10 March, 2026

Calculated Usage vs. Predominant Use

Maximizing Tax Recovery for Manufacturers

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In this article, discover

Discover how to combine incentives, recapture sales taxes paid and optimize savings on utilities, equipment and new facilities.

Understanding Calculated Usage vs. Predominant Use

Predominant Use Studies determine whether the majority of resources, such as utilities, machinery or supplies, are used in exempt activities, such as manufacturing or processing. The predominant use threshold, typically over 50%, is key to qualifying for utility sales tax exemptions and claiming tax refunds.

A calculated usage approach goes further by allocating partial-use percentages to different activities, enabling more precise recovery of sales taxes paid on electricity, natural gas and water. By performing a detailed utility usage study, businesses can document usage by kilowatt hour or unit of production, satisfying the rigorous requirements that many states require.

By leveraging either method, businesses can:

Recapture thousands to millions in sales tax refunds, including utility sales tax exemptions for gas, water, and electricity
Reduce future sales tax liability on equipment, utilities and newly purchased facilities
Unlock cash flow for reinvestment in operations, technology or expansion projects using verified utility bills
Reward operational efficiency: the more resources used in manufacturing or processing, the greater the potential exemption from sales taxes

Using these approaches, companies can strategically recover past sales taxes paid while positioning themselves for ongoing exemptions and long-term utility sales tax savings.

Qualifying Expenses, Activities, and Facilities

Predominant Use Studies and calculated usage analyses identify expenses and activities eligible for exemption and sales tax refunds, including:

Utilities such as electricity, natural gas and water used in manufacturing or processing; properly documented usage enables recovery of utility sales tax exemptions
Machinery and equipment, including newly purchased or expanded facilities
Supplies directly associated with production or agricultural processes
New buildings or QPP-eligible facilities, which may also qualify for Cost Segregation or the 179D tax deduction

Proper documentation supports both:

Look-back recovery of overpaid sales tax from prior years
Future exemptions for ongoing operations
Stacking incentives for maximum tax savings

Eligible facilities

How to Claim Utility Sales Tax Exemptions and Capture Incentives

Claiming exemptions through a Predominant Use Study involves a comprehensive process. This approach ensures businesses recover past overpayments, capture incentives for new facilities and maximize future tax savings on high-impact items.

1. Initial Assessment:

Evaluate eligibility for a study, including recent acquisitions, new buildings, major equipment purchases and energy-efficient upgrades

2. Data Collection:

Gather utility bills, machinery operations and production process data for historical and current periods

3. Analysis:

Calculate the predominant use threshold or allocated calculated usage percentages for each qualifying input, including utilities, equipment, and supplies

4. Documentation and Filing:

Prepare defensible reports to claim tax refunds, establish ongoing exemptions and capture additional incentives like Cost Segregation or the 179D tax deduction

5. Ongoing Compliance:

Implement procedures to maintain exemptions, track utility allocations and minimize future sales tax liability

Strategic Benefits of Combining Incentives

Beyond basic tax recovery, Predominant Use Studies and calculated usage analyses deliver strategic advantages:

Recover overpaid sales tax paid on utilities and equipment, one of the largest often-overlooked savings opportunities
Lower future sales tax liability by establishing ongoing exemptions for electricity, gas, water, machinery and new equipment purchases
Improve cash flow by recovering funds previously tied up in overpaid sales tax, supporting reinvestment in operations, technology or expansion projects
Ensure compliance with thorough documentation for utility studies, satisfying states that require detailed reporting
Align operational efficiency with tax strategy, rewarding businesses that maximize resource use in manufacturing or processing

By documenting utility and machinery usage accurately, companies recover historical sales tax paid and position themselves for long-term, sustainable savings, turning everyday operations into measurable financial advantages.

Partner with Ayming USA to Maximize Your Tax Savings

With 40 years of complex tax consulting experience, Ayming helps manufacturing and production-driven businesses recover overpaid sales taxes and secure ongoing exemptions. Our specialists manage the entire Predominant Use Study process: