Reduce Utility Costs with a Predominant Use Study
Recover Past Payments and Avoid Future Taxes on Qualifying Utility Usage
1. What is a Predominant Use Study?
Utilities like electricity and natural gas are exempt from sales and use tax if they are used predominantly for manufacturing or related activities. A Predominant Use Study — also called a utility study or utility sales tax exemption study — determines whether your utility usage qualifies for exemption.
2. How does a Predominant Use Study Work?
Predominant Use Studies are formal engineering-based analyses that evaluate how utilities are consumed across your facility. In many states, if 51% of the energy is used for an exempt purpose, then 100% of the utility usage is exempt from sales tax.
3. What are the Benefits of a Predominant Use Study?
- Retroactive Recovery: May obtain cash refund of past 3-4 years of utility tax
- For the Future: Utility bill savings moving forward
4. Are Predominant Use Studies a federal initiative?
No. Predominant Use Studies are state-specific, and eligibility criteria, application process, and claims procedure will vary by state. Some states have no tax on utilities at all, and as such a Predominant Use Study is unnecessary for taxpayers in those states.
Could You Qualify?
You’re likely a strong candidate if:
- You engage in a production activity of some type: manufacturing, fabrication, food and beverage processing, pharmaceuticals, etc.
- Your facility uses electricity, natural gas, or steam directly in production or processing
- Your facility runs equipment-heavy or multi-shift operations
- You operate in a state that taxes utilities
Keep in mind that eligibility criteria varies by state.
Predominant Use Case Study
A 150,000 sq. ft. Manufacturing Facility in Texas
$1.2M
Annual electricity spend
$800K
Annual natural gas spend
8.25%
Utility tax rate
Before Predominant Use Study
$165,000
Paid annually in utility sales tax
After Predominant Use Study
$660,000
Refund (4-year lookback)
$165,000
Annual savings moving forward
This is what a properly executed utility sales tax exemption study can deliver: immediate cash recovery plus permanent cost reduction.
The Capstan Way
Predominant Use Studies are highly technical initatives with state-specific nuance.
The right approach – and the right partner – matters.
Engineering-Driven Approach
We perform detailed, defensible studies that meet state requirements and stand up to scrutiny.
End-to-End Support
From data collection to exemption certificates and refund claims, we handle the heavy lifting.
Integrated Strategy
Already considering a Cost Segregation or Energy Study? A Predominant Use Study is a natural add-on, increasing ROI from the same engagement.
Save Retroactively and Moving Forward
If your facility qualifies, this isn’t a marginal benefit — it’s a meaningful cost recovery opportunity combined with long-term future savings potential.
A complimentary utility review can determine if a Predominant Use Study makes sense for your facility.
Predominant Use Study FAQs
Which states offer Utility Tax Exemptions?
Over 30 states provide utility exemptions for qualifying activities, though rules and processes vary widely. Eligibility is evaluated based on your specific location and type of operation.
What Utilities are Included in a Predominant Use Study?
Most studies focus on electricity and natural gas, though some states also allow exemptions for water or other utilities.
What Industries May Benefit from a Utility Study?
While eligibilty will vary by state, taxpayers in the following industries often qualify for a utility study:
- Manufacturing & fabrication
- Food & beverage processing
- Life sciences & pharmaceuticals
- Agriculture & processing operations
- Data centers and energy-intensive facilities
Taxpayers with high utility spend, heavy equipment, or continuous operations make expecially good candidates.
What is the “50% rule”?
In many states, if more than 50% — sometimes 51% — of a utility meter’s energy is used for qualifying activities, the entire meter may be exempt from sales and use tax.
Can I get a refund for past utility taxes?
Yes. In addition to an exemption from future utility tax payments, most states offer refunds for 36 – 48 months of prior utility taxes, depending on state statute of limitations.
What does a Predominant Use Study/Utility Tax Exemption Study involve?
The four-step process is generally performed by a Professional or degreed engineer.
- Feasibility assessment (state-specific)
- Site visit to catalog energy loads and usage
- Energy calculations and segregation of exempt energy consumption from non-exemption energy consumption
- Furnishment of Documentation
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- Exemption certificate to save on utility bills moving forward
- Refund claim to file with utility provider or state to recoup tax already paid
Will this disrupt operations?
Not at all. Utility studies are designed to be non-invasive. Engineers collect data, document equipment, and analyze usage without interrupting production or facility operations.
When should a Predominant Use Study be performed?
If you’ve never had a Predominant Use Study performed you should explore your eligibility. The sooner you begin, the sooner you can recoup past spending and optimize utility tax moving forward.
If you’ve already had a Study done, your state may mandate an updated Study if any of the following “significant changes” arise in your operation:
- Facility expansion
- Merger/acquisition
- New equipment or processes
- Change in ownership or utility provider
Some states also require a new study periodically, regardless of changes.
