the method by which the freight or postage is paid.

    Example: Manufacturer ABC furnished a properly completed exemption certificate to Utility XYZ on December 20, 2005, claiming that 55% of the natural gas and 70% of the electricity it purchased is exempt as it is consumed in manufacturing tangible personal property in Wisconsin. On January 2, 2006, Utility XYZ mailed a billing for natural gas and electricity to Manufacturer ABC. The billing covered natural gas and electricity metered during the period November 31, 2005 through December 30, 2005. Since the billing is for natural gas and electricity, and it was mailed on or after January 1, 2006, Utility XYZ may properly exempt 55% of the otherwise taxable charges for natural gas, and 70% of the otherwise taxable charges for electricity.

    Example: Manufacturer M consumes fuel oil in manufacturing tangible personal property in Wisconsin. All of the fuel oil purchased by Manufacturer M is used for this purpose. Fuel Supplier A delivered 5,000 gallons of fuel oil into one of Manufacturer M's storage tanks on December 30, 2005. Fuel Supplier A billed Manufacturer M for the fuel prior to leaving Manufacturer M's premises. Since Manufacturer M took possession of the fuel oil from Fuel Supplier A prior to January 1, 2006, the exemption does not apply. Fuel Supplier A was required to charge and collect the sales tax on this sale of fuel oil. Manufacturer M may include the sales tax paid on this purchase in its claim for the manufacturer’s sales tax credit for the tax year beginning in 2005.

    Example: Manufacturer M holds a direct pay permit and has furnished a copy of this permit to Fuel Supplier A for its purchases of fuel oil. Manufacturer M consumes 80% of the fuel oil purchased from Fuel Supplier A in the manufacture of tangible personal property in Wisconsin. The remaining portion is used for taxable purposes. Fuel Supplier A delivered fuel into Manufacturer M’s storage tanks on December 22, 2005, and on January 4, 2006. Since Fuel Supplier A was furnished a copy of Manufacturer M’s direct pay permit, Fuel Supplier A did not charge tax on either sale. The exemption for fuel and electricity consumed in manufacturing tangible personal property in Wisconsin applies for sales on or after January 1, 2006. As such, Manufacturer M is required to pay use tax on 100% of the purchase price of the fuel oil delivered on December 22, 2005. Manufacturer M is required to pay use tax on 20% of the purchase price of the fuel oil delivered on January 4, 2006. Manufacturer M may include 80% of the use tax paid on the December 22, 2005 purchase in its claim for the manufacturer’s sales tax credit for the tax year beginning in 2005.

  4. I am a manufacturer of tangible personal property in Wisconsin and some of my purchases of fuel and electricity qualify for the exemption from sales tax. I do not hold a direct pay permit. What happens if I do not furnish an exemption certificate to the seller?

    The seller of the fuel and electricity is required to charge you the appropriate sales or use tax unless you furnish the seller with a properly completed exemption certificate prior to or at the time of sale.

  5. I failed to furnish my fuel supplier with an exemption certificate, and I erroneously paid sales tax to the seller on purchases of fuel and electricity consumed in manufacturing tangible personal property in Wisconsin. What should I do?

    You should furnish the seller with a properly completed exemption certificate as soon as possible to avoid paying tax on future purchases. In addition, you may seek a refund of the taxes paid in error using one of the two options listed below:

    (a) Request the seller to refund the sales or use taxes you paid to them. In this case, you are required to furnish the seller with a Certificate of Previous Purchases (Form S-244). If the seller has already remitted these taxes to the Department of Revenue, the seller may then file an amended return to claim this refund from the Department of Revenue.

    (b) File a Buyer's Claim for Refund (Forms S-220 and S-220a) directly with the Wisconsin Department of Revenue. Generally, your claim for refund must be at least $50 to qualify, and must be filed within 4 years of the due date for filing your income or franchise tax return. See Wisconsin Publication 216, Filing Claims for Refunds of Sales and Use Taxes, for more information.

  6. If I pay sales or use tax on fuel and electricity consumed in manufacturing tangible personal property in Wisconsin after January 1, 2006, even though I qualify for the exemption, can I still claim the sales tax paid as part of a claim for the manufacturer's sales tax credit for the tax year beginning in 2005 or 2006?

    No. The manufacturer's sales tax credit is repealed for tax years beginning on or after January 1, 2006. In addition, no credit may be claimed for sales or use tax paid in error on fuel or electricity consumed in manufacturing tangible personal property in Wisconsin on or after January 1, 2006.

    Example: Manufacturer T filed its 2005 Wisconsin franchise tax return on a calendar year basis. Manufacturer T failed to give its supplier an exemption certificate and paid $5,000 of sales tax on purchases of fuel and electricity it consumed in manufacturing tangible personal property in Wisconsin on or after January 1, 2006, but prior to when the 2005 Wisconsin franchise tax return was filed. Manufacturer T may not use the sales tax paid in error on purchases of fuel and electricity after December 31, 2005, for the manufacturer’s sales tax credit on the 2005 franchise tax return. In addition, the credit is repealed for tax years beginning on or after January 1, 2006, and therefore, the manufacturer's sales tax credit is not available for tax years beginning on or after January 1, 2006.

    Example: Manufacturer S filed its 2005 Wisconsin franchise tax return based on the fiscal year July 1, 2005 through June 30, 2006. Manufacturer S failed to give its supplier an exemption certificate and paid $20,000 of sales tax on purchases of fuel and electricity it consumed in manufacturing tangible personal property in Wisconsin after December 31, 2005, and before July 1, 2006. Even though Manufacturer S may claim the manufacturer’s sales tax credit for the Wisconsin sales or use tax paid on qualifying purchases of fuel and electricity from July 1, 2005, through December 31, 2005, on its 2005 franchise tax return for the fiscal year ending on June 30, 2006, it may not claim the manufacturer's sales tax credit for any sales or use taxes it erroneously paid on fuel and electricity purchased on or after January 1, 2006.

  7. On the exemption certificate we previously furnished the electric utility, we claimed that 75% of the electricity billed for a specified meter is exempt as it is consumed in manufacturing tangible personal property in Wisconsin. Since that time, we have modified our manufacturing process and purchased new equipment. We now estimate that 65% of the total electricity billed for that meter is exempt. Do we need to do anything?

    Yes. Based on your current knowledge, the 75% exemption amount indicated on the exemption certificate is no longer valid. You should furnish your electric utility with a new exemption certificate claiming the revised estimate of 65% exempt usage for electricity consumed in manufacturing tangible personal property in Wisconsin. In addition, if for a period of time the utility exempted 75% of the electricity when the exempt percentage was only 65%, you would be required to report Wisconsin use tax to the Wisconsin Department of Revenue on the 10% difference between what was claimed as being exempt and what was actually exempt.

  8. Our company has issued an exemption certificate to our supplier claiming that 85% of natural gas we purchase after December 31, 2005 is consumed in manufacturing tangible personal property in Wisconsin. In January 2007, we determined that 78% of the natural gas we purchased in 2006 was actually used for the exempt purpose. The balance was used for taxable purposes. Do we need to do anything?

    Yes. You are required to self-assess and pay Wisconsin use tax on the portion of the fuel purchased without tax, but used in a taxable manner. In the above example, since 7% of the natural gas was purchased without tax but was actually used in a taxable manner, use tax applies to 7% of the purchase price of the natural gas purchased during 2006.

  9. Our company is a corporation filing its franchise tax return on a calendar year basis. We have issued an exemption certificate to our supplier claiming that 80% of natural gas we purchase after December 31, 2005 is consumed in manufacturing tangible personal property in Wisconsin. In February 2007, we determined that 86% of the natural gas we purchased in 2006 was actually used for exempt purposes. The balance was used for taxable purposes. Can we obtain a refund of the sales and use taxes we paid on the additional 6% of natural gas purchases in 2006 we determined to be exempt?

    Yes. If your claim for refund is at least $50, you may file a Buyer's Claim for Refund (Forms S-220 and S-220a) directly with the Department of Revenue. The deadline for filing the claim is four years from the due date for filing your income or franchise tax return for the year that includes the year of the purchases for which you overpaid the tax. Based on the facts given in the question, you have until March 15, 2011, to file a claim for refund of tax paid in error on purchases made in 2006.

    If you do not want to file a claim for refund directly with the Department of Revenue, you may request the refund directly from the seller. In this case, you would be required to furnish the seller with a Certificate of Previous Purchases (Form S-244) claiming the exemption, and the seller may then file a claim for refund with the Wisconsin Department of Revenue requesting a refund of the tax they had collected from you and remitted to the Department in error. See Wisconsin Publication 216, Filing Claims for Refunds of Sales and Use Taxes, for more information.

  10. We hold a direct pay permit and remitted use tax based on 65% of fuel purchased in 2006 being consumed in the manufacture of tangible personal property in Wisconsin. In February of 2007, we determined that our exempt use of fuel purchased in 2006 was 76%. Can we obtain a refund of the use tax we paid on the 11% of the fuel purchases we subsequently determined was used in an exempt manner?

    Yes. To file a claim for refund for use taxes paid directly to the Department of Revenue, you need to file amended returns for the periods in which you overpaid the use tax. The amended returns must be filed within four years of the due date for filing your income or franchise tax return for the year that includes the year of the purchases for which you overpaid the tax. See Wisconsin Publication 216, Filing Claims for Refunds of Sales and Use Taxes, for more information.

  11. We are a seller of fuel and electricity. Since January 2006, we have received fully completed exemption certificates from various customers claiming the exemption for fuel and electricity consumed in manufacturing tangible personal property in Wisconsin. These exemption certificates are marked "continuous." Based on the exemption percentages claimed on the exemption certificates, we do not charge tax to these customers. At a later date, it is determined that all or a portion of the fuel and electricity was used in taxable manner. Are we liable for any tax on these sales?

    For your sales of fuel and electricity to these customers on and after October 1, 2009, you are not liable for sales or use tax. This assumes that for each sale of fuel and electricity, you either had the exemption certificate on file before the sale, or obtained the certificate within 90 days after the date of the sale.

    Exception: A seller is not relieved of its liability to collect and remit the applicable Wisconsin sales or use tax on a sale to a purchaser if any of the following apply:

    1. The seller fraudulently fails to collect the sales or use tax.
    2. The seller solicits the purchaser to claim an unlawful exemption.
    3. The seller accepts an exemption certificate from a purchaser claiming to be an entity that is not subject to sales and use taxes, if both of the following apply:

      1. The subject of the transaction covered by the exemption certificate is received by the purchaser at the seller's Wisconsin location; and

      2. The exemption certificate clearly and affirmatively indicates that the claimed exemption is not available in Wisconsin.

    For your sales of fuel and electricity to these customers before October 1, 2009, you are not liable for sales or use tax, if the exemption certificates were valid and you had accepted them in good faith. An exemption certificate is valid and accepted in good faith if all of the following are true:

    • the certificate is dated,
    • it is signed by the purchaser,
    • it bears the name and address of the purchaser,
    • it includes the purchaser's sales and use tax account number (if applicable),
    • it indicates the general character of the tangible personal property or service sold,
    • it indicates a proper basis for exemption (in this case, fuel and electricity consumed in manufacturing tangible personal property in Wisconsin), and
    • the seller has no reason to believe, at the time the certificate is accepted from the purchaser, that the purchaser does not qualify for the exemption being claimed.

    However, if the certificate is not valid or is not accepted in good faith, the seller remains liable for any additional sales tax.

    Additional information regarding exemption certificates, for sales on and after October 1, 2009, is provided in sec. Tax 11.14(3) and (4), Wis. Adm. Code, as repealed and recreated in EmR0924, available on pages 33 and 34 at the following link: http://www.revenue.wi.gov/sstp/ch11emerrule.pdf.

  1. Does the state require manufacturers to purchase a third party "utility usage study" as documentation for the percentage claimed to be used in manufacturing? If not, what evidence is acceptable?

    Wisconsin does not require that a manufacturer purchase a third party utility usage study to determine the percentage of fuel or electricity that is consumed in manufacturing and that qualifies for exemption. However, the purchaser/manufacturer is responsible for providing documentation to support the exempt percentage claimed and a third party utility usage study is good supporting evidence to prove how they arrived at the amount of fuel and electricity consumed in manufacturing.

    Therefore, although the Department may prefer to see an independent third party utility usage study, there is nothing provided statutorily that would prevent you from doing a detailed analysis/study yourself of the fuel or electricity that is consumed in manufacturing. As long as the study is reasonable and you have documentation (e.g., list of exempt machines, how much energy each machine consumes, how many hours each machine operates a day) to support the study that proves it accurately reflects the fuel or electricity consumed in manufacturing, this would be acceptable to the Department. This study would also need to be updated periodically to account for additions and deletions of the machinery and equipment used, plant expansions or downsizing, etc.

    One thing to remember when claiming an exemption is that it is up to the taxpayer to prove that a sale or purchase qualifies for a particular exemption. Therefore, regardless of the method you choose to determine the amount of fuel or electricity that qualifies for exemption, you will need documentation to support the method chosen and evidence (such as a detailed analysis of your energy consumption) to prove that this method is reasonable in your particular situation. The method you choose is also subject to review in the event that you are audited.

FOR MORE INFORMATION PLEASE CONTACT:

WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
P.O. Box 8949, Mail Stop 5-77
Madison, WI 53708-8949
Phone: (608) 266-2776
Fax: (608) 267-1030
E-Mail Additional Questions

Last updated February 2, 2010