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?
You must furnish a fully completed sales tax exemption certificate to each seller from whom you purchase fuel or electricity that is exempt from Wisconsin sales and use tax. You may use the electronic exemption certificate
Wisconsin Sales and Use Tax Exemption Certificate.
Our company holds a direct pay permit issued by the department. 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 providing ONE of the following:
- A fully completed exemption certificate
- A written document which includes all of the following:
- Name and address of the direct pay permit holder
- A statement that the purchases are being made without tax using the direct pay permit
- Direct pay permit number
- Effective date of the permit
- A copy of the direct pay permit and a written statement indicating whether the direct pay permit is for a single purchase or continuous use
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 fully completed exemption certificate prior to or at the time of the sale.
I paid sales tax in error to the seller on purchases of fuel and electricity consumed in manufacturing tangible personal property in Wisconsin. What should I do?
Furnish the seller with a fully 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 below:
- Request a refund from the seller (see
Answer #5), or
- File a buyer's claim for refund directly with the department (see
How do I request a refund from the seller?
Furnish the seller with a fully completed exemption certificate claiming the correct exemption percentage and request the sales tax previously paid be refunded.
If the seller has remitted the tax to the department on a previous sales and use tax return, the seller may be able to claim a deduction on its current return. See the Line 2 instructions in the Instructions for Wisconsin Sales and Use Tax Return
(Form S-114). If the seller is not able to take the deduction on its current return, the seller may amend its previously filed return to request a refund of the tax that it refunded back to the customer. See
Filing Claims for Refunds of Sales or Use Taxes, for more information.
If the purchaser provides the exemption certificate to the seller more than 90 days after the date of the sale, the seller must be able to accept the exemption certificate in
How do I file a Buyers Claim for Refund with the department?
Generally, your refund must be at least $50 and you must file within 4 years of the due date of your income or franchise return. See
Filing Claims for Refund of Sales or Use Tax, for more information.
For a refund of tax paid to a seller, do one of the following:
The department will immediately acknowledge receipt of a refund claim filed electronically.
Our company used less electricity for exempt purposes than previously stated on the exemption certificate we provided to our supplier. The taxable and exempt electricity is billed on a single meter. Do we need to furnish the electric utility company with a new exemption certificate?
Yes. Your percentage claimed on your original exemption certificate is no longer valid. You should furnish your electric utility with a new exemption certificate claiming the revised estimate of usage for electricity consumed in manufacturing tangible personal property in Wisconsin.
In addition, if for a period of time the utility exempted a higher percentage of electricity than actually qualified for exemption, you are required to report Wisconsin use tax to the department on the percentage difference between what was claimed as being exempt and what was actually exempt.
Our company used less natural gas for exempt purposes than previously stated on the exemption certificate we provided to our supplier. We used the difference 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.
Our company used more natural gas for exempt purposes than previously stated on the exemption certificate we provided to our supplier. Can we obtain a refund of the sales and use tax we paid on the additional natural gas purchases we determine to be exempt?
Yes. See questions #4-6 for refund options.
We hold a direct pay permit and remit use tax based on a percentage of fuel purchased and consumed in the manufacture of tangible personal property in Wisconsin. Later, we determined that our exempt use of fuel purchased is actually higher than originally reported. Can we obtain a refund of the use tax we paid on 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, you need to file amended returns for the periods in which you overpaid the use tax. You must file the amended returns 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
Filing Claims for Refunds of Sales or Use Tax, for more information.
We are a seller of fuel and electricity. 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?
If you had a fully completed exemption certificate on file before the sale or obtained the certificate within 90 days after the date of the sale, you are not liable for sales or use tax.
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:
- The seller fraudulently fails to collect the sales or use tax.
- The seller solicits the purchaser to claim an unlawful exemption.
- 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:
- The subject of the transaction covered by the exemption certificate is received by the purchaser at the seller's Wisconsin location; and
- The exemption certificate clearly and affirmatively indicates that the claimed exemption is not available in Wisconsin.
If you received the exemption certificate more than 90 days after the date of the sale, you are not liable for sales or use tax, if the exemption certificates were fully completed and you accepted them in good faith. An exemption certificate is fully completed and accepted in good faith if all of the following are true:
- It bears the name and address of the purchaser
- It includes the purchaser's type of business
- It discloses a valid reason for exemption (in this case, fuel and electricity consumed in manufacturing tangible personal property in Wisconsin)
- It includes the purchasers ID number, if required for the specific exemption claimed
- It contains the signature of the purchaser, if a paper certificate
- It contains no statement or entry which the seller knows, or has reason to believe the certificate is false or misleading
However, if the certificate is not fully completed or is not accepted in good faith, the seller remains liable for any additional sales tax.
Additional information regarding exemption certificates is provided in
Tax 11.14(3) and
(4), Wis. Adm. Code.
We are a seller of fuel and electricity. A purchaser contacts us, requesting a refund for overpayment of sales taxes. We are going to file a claim for refund with the department and refund the tax and interest we receive to the purchaser. Is there any documentation we should obtain from the purchaser?
You should obtain a fully completed exemption certificate from the purchaser that identifies the exempt percentage of fuel and electricity being refunded, or other documentation that provides proof that your sale was exempt.
If you received the exemption certificate more than 90 days after the date of the sale, you are not liable for sales or use tax, if the exemption certificate was fully completed and you accepted it in good faith. See question #11 for information on fully completed and good faith.
However, even if you obtain a fully completed exemption certificate, you will still be liable for the tax if it is discovered through the audit process that you had knowledge or reason to know at the time the information provided was materially false or if you knowingly participated in an activity intended to purposefully evade the tax due.
Additional information on obtaining documentation from a purchaser is available in the following Common Question:
Sales and Use Tax Exemptions and
sec. Tax 11.14(3) and
(4), Wis. Adm. Code.
Does the department require manufacturers to purchase a third party "utility usage study" as documentation for the exempt percentage claimed to be used in manufacturing? If not, what evidence is acceptable?
No. 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.
While 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.
When claiming an exemption, 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.
Fact Sheet 2111, Fuel and Electricity Consumed in Manufacturing for additional information on methods used to determine exempt percentage and what to expect in an audit of the fuel and electricity exemption.
What happens to my unused manufacturer's sales tax credits from taxable years that began before January 1, 2006?
Unused manufacturer's sales tax credits from taxable years that began prior to January 1, 2006 may be claimed beginning with the first tax year beginning after January 1, 2006.
Manufacturer's Sales Tax Credit for information on unused credits.