When a utility separately bills customers for the city gross receipts tax, does that add-on charge itself get taxed again?

Plain-English summary

This letter addresses two separate Texas utility taxes and how they interact. Tax Code § 151.317 (recodified during the 76th Legislative Session) is the sales and use tax exemption for certain uses of natural gas and electricity — electricity or gas used by a business providing a personal or professional service is still taxable, and local sales/use taxes still apply where the meter sits within a local taxing jurisdiction.

Separately, Tax Code § 182.022 imposes a gross receipts tax on an electric utility's receipts for using city property (i.e., a franchise-style tax on the utility itself for operating its infrastructure on city rights-of-way). The letter names TXU Electric as the utility whose receipts are subject to this tax, but the underlying rule applies to electric utilities generally: this tax is levied on the utility, not the customer.

The key holding: if a utility chooses to separately bill its customers a line item representing this gross receipts tax (passing the cost through), that pass-through charge itself becomes part of the utility's gross receipts subject to the same § 182.022 tax — it doesn't escape taxation just because it's labeled as a tax reimbursement rather than an electricity charge. The letter's worked example: a $100.00 electricity charge billed together with a $19.97 gross-receipts-tax line item means the utility owes the 1.997% gross receipts tax on the full $119.97 total, not just on the original $100.00 electricity charge — the tax effectively compounds on itself once it's passed through as a separate billed item.

What this means for you

Electric utilities passing through the gross receipts tax to customers

If you separately bill customers for the § 182.022 gross receipts tax as a distinct line item, remember that line item itself becomes part of your gross receipts for computing the tax — you can't treat the pass-through charge as tax-free just because it represents a tax reimbursement. Calculate the tax on your total billed amount, not just the underlying electricity charge.

Business customers of electric utilities

Understand that the gross receipts tax line item on your utility bill isn't a fixed pass-through of the utility's actual tax liability — because the utility owes tax on that line item too, the percentage shown may reflect a compounded calculation rather than a simple 1.997% of your electricity charge.

Accountants and tax professionals

Keep the two statutes conceptually separate: § 151.317 governs sales/use tax exemptions on the customer's purchase of gas/electricity itself, while § 182.022 is a distinct gross receipts tax on the utility's own revenue from using city property. This letter's holding is specific to § 182.022's self-referential base — a separately billed tax pass-through inflates the very base it's calculated from.

Common questions

Q: Does a utility owe gross receipts tax on the tax it separately bills to customers?
A: Yes. If a utility bills a customer separately for the § 182.022 gross receipts tax, that charge becomes part of the utility's own gross receipts and is itself subject to the tax.

Q: Are all uses of electricity and natural gas exempt from sales tax under § 151.317?
A: No — the letter clarifies that electricity or gas used by a business providing a personal or professional service remains taxable, and local sales/use taxes still apply based on meter location.

Q: How is the gross receipts tax actually calculated when passed through to customers?
A: Per the letter's example, if a utility bills $100 for electricity and separately bills $19.97 as the gross receipts tax pass-through, the utility owes the 1.997% tax on the combined $119.97, not just the original $100.

Q: Can any utility rely on this letter for its own billing practice?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the party it addresses (34 Tex. Admin. Code Rules 3.1, 3.10). Confirm your own billing structure with a tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.317 (natural gas and electricity exemptions from sales and use tax)
• Tex. Tax Code § 182.022 (gross receipts tax on electric utilities using city property)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200102037L

Original ruling text

February 8, 2001

Subject: Texas Utilities Tax

Dear **:

Thank you for your recent email concerning the imposition of taxes on
electricity under Tax Code Sections151.317 and 182.022.

Texas Tax Code Section 151.317 was recodified during the 76th Legislative
Session to exempt specific uses of natural gas and electricity from sales and
use tax. The electricity or natural gas used by businesses that provide either
a personal or professional service is taxable. Local sales and use taxes are
also due on electricity and natural gas delivered through meters located inside
local taxing jurisdictions.

The gross receipt tax imposed under Texas Tax Code Section 182.022 is imposed
on TXU Electric's receipts for using city property. This tax is levied on the
utilities. If a utility bills a customer separately for gross receipts tax,
the charge is part of the utility's gross receipts subject to the tax imposed
under Tax Code Chapter 182. If a utility bills a customer for $100.00 for
electricity and $19.97 for gross receipts tax, the utility owes the 1.997
percent gross receipts tax on $119.97.

You may view or down load the sales tax law by clicking on the following URL
and then click on the following:

1. Texas Taxes
2. Tax Code under Texas Laws and Rules
3. Tax Code
4. Scroll down to referenced statutory cite

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825. My
email address is .

Sincerely,

Eddie C. Washington
Tax Policy Division