For the past 6 years, one of the major specialties of my company is writing software applications dealing with corporate taxation. This has usually been internal, custom apps for a corporate tax department, but recently we have entered a partnership with a local accounting firm to do some web service-based applications.
The first of these applications is now available for beta testing, so now I’m reaching out to all Texas-based software development companies to help with testing out this application, as well as potentially save money on your taxes. You may qualify!
The tax savings is simple – Texas legislature has been nice to manufacturers here, making them exempt on Sales or Use taxes for equipment they purchase that is used directly for manufacturing (that car you bought for your best salesperson? Not exempt, it’s marketing. That machine press you bought to make widgets – exempt). This exemption also extends to the electricity or natural gas you use for manufacturing. Large companies have taken advantage of this exemption for years, but smaller manufacturing often has not, either because they’re not aware or because of the hurdles and expense they have to go through to be declared exempt. And, little known to many is that software development firms that make applications are also considered manufacturers.
We have written an application that reduces this expense and lowers the hurdles. The application allows you to start your own Predominant Use Study, an engineer-certified study that is required for you to get your exemption. The study is simply a database of all the electrical equipment (NG requires a separate study) in your facility, separating equipment used for manufacturing vs. other uses (administrative, marketing, etc.). If more than 50% of your electrical consumption is manufacturing-related, you will be exempt for ALL your sales tax on utilities, and you may also be entitled a refund of 4 years back taxes. That could be significant savings.
The surprise is that software development firms are also considered manufacturers, if they develop pre-packaged software product. Consulting and services software firms don’t qualify. I’m not a tax accountant, so I can’t describe all the situations where you may be a manufacturer or not, but in most cases when you develop software that is for sale (or licensed for sale), then you likely qualify.
But, do you directly pay electricity costs? Many of us smaller firms do not – electricity may be part of our rent, but if you rent your own building, or otherwise pay your own utilities, this may be of interest to you. Since there are still costs involved with certifying a study (an certified engineer in Texas must still sign off on it), I figured the tax savings are worth the costs if you have, say, 10 developers or so on staff and you pay your own utilities – smaller firms with a $500/month utility bill likely won’t see any savings. However, with the use of our application the price point has dropped considerably (previously, Predominant Use Studies would cost on the order of $5 -$25 thousand dollars – that’s why only the big manufacturers took advantage of it), so more manufacturers can take advantage of this exemption.
If you are a manufacturer, including software product companies, and would like to help us test this application, please contact me via email, comment on this page, or DM via Twitter, and I can point you to the URL to set-up your own account and begin your electrical study. Beta testing open now!
