DRS: PS 94(3), Gas and Electricity Purchased for Residential Use or for Use in Agricultural Production, in the Fabrication of Finished Products to Be Sold, or in an Industrial Manufacturing Plant

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

This Policy Statement has been superseded by PS 94(3.1)

PS 94(3)

Gas and Electricity Purchased for Residential Use
or for Use in Agricultural Production
,
in the Fabrication of Finished Products to Be Sold,
or in an Industrial Manufacturing Plant


PURPOSE: This Policy Statement discusses the exemptions provided under Conn. Gen. Stat. Section 12-412(3) for purchases of gas, including bottled gas, and electricity when delivered to consumers through mains, lines, pipes or bottles for residential use or for use in agricultural production, the fabrication of a finished product to be sold, or an industrial plant.


EFFECTIVE DATE: Because this Policy Statement reiterates (rather than changes) the Department's position, it is applicable to all open periods.


STATUTORY AUTHORITY: Conn. Gen. Stat. Section 12-412(3).


USES QUALIFYING FOR EXEMPTION UNDER CONN. GEN. STAT. Section 12-412(3)(A): Gas or electricity may be purchased under the exemption provided in Conn. Gen. Stat. Section 12-412(3)(A) when purchased for any of the following purposes:

  • use in any residential dwelling;
  • use directly in agricultural production, provided the exemption shall be allowed only with respect to a metered building, location or premises at which not less than 75% of the gas or electricity consumed at such building, location or premises is used for the purpose of such production;
  • use directly in the fabrication of a finished product to be sold, provided the exemption shall be allowed only with respect to a metered building, location or premises at which not less than 75% of the gas or electricity consumed at such building, location or premises is used for the purpose of such fabrication; or
  • use directly in an industrial manufacturing plant, provided the exemption shall be allowed only with respect to a metered building, location or premises at which not less than 75% of the gas or electricity consumed at such building, location or premises is used for the purpose of such manufacturing.

BUILDINGS, LOCATIONS OR PREMISES WITH MIXED USES:

Gas or electricity used in any residential dwelling: When a building served by a single meter has both retail or office space and residential space, purchases of gas or electricity used in such building are exempt if more than 50% of the building is devoted to residential use. If, however, there is a separate meter for the residential portion and for the non-residential portion, only the gas or electricity used in the residential portion may be purchased exempt.

Gas or electricity used in agricultural production, the fabrication of a finished product to be sold, or an industrial manufacturing plant: When a building, location or premises is served by a single meter and is used for both exempt and non-exempt purposes, the purchaser must establish that 75% or more of the gas or electricity measured by such meter is used in agricultural production, fabrication of a finished product to be sold, or an industrial manufacturing plant.

Example: A building served by one meter is used 80% for fabrication of a finished product to be sold and 20% for administrative purposes. The gas or electricity used in such building may be purchased under this exemption. If, however, there is one (or more) meter(s) serving only the qualifying portion of the building, location or premises and separate meter(s) for the non-exempt portion, only the gas or electricity used in the qualifying portion may be purchased exempt.


DEFINITIONS: Because the exemption for gas and electricity under Conn. Gen. Stat. Section 12-412(3)(A) does not affect the exemptions for manufacturing machinery, equipment, materials, tools or fuel under subsections (18) and (34) of Conn. Gen. Stat. Section 12-412 or Conn. Gen. Stat. Section 12-412i, the following definitions are provided solely for purposes of interpreting the exemption under Conn. Gen. Stat. Section 12-412(3)(A).

A "residential dwelling" is any building, all or a predominant part of which is used for housing. Thus, for example, homes, apartment buildings, condominiums, mobile home parks, nursing or convalescent homes and halfway houses are "residential dwellings," whereas such places as hotels, motels (other than apartment hotels or motels) and hospitals are not considered "residential dwellings."

Electricity used for exterior lighting, or electricity or gas used in common areas of apartment or condominium complexes (e.g., hallways, pools, social clubs), may also be purchased exempt if the apartment or condominium complex is predominantly used for residential purposes.

"Agricultural production" means engaging in, as a trade or business, (A) the raising and harvesting of any agricultural or horticultural commodity, (B) dairy farming, (C) forestry, (D) the raising, feeding, caring for, shearing, training or management of livestock, including horses, bees, poultry, fur-bearing animals or wildlife, (E) the raising and harvesting of oysters, clams, mussels or other molluscan shellfish, or (F) the operation or management of a farm and its buildings, tools and equipment. For purposes of this exemption, agricultural production begins with the first operation in the production of agricultural products for sale, such as the preparation of the soil for planting, the incubation of eggs to produce poultry, or the insemination of livestock to produce dairy, meat or fur-bearing animals, and ends with the harvesting and packaging operations.

Florists with greenhouse or nursery operations are engaged in agricultural production, whereas a florist that purchases cut flowers is not. For the electricity or gas to be considered used in agricultural production, the purchaser must have been issued a Farmer Tax Exemption Permit (see Policy Statement 91(7.2)).

"Fabrication" means an operation or an integrated series of operations that alter or modify a manufactured product or raw materials, whether or not a change in the identity of the product or materials occurs. The transformation cannot be a mere natural process, whether or not expedited by the use of human skill or labor or machinery. In determining whether a process constitutes fabrication, the Department will examine the facts and circumstances of each case, using the following principles as guidelines:

(A) The finished products of fabrication must be intended for sale, whether by the fabricator or by another on whose behalf the fabricator has undertaken the fabrication.

(B) The process must be commonly regarded as fabrication. By way of example and not limitation, fabrication includes assembling, cutting, perforating, painting, coating and similar operations.

An "industrial manufacturing plant" is an establishment which has the fabrication or manufacture of finished products to be sold as its predominant purpose and that is generally recognized as such. In determining whether an establishment has such fabrication or manufacture as its predominant purpose, the Department will examine the facts and circumstances of each case, using the following principles as guidelines:

(A) If the floor space of the establishment is predominantly devoted to fabrication or the manufacture of finished products to be sold, it is more likely to be an industrial manufacturing plant. Floor space of the establishment devoted to research and development preliminary to such process will be considered to be floor space devoted to such process.

(B) If the number of employees working at the establishment are predominantly working in fabrication or the manufacture of finished products to be sold, it is more likely to be an industrial manufacturing plant. The number of employees working at the establishment at research and development preliminary to such process will be considered to be employees working at such process.

(C) If the wages and salaries of employees working at the establishment are wages and salaries of employees working in fabrication or the manufacture of finished products to be sold, it is more likely to be an industrial manufacturing plant. The wages and salaries of employees working at the establishment at research and development preliminary to such process will be considered to be wages and salaries of employees working at such process.

(D) If the costs of operating the establishment are predominantly attributable to the costs of fabrication or the manufacture of finished products to be sold, it is more likely to be an industrial manufacturing plant. The operating costs of the establishment attributable to research and development preliminary to such process will be considered to be operating costs of such process.

(E) If sales made at the establishment are predominantly of products fabricated or manufactured elsewhere, it is more likely that the fabrication or manufacturing aspect of the establishment is incidental to its retail aspect, and it is less likely to be an industrial plant.

Some examples of qualifying uses as either the fabrication of a finished product to be sold or as being used in an industrial manufacturing plant include: the fabrication of sheet metal components, dump truck covers, or awnings; the fabrication of frozen desserts; and the transmission of video programming. Some examples of uses that do not qualify for exemption include: take out or delivery restaurants; repairers or reconditioners of tangible personal property; and laundromats and dry cleaners.

  • "Predominant" or "predominantly" means more than 50%.
  • "Bottled gas" means L.P. (propane) gas.

CLAIMING EXEMPTION UNDER CONN. GEN. STAT. Section 12-412(3)(A): In order to claim exemption under Conn. Gen. Stat. Section 12-412(3)(A), a purchaser of gas or electricity must furnish a completed CERT-115 to the gas or electric utility. Such certificate will certify that the gas or electricity will be used as provided in Conn. Gen. Stat. Section 12-412(3)(A) and this Policy Statement (i) in any residential dwelling; (ii) directly in agricultural production; (iii) directly in the fabrication of a finished product to be sold; or (iv) directly in an industrial manufacturing plant. The CERT-115 shall be considered to be a "blanket certificate," covering all purchases of gas or electricity made under it, and shall be effective for a period of three years from the date of issuance, unless a written revocation is furnished by the purchaser to the utility prior to the expiration of the three-year period. Failure of the purchaser to issue an exemption certificate may result in a tax assessment, plus statutory interest and penalties, being made against the utility or against the purchaser.

When a customer claims exemption after a utility company has collected tax on its sale of gas or electricity to that customer, the utility company should credit the customer's account in the amount of tax to be refunded, and (i) if the exemption is claimed before the utility company has remitted the tax to the Department, deduct the refund amount from the tax then due and payable to the Department, or (ii) if the exemption is claimed after the utility company has remitted the tax to the Department, deduct the refund amount from a subsequent sales tax payment due and payable to the Department. Under Conn. Gen. Stat. Section 12-425(2), tax may be refunded if the claim is made within three years from the last day of the month succeeding the period for which the tax was paid.


EXEMPTION FOR ELECTRICITY UNDER CONN. GEN. STAT. Section 12-412(3)(D): In addition to the exemption under subdivision (A) of Conn. Gen. Stat. Section 12-412(3) for gas and electricity purchased for the uses specified in such subdivision, subdivision (D) of the statute provides for an exemption for the first $150 charged each month for electricity not exempted in full under subdivision (A). The exemption under Conn. Gen. Stat. 12-412(3)(D) applies to all purchases of electricity not exempted under subdivision (A), regardless of the purposes for which such electricity is purchased, and does not require any certificate to be presented by the customer to the electric utility.


EFFECT ON OTHER DOCUMENTS: The Exemption Certificate for Purchases of Gas and Electricity, which in the past has been furnished by utility companies to enable their customers to claim exemption under Conn. Gen. Stat. Section 12-412(3) (A), should be replaced by a CERT-115 when each customer is next due to renew its exemption. Ruling Nos. 89-18, 89-28, 89-43, 89-63, 89-69, 89-72, 89-73, 89-75, 89-76, 89-77, 89-79, 89-83, 89-85, 89-87, 89-89, 89-90, 89-107, 89-118, 89-120, 89-121, 89-147, 89-153, 89-168, 89-199, 89-200, 89-201, 89-202, 89-241 and 90-1 are hereby superseded and may no longer be relied upon for sales occurring on or after the date of issuance of this Policy Statement. Ruling Nos. 89-235, 89-238 and 90-51 are superseded in part and may not be relied upon for sales of gas or electricity on or after the issuance of this Policy Statement.


EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current Department policy or practice affecting the liability of taxpayers. Unlike a Letter Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions.


PLEASE NOTE THE FOLLOWING NEW INFORMATION ABOUT DRS.

FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.

Electronic Delivery Options: You can also obtain tax forms and publications 24-hours a day from our Web home page at http://www.ct.gov/drs. Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.


PS 94(3)
Sales and use taxes
Issued: 4/13/94