A apportionment method has been approved for the Michigan industrial processing sales and use tax exemption taken by:
- electricity providers; and
- natural gas providers.
The Department of Treasury has issued guidance explaining the method.
Apportionment for Electricity Systems
The industrial processing exemption requires apportionment because both exempt and non-exempt activities occur when electricity is delivered. The electricity transmission system may be apportioned as 60% exempt.
Assets within an electrical distribution system may be apportioned as follows:
- stations and substations (90% exempt);
- transformers and related components (90% exempt);
- wires, cabling, and related equipment (25% exempt);
- poles and pole top equipment (25% exempt);
- distribution tools and supplies (50% exempt);
- supervision, quality control, and personal safety equipment (50% exempt); and
- customer meters (25% exempt).
Apportionment for Natural Gas Systems
For natural gas providers, industrial processing equipment within interstate systems may be apportioned 100% exempt. Natural gas is not capable of distribution until after odorization, a process that occurs when it passes into the intrastate system. The intrastate distribution system may be apportioned as 50% exempt. While distribution within a utility system is a non-exempt activity, regulation of pressure levels within the intrastate system is an exempt industrial processing activity.
Other Apportionment Methods
A taxpayer may request to apportion the industrial processing exemption by another method. However, the taxpayer must provide documentation showing that its calculation of exempt use is reasonable.
Revenue Administrative Bulletin 2018-4, Michigan Department of Treasury, February 28, 2018, ¶402-270
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