(1)
Use of fuel exemption certificates. The use and acceptance of
fuel exemption certificates must comply with Iowa Code section
423.45(5). For
purposes of this subrule, terms mean the same as defined in Iowa Code section
423.45(5).
(2)
Necessary information. A
fuel exemption certificate, as defined in Iowa Code section
423.45(5), must
be dated and contain the following information, including but not limited to:
a. The seller's name and address;
b. The purchaser's name and
address;
c. The type of fuel
purchased, such as electricity or propane;
d. Description of the purchaser's business,
such as farmer or manufacturer;
e.
A general description of the type of processing in which the fuel is consumer,
such as grain drying, raising livestock, generating electricity, or the
manufacture of tangible personal property;
f. Claimed exemption percentage.
(3)
Additional
documentation. The seller may demand from the purchaser additional
documentation attached to the fuel exemption certificate, which is reasonably
necessary to support the claim of exemption for fuel consumed in processing;
however, additional documentation is not required under the circumstances
listed in Iowa Code section
423.45(5)
"f." In the absence of separate metering, documentation
reasonably necessary to support a claim for exemption must consist of either an
electrical consultant's survey or of a document prepared by the purchaser in
accordance with the requirements of subrule 209.2(5).
(4)
Exemption determination.
When the amount of the exemption is modified pursuant to Iowa Code section
423.45(5)
"d," a purchaser must notify the seller of any change in
percentage.
(5)
Determining
percentage of electricity used in processing. When electricity is
purchased for consumption both for processing and for taxable uses, and the use
of the electricity is recorded on a single meter, the purchaser must allocate
the use of the electricity according to taxable and nontaxable consumption if
an exemption for nontaxable use is to be claimed. The calculations that support
the allocation, if properly performed, can serve as the documentation
reasonably necessary to support a claim of exemption for fuel used in
processing. The following method with its alternative table may be used to
determine the percentage of electricity used on the farm or in a factory that
is exempt by virtue of its being used in processing. Paragraph
209.2(5)
"e" provides information on alternative methods of
computing exempt use, including exempt use by a new business. First, the base
period for the calculations must be selected.
a. Ordinarily, the 12 months previous to the
date upon which the exemption is calculated are used as the base period for
determining the percentage of electricity exempt as used in processing. The
immediately previous 12-month period is used because it is a span of time that
is (1) recent enough to accurately reflect future electric usage; (2) extended
enough to take into account variations in electrical usage resulting from
changes in temperature occurring with the seasons; and (3) is not so long as to
require unduly burdensome calculations. However, individual circumstances can
dictate that a shorter or longer period than 12 months will be used or that
some 12-month period other than that immediately previous to the date upon
which the exemption certificate is filed, will be used.
EXAMPLE 1: Farmer A files a fuel exemption certificate for
the period beginning January 1, 2022. The year 2021 had a very mild winter, a
relatively cool summer, and a very dry autumn. Farmer A uses no electricity for
grain drying and substantially less electricity than usual for heating and
cooling his livestock buildings. Farmer A must use a 12-month period that is
more representative of his usual exempt electrical consumption than that of
January through December 2021.
EXAMPLE 2: Company A manufactures its product in a factory
that has no windows and is heavily insulated. The factory always runs 40 hours
per week, 52 weeks per year. Because of these and other circumstances, Company
A's electrical usage does not vary significantly from month to month, and it is
easy enough to document this. Company A can calculate its percentage of exempt
use of electricity based on a one-month, rather than a 12-month, period.
EXAMPLE 3: Company B manufactures widgets. The "economic
cycle" for widget production is, on average, 36 months long. During this
economic cycle, there are times when, for months at a time, the factory will
operate three shifts. At other times, for weeks at a time, the entire factory
will be shut down and its personnel laid off. The only accurate way to
determine the exempt percentage of electricity used is to calculate electrical
use over the entire economic cycle. Therefore, 36 months, rather than 12
months, would be the base period.
b. Calculating kilowatts used per hour by
various electrical devices. The first step in computing the percentage of
exemption is to determine the number of kilowatts used per hour for each device
in the farm or factory. If kilowatts consumed per hour of a device's use is not
listed on the device or otherwise readily obtainable, formulas can be used to
determine this information.
(1) Lights. For
incandescent bulbs, add rated wattages and divide by 1,000. For fluorescent
lights, add rated wattages plus an additional 20 percent of rated wattages,
then divide by 1,000.
Incandescent Lights:
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Fluorescent and Other High Intensity Lights:
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to view image
(2)
Devices other than lights. For these devices, use the wattage rating given by
the manufacturer and divide by 1,000 to obtain approximate kilowatts used per
hour of operation.
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to view image
If an appliance does not list a watt rating, tables provided
by Iowa State University Cooperative Extension Service can be used, especially
by farmers who are attempting to compute their exempt percentage of electricity
used. Persons using a table are reminded to convert watts to kilowatts before
proceeding to further calculations.
c. The average number of kilowatts consumed
per hour of operation for any one device must next be multiplied by the total
number of hours that the device is operated during the base period. A person
may use intermediate calculations.
(1) EXAMPLE
1: Assume that a machine used in processing consumes 20 kilowatts per hour of
operation. The machine is operated, during a 12-month base period, 40 hours per
week during 50 weeks. The machine is not placed in operation when the factory
is closed for two weeks' vacation. Exempt use is calculated as follows:
Click here
to view image
In this example, 20 x 40 x 50 = 40,000 exempt kilowatt
hours.
(2) EXAMPLE 2: Assume
that a grain dryer uses 30 kilowatts per hour of operation. During a 12-month
base period, the grain dryer is used in processing 200 hours per month, for 3
months. The calculation for total number of kilowatt hours of exempt use for
the 12-month period is as follows:
Click here
to view image
In this example, 30 x 200 x 3 = 18,000 exempt kilowatt
hours.
(3) EXAMPLE 3: The
following is a very simplified example of a worksheet for determining the
percentage of electricity qualifying for exemption when a single meter records
both exempt and taxable use.
d.
Example worksheet. The
following is a simplified example of a worksheet for determining the percentage
of electricity qualifying for exemption when a single meter records both exempt
and taxable use.
|
Kilowatts Per Hour of Operation
|
Average Hours of Operation Per 12-Month Base
Period
|
Average Kilowatt Hours Per 12-Month Base
Period
|
Total
|
|
All Exempt Usage
|
|
|
|
|
|
Production Machine #1
|
10
|
1000
|
10000
|
|
|
Production Machine #2
|
10
|
1000
|
10000
|
|
|
Other
|
10
|
1000
|
10000
|
|
|
Total Exempt Usage
|
|
|
|
30000(A)
|
|
All Taxable Usage
|
|
|
|
|
|
Air Conditioners
|
10
|
3000
|
30000
|
|
|
General Lighting
|
10
|
3000
|
30000
|
|
|
Office Equipment
|
10
|
3000
|
30000
|
|
|
Space Heaters
|
10
|
3000
|
30000
|
|
|
Other
|
10
|
3000
|
30000
|
|
|
Total Taxable Usage
|
|
|
|
150000(B)
|
|
Total-All Usages
|
|
|
|
180000(C)
|
|
30000
|
|
A
|
|
|
|
|
|
_______
|
or
|
___
|
=
|
Percentage of Electricity Purchase Qualifying for
Exemption
|
=
|
16.60%
|
|
180000
|
|
C
|
|
|
|
|
The number actually used in the base period can be determined
by reference to billings for the base period. If the number of kilowatt hours
calculated to have been used does not approximate the number actually used in
the base period, the calculations are deficient and should be performed again.
Once the precise percentage of exemption has been calculated, that percentage
must be applied during any period for which a purchaser is requesting
exemption. Any substantial and permanent change in the amount of electricity
consumed or in the proportion of exempt and nonexempt use of electricity is an
occasion for recomputing the exempt percentage and for filing a new exemption
certificate.
e.
Alternative methods. The following are nonexclusive
alternatives to the above method of determining the percentage of electricity,
which is exempt because it is used in processing.
(1) If currently only one meter exists to
measure both exempt and nonexempt use of electricity, the most accurate method
of determining exempt and nonexempt use may be separate metering of these two
uses. This possibility is especially practical if all exempt use results from
the activities of one machine, however large.
(2) If separate metering is impossible or
impractical, it may be useful to employ the services of an energy consultant.
If using an energy consultant's service is impractical, it may be possible to
secure, from the manufacturer of a machine used in processing, the number of
kilowatts that a machine uses per hour of operation. Often, these
manufacturer's studies give a more accurate measure of a machine's use of
electricity than the formulas set out in paragraph 209.2(5)"b"
above. This circumstance is especially true with regard to large electric
motors.
(3) If a business is new,
and no historical data exists for use in calculating exempt and nonexempt
percentages of electricity or other fuel consumed, any person calculating
future exempt use must make the best projections possible. If calculating
future exempt use with no past historical data to serve as a basis for the
calculations, it is suggested that conservative estimates of exempt use be
made. Using these conservative estimates can avoid future liability for sales
tax on the part of the purchaser of the electricity. Possibly, in calculating
exempt use of fuel for a new business, historical data from existing similar
businesses can be used if available from persons not in direct competition with
the person claiming the exemption. The calculation and the exemption
certificate must be updated once data from an accurate 12-month cycle, or other
appropriate cycle, is available.
(6)
Applicability. The
provisions of subrule 209.2(5) explaining the determination of the percentage
exemption for electricity also apply to other types of fuel, such as natural
gas, LP, etc., when used for exempt purposes.
This rule is intended to implement Iowa Code section
423.45.
