Are a utility's connection, reconnection, damage-claim, name-change, and similar service charges taxable as part of the sales price of electricity or gas, and when did utilities have to start collecting tax on them?

Plain-English summary

This document is unusual: it's an internal Tax Policy Division memo to a Comptroller field auditor, not a letter answering a taxpayer's own question. It resolves an audit question about how an earlier letter (STAR document 200107387L, described as "Bryant Lomax's 07/26/01 Letter") applies to a specific utility under audit -- the versions of that earlier letter sent to different recipients had one paragraph in a different location, and the auditor wanted clarity.

The substance: an electricity- and gas-distributing utility bills customers for various service charges -- the subject line identifies these as things like connection and reconnection charges, damage-claim charges, and name-change charges. The memo answers three questions:

1. Are these service charges taxable? Yes, as part of the taxable sales price of the electricity or gas, when the customer's use of the utility itself is taxable.
2. Are "contributions in aid to construction" (CIAC) charges taxable? Yes, on the same logic, when the customer uses the resulting infrastructure to purchase electricity that is itself taxably used.
3. Is a separate category of charges (described as "not taxable even when the electricity is taxable") taxable? No -- that category was never taxable, before or after the relevant date.

Transition relief: utilities weren't required to start collecting tax on these charges until January 1, 2002 -- pushed back from an original September 1, 2001 date because the Comptroller's office was late responding to the industry's inquiry, and the extra time let utilities reprogram their billing systems. Utilities that had already been collecting tax on these charges before that date don't owe refunds, since that tax was properly collected and remitted.

What this means for you

Electric and gas utilities

If you bill customers separately for connection, reconnection, damage-claim, name-change, or similar service charges tied to a taxable electricity or gas account, treat those charges as part of the taxable sales price -- this memo reflects the Comptroller's position that the transition deadline for that collection obligation was January 1, 2002, so it is now settled, historical guidance rather than a live compliance deadline.

Utility customers who paid tax on these charges before 2002

This memo confirms the Comptroller's position that tax collected on these charges before the relevant transition date was properly due -- no refund is owed on that basis.

Accountants and auditors researching this period

Because this is an internal memo (not a taxpayer-facing letter), it's useful mainly as evidence of the Comptroller's own contemporaneous interpretation during a 2001-2002 enforcement transition, and it cross-references a separate letter (STAR 200107387L) for the underlying original guidance -- pull that document too if you need the full list of specific charge types addressed.

Common questions

Q: When did utilities have to start collecting tax on these service charges?
A: January 1, 2002 -- an extension from an original September 1, 2001 effective date, granted to give utilities time to reprogram billing systems.

Q: If a utility already collected tax on these charges before the deadline, does it owe a refund?
A: No. The memo states that tax properly collected and remitted before the transition date is not refundable.

Q: Are CIAC (contributions in aid to construction) charges treated the same way?
A: Yes -- taxable on the same logic and subject to the same transition date, when the customer's use of the resulting utility infrastructure is itself taxable.

Q: Does this memo bind the Comptroller as to my utility?
A: No -- this is an internal memo resolving one audit question, not a Private Letter Ruling or General Information Letter, and it references facts specific to the audited taxpayer. Confirm current treatment with a tax professional.

Citations and references

No statutes or rules are cited by section number in this memo; it applies the Comptroller's general sales-tax-on-utilities framework and references a separate STAR letter (200107387L) for the underlying original guidance.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200110570L

Original ruling text

DATE: October 29, 2001

TO: Joel Webb, **** Audit

FROM: Eddie Washington, Tax Policy Division

SUBJECT: STAR Document 200107387L (Bryant Lomax's 07/26/01 Letter)

SITUATION:

Taxpayer is a utility in the business of generating and distributing
electricity. As such, it bills its customers for various services including
those listed in Bryant Lomax's letter dated 7/26/01.

FACTS:

Bryant Lomax's letter per 200107387L differs from the one sent to the taxpayer
under audit. The paragraph beginning with, "If your company has been
collecting..." is located differently in one from the other.

Questions:

1) Are charges for services listed as part of the sales price of electricity
taxable? If so, were utilities responsible for collecting and remitting tax on
them prior to September 1, 2001?

Answer: Yes, the charges are taxable as part of the sales price of the
utilities if the purchaser's use of the utilities is taxable. The utilities
are not liable for the sales tax on the charges if they did not collect and
remit sales tax on them before September 1, 2001. The utilities that collected
(and their customers that paid) sales tax on these charges before September 1,
2001, are not entitled to a refund, because the sales taxes were properly paid
and remitted. As a matter of fact, the September 1, 2001 date was changed to
January 1, 2002, to allow the utilities time to program their systems to
properly add sales tax to the charges.

2) Are contributions in aid to construction (CIAC) charges taxable if the
customer uses the infrastructure to purchase electricity used in a taxable
manner? If so, were utilities responsible for collecting and remitting tax on
them prior to September 1, 2001?

Answer: Yes, the charges are taxable if the purchaser's use of the utilities is
taxable. The utilities are not liable for the sales tax on the CIAC charges if
the utilities did not collect and remit sales tax on them before September 1,
2001. The utilities that collected (and their customers that paid) sales tax
on these CIAC charges before September 1, 2001, are not entitled to a refund,
because the sales taxes were properly paid and remitted. Like the September 1,
2001 effective date for the charges in Question 1, the effective date for the
CIAC charges was changed to January 1, 2002.

3) Were utilities responsible for collecting and remitting tax on any of the
charges for services listed as, "...not taxable even when the electricity is
taxable" as of September 1, 2001?

Answer: No. These services were not taxable before or after September 1, 2001.

Note: The contents of the letter differ slightly because the some of the
charges made by the electric utilities differ from some of the charges made by
natural gas utilities. The effective date was changed from September 1, 2001,
to January 1, 2002, because of the agency's delay in responding to the
industry's inquiry. The lapse of a full calendar quarter gives the utilities
ample time to program systems to properly collect sales tax.

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