When a company is planning on expanding its current operations, it should take a look at its utilities. Not just in the cost for the heat, lights and cooling system, but in the tax bill. Some states offer tax savings for industrial users of power.

Take Wisconsin, for example. A nonrefundable credit is taken for state, county, and stadium sales and use taxes paid on fuel and electricity purchased for use in manufacturing tangible personal property in Wisconsin.

Manufacturing is defined as "the production by machinery of a new article with a different form, use, and name from existing materials by a process popularly regarded as manufacturing; it includes the crushing, washing, grading, and blending of sand, rock, gravel and other minerals and the dressing, concentration, and beneficiation of ore." In other words, you've got to make something.

Fuel and electricity

consumed in manufacturing means only fuel and electricity used to operate machines and equipment used directly in the step-by-step manufacturing process. Fuel used in plant heating, cooling, air conditioning, and other activities are not considered consumed in manufacturing.

However, fuel and electricity used directly in manufacturing steam that is used by the manufacturer in further manufacturing or in heating a facility, or both, are deemed "consumed in manufacturing." The credit also includes use taxes paid directly by the corporation's suppliers and passed on to the corporation, whether separately stated on the invoice or included in the total price.

In Oklahoma, manufacturing establishments are allowed a credit equal to the proportioned amount of natural gas used or consumed in Oklahoma in the operation. The credit is allowed at a rate of three mills per thousand cubic feet of gas used or consumed during each taxable year.

However, the first 25 million cubic feet of gas consumed or used to generate electricity are not eligible for the credit. For purposes of the manufacturer's gas credit, a "manufacturing establishment" means a plant or establishment which engages in the business of working raw materials into goods suitable for use or which gives new shapes, new qualities, or new combinations to matter which has already gone through some artificial process.

Other states offer utility benefits, which are sometimes based on whether the facility is located within an enterprise zone. Many states are also willing to negotiate utility rate reductions when they are offering incentives to entice a company to move their operations to their jurisdiction.

Great thought should be exercised when doing an expansion, as there can be some large potential tax savings if proper planning is done.

Warren Lubliner is senior tax manager for Mintax, a consulting firm specializing in business incentives