The rules for determining which items or activities are exempt from sales and use taxes for industrial processing are very complex. It is incumbent on those claiming exemption to develop and utilize acceptable methodology and statistics to support the allocations between exempt and non-exempt purchases. This includes sales and use taxes on energy consumed. We have found that developing our sophisticated models for making the allocations generally increases the basis for higher exemption than what the State auditors compute.
Many other states have similar statutes for such exemption. We have conducted several engineering studies and created models to compute the required allocations.