PS 94(3.2)

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

This publication has been cited in Rulings 96-6, 99-3, and PS 98(8)

PURPOSE: This Policy Statement revises Policy Statement 94(3.1) to provide additional clarification regarding purchases of gas, electricity or heating fuel for use in agricultural production.

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. §§12-412(3),12-412h and 12-412(16).

USES QUALIFYING FOR EXEMPTION UNDER CONN. GEN. STAT. §§12-412(3)(A) AND 12-412(16): Gas, electricity or heating fuel may be purchased under the exemptions provided in Conn. Gen. Stat. §§12-412(3)(A) and 12-412(16) when purchased for any of the following uses:

• in any residential dwelling;
• 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, electricity or heating fuel consumed at such building, location or premises is used for the purpose of such production;
• 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, electricity or heating fuel consumed at such building, location or premises is used for the purpose of such fabrication; or
• 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, electricity or heating fuel consumed at such building, location or premises is used for the purpose of such manufacturing.

BUILDINGS, LOCATIONS OR PREMISES WITH MIXED USES: Gas, electricity or heating fuel 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, electricity or heating fuel 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 nonresidential portion, only the gas, electricity or heating fuel used in the residential portion may be purchased exempt.

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 either (i) that 75% or more of the gas, electricity or heating fuel measured by such meter is used in a location at which agricultural production, fabrication of a finished product to be sold, or production in an industrial manufacturing plant takes place; or (ii) that 75% or more of the gas, electricity or heating fuel measured by such meter is used directly in the agricultural production, fabrication or manufacturing production process itself.

Example: Eighty percent of the area of a building served by one electricity meter is used in the fabrication of a finished product to be sold and 20% of the area of the building is used for administrative purposes. The electricity used in such building may be purchased exempt under Conn. Gen. Stat. §12-412(3)(A). If, however, there is one (or more) meter(s) serving only the qualifying portion of the building and separate meter(s) for the non-exempt portion, only the electricity used in the qualifying portion may be purchased exempt.

Example: Seventy percent of the area of a building served by one electricity meter is used in the fabrication of a finished product to be sold and 30% of the area of the building is used for administrative purposes. However, 80% of the electricity purchased is used directly in the fabrication process itself. Although the purchases of electricity would not qualify for exemption under the "production area" test because less than 75% of the area of the building is used for fabrication, such purchases would be exempt under the "direct use" test because more than 75% of the electricity is used in the fabrication process.

Locations used for pre- or post-production activities, such as storage, or for research and development activities, will be considered part of the "production area" as long as such locations are in the same building, location or premises in which the agricultural production, fabrication or manufacturing activities take place.

DEFINITIONS: Because the exemptions for gas and electricity under Conn. Gen. Stat. §12-412(3)(A) and heating fuel under Conn. Gen. Stat. §12-412(16) do not affect the exemptions for manufacturing machinery, equipment, materials, tools or fuel under subsections (18) and (34) of Conn. Gen. Stat. §12-412 or Conn. Gen. Stat. §12-412i, the following definitions are provided solely for purposes of interpreting the exemptions under Conn. Gen. Stat. §§12-412(3)(A) and 12-412(16).

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." A newly constructed building is not considered to be a "residential dwelling" until it is actually used as a dwelling; therefore, for example, fuel purchased by a builder to heat a house before its residents move in is not exempt.

Electricity used for exterior lighting, or gas, electricity or heating fuel 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. 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.

Because the exemptions for gas, electricity and heating fuel under Conn. Gen. Stat. §12-412(3) and (16) are separate exemptions from the exemption under Conn. Gen. Stat. §12-412(63) for tangible personal property purchased for use in agricultural production, presentation of a Farmer Tax Exemption Permit issued under Conn. Gen. Stat. §12-412(63) is not a prerequisite for claiming exemption for purchases of gas, electricity or heating fuel used directly in agricultural production.

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.

Examples of qualifying uses 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.

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, if:

(A) 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) 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) 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) 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) 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.

CLAIMING EXEMPTION UNDER CONN. GEN. STAT. §12-412(3)(A) OR §12-412(16): In order to claim exemption under Conn. Gen. Stat. §12-412(3)(A) or §12-412(16), a purchaser of gas, electricity or heating fuel must furnish a completed CERT-115, Certificate For Gas, Electricity and Heating Fuel 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, to the utility company. Such certificate will certify that the gas, electricity, or heating fuel will be used as provided in Conn. Gen. Stat. §12-412(3)(A) or §12-412(16) and this Policy Statement in any residential dwelling or in a location at which agricultural production, the fabrication of a finished product to be sold, or production in an industrial manufacturing plant takes place. A utility company accepting a properly completed certificate in good faith, as described on the certificate, will be relieved of liability for collecting tax on the sales covered by the certificate. The CERT-115 will be considered to be a "blanket certificate," covering all purchases of gas, electricity or heating fuel made under it, and will 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, electricity or heating fuel 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. §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. §12-412(3)(D): In addition to the exemption under subdivision (A) of Conn. Gen. Stat. §12-412(3) for electricity purchased for the uses specified in such subdivision, subdivision (D) of the statute provides for an exemption for the first $150 charged per metered location 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. If a customer has more than one meter or account with an electric utility company, the $150 exemption applies to each metered location of that customer, irrespective of the number of accounts or meters of the customer.

For purposes of Conn. Gen. Stat. §12-412(3)(D), a location is a site at which a business is carried on. Thus, for example, an electricity customer can have several metered locations if it has more than one store or warehouse in Connecticut.

EXAMPLE 1: A commercial building contains five stores, each of which is served by its own electricity meter. The lights in the parking lot of the building also are served by a separate meter. Because each of the five stores and the parking lot is a metered location, the $150 exemption is available to each of the five tenants and the building owner.

EXAMPLE 2: In contrast to Example 1, a large department store has a number of meters located in its various departments. Because the store is a single metered location, the $150 exemption is available only once.

EXEMPTION FOR FUEL UNDER CONN. GEN. STAT. §12-412(18): In addition to the exemptions available for gas or heating fuel under Conn. Gen. Stat. §12-412(3) or §12-412(16), Conn. Gen. Stat. §12-412(18) provides an exemption for fuel or any substitute therefore which is used directly in an industrial plant in the actual fabrication of a finished product to be sold. Thus, in cases where a fabricator or manufacturer does not qualify to purchase all of its gas or heating fuel exempt under Conn. Gen. Stat. §12-412(3) or §12-412(16), such purchaser may still be able to purchase the gas or heating fuel used directly in the fabrication of its products if all of the requirements contained in Conn. Gen. Stat. §12-412(18) and described in Conn. Agencies Regs. §12-412(18)-1 have been met.

EFFECT ON OTHER DOCUMENTS: PS 94(3.1) is hereby modified and superseded and may no longer be relied upon for sales occurring on or after the date of 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. 

PS 94(3.2)

Sales and use taxes

Issued: 7/5/96