June 22, 2007
FOR IMMEDIATE RELEASE
Arkansas Emergency Rule 2007-5 Reduces Sales Tax Rate for Natural Gas or Electricity.
Beginning July 1, 2007, sales of electricity and natural gas to a manufacturer for direct use in
the manufacturing process will be taxed at a reduced rate of four and one-half percent (4.5%)
through June 30, 2008 (Act 185 of 2007). Beginning July 1, 2008, the state tax rate will be
four percent (4%). Local tax rates will remain as levied by the local governments and are
not subject to any reductions.
Pursuant to Emergency Rule 2007-5,
a manufacturer [North American Industry Classification
System (NAICS) Codes 31–33] must register with the Arkansas Department of Finance
(“Department”) using Form ET185A and provide the manufacturing use of each electricity or
natural gas meter. The Department will issue a certificate (Form ET185RR) to the
manufacturer with the approved percentages that qualify the meter for the reduced
rate.
The manufacturer must provide the following information:
- A listing of meters that are solely used in the manufacturing process.
- A listing of “mixed-use meters” where only a portion of the electricity or
natural gas is subject to the reduced rate. The Department requires that the
manufacturer use a reasonable formula to apportion the percentage of utilities
that are eligible for the reduced rate and the percentage that is not eligible.
A narrative explaining the methodology used to determine the manufacturing
percentage must be included with the application. This formula need not be
approved by the Department; however, the documentation and methodology, such
as a utility usage study, used to substantiate the reduced rate are subject to
audit and assessment of any unpaid sales tax that results from inaccurate
calculations.
Manufacturers holding direct-pay permits may choose to remit tax directly on purchases
of electricity and natural gas, calculating the appropriate tax as determined by the meter
certification.
Manufacturers should also determine if the seller of the electricity or natural gas is
capable of apportioning the utility bill for mixed-use meters. If not, the manufacturer
can obtain a direct-pay permit or pay the full sales tax rate of six percent (6%) on all
meters and file a request for refund to the Department for the overpayment.
Recertification of the reduced rates is required every 36 months or whenever there is a
substantial change in the manufacturer’s operations that would affect the energy
consumption for any of the meters “resulting in greater than a twenty-percent (20%)
change in the percentage of total energy usage that results from additions or replacement
of machinery or equipment, taking machinery or equipment out of service, or changes in
business processes altering the usage percentages.”
If you have any questions regarding the above information, please contact Ms. Julie Cahoon,
Senior Manager of the Ryan & Company Austin office, at 512.476.0022.
Ms. Cahoon can also be reached via e-mail.
<< Back to Tax Developments