Are winter-storm rate-relief-bond charges on a Texas gas utility's bills subject to sales tax and Miscellaneous Gross Receipts Tax, and does the new public-school electricity tax break apply to natural gas too?

Plain-English summary

The Texas Comptroller ruled that charges Texas gas utilities bill customers to repay bonds issued after the deadly February 2021 winter storm (Uri) are exempt from both sales tax and the Miscellaneous Gross Receipts Tax (MGRT) — but a separate, newer tax break for electricity sold to public schools does not extend to natural gas.

Part I — Storm Uri rate-relief bonds. After Winter Storm Uri caused extraordinary natural gas costs, the Legislature (H.B. 1520, 2021) authorized "customer rate relief bonds" to spread out gas utilities' recovery of those costs over time, repaid through a "customer rate relief charge" bundled into the monthly Gas Cost Recovery (GCR) line item on customer bills. A specific Utilities Code exemption (§ 104.375) excludes the bond-issuance proceeds, other bond-related revenue, and the customer rate relief charges themselves from state and local sales tax and from utility gross receipts taxes like the MGRT. Because the GCR line item on a customer bill can bundle both this exempt bond-recovery charge and ordinary taxable gas charges together, the Comptroller confirmed a utility may collect sales tax (and count in its MGRT base) only the taxable portion — but it must keep records proving which part is exempt, or the whole GCR line item becomes taxable in an audit.

Part II — Public school electricity exclusion doesn't cover gas. A different, newer law (H.B. 2263, 2019, effective 2024) excludes electricity sales to public school districts from the MGRT. The taxpayer, a natural gas distributor, asked whether that exclusion also covered its gas sales to school districts. The Comptroller said no — the statute's plain text says "electricity" only, so a gas utility gets no MGRT break on school-district gas sales.

What this means for you

Gas utilities billing storm-recovery or rate-relief bond charges

If you're collecting customer rate relief charges tied to state-authorized recovery bonds (Uri or similar future events), those charges are exempt from sales tax and MGRT under Utilities Code § 104.375 — but you must be able to document, line by line, which part of a combined bill charge is the exempt bond-recovery amount versus ordinary taxable gas charges, or the whole line item risks being taxed in an audit.

Utilities billing combined taxable/nontaxable line items generally

This ruling is a useful template beyond storm bonds: when a regulator-mandated billing structure forces you to combine exempt and taxable charges on one line, you may still collect tax only on the taxable slice — the burden is on you to substantiate the split with contemporaneous records under § 111.0041 and Rule 3.281.

Natural gas distribution companies serving public school districts

Don't assume the 2024 public-school MGRT exclusion applies to your gas sales — it's limited to electricity by the statute's plain language. Only electric utilities get that specific school-district break.

Accountants and tax professionals for regulated utilities

Note this single ruling covers both sales tax and MGRT questions and is cross-indexed by STAR under a separate MGRT accession number (202207013L) for the same text.

Common questions

Q: Are winter-storm rate-relief bond charges on my gas bill taxable?
A: No. Customer rate relief charges tied to state-authorized recovery bonds (like those for Winter Storm Uri) are specifically exempted from sales tax and utility gross receipts taxes under Utilities Code § 104.375.

Q: If my bill combines a taxable gas charge and an exempt bond-recovery charge on one line, do I owe tax on the whole thing?
A: Not necessarily — you can collect tax on just the taxable portion, but you need documentation proving the exempt portion, or the Comptroller may treat the whole line item as taxable in an audit.

Q: Does the public school district MGRT exclusion apply to natural gas sales?
A: No. The exclusion added by H.B. 2263 (effective January 1, 2024) applies only to gross receipts from selling electricity to public school districts — it doesn't cover natural gas sales.

Q: Can I rely on this ruling for my own utility's billing structure?
A: Only if you're the taxpayer it was issued to. It binds the Comptroller solely as to that taxpayer's specific facts and can't be relied on by others, though it's a clear illustration of how the bond-recovery exemption and the school-district exclusion each apply.

Citations and references

Statutes and rules:

• Tex. Util. Code § 104.375 (Tax Exemption — customer rate relief bonds)
• Tex. Util. Code § 104.365 (regulatory asset determination)
• Tex. Tax Code § 182.021(1) (Definitions — utility company)
• Tex. Tax Code § 182.022(a), (d) (Imposition and Rate of Tax — MGRT; public school district electricity exclusion, effective 2024-01-01)
• Tex. Tax Code § 111.0041 (Records; Burden to Produce and Substantiate Claims)
• 34 Tex. Admin. Code § 3.281 (Records Required; Information Required)
• H.B. 1520, 87th Legislature (2021) (customer rate relief bonds for Winter Storm Uri costs)
• H.B. 2263, 86th Legislature (2019) (added § 182.022(d), public school district electricity exclusion)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202207014L

Original ruling text

Note: This document is also indexed as a Miscellaneous Gross Receipts Tax document under STAR 202207013L

Date July 22, 2022

RE: Private Letter Ruling No. PLR20211222111124

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated Dec. 9, 2021 and your supplemental submission on Feb. 3, 2022. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on issues related to the Texas Miscellaneous Gross Receipts Tax (MGRT) and Sales tax.

Relevant Facts Presented

The relevant facts are based on the following documents provided for review by ** (Taxpayer).

Taxpayer’s Request for Private Letter Ruling, dated Dec. 9, 2021; and

Taxpayer’s amended Request for Private Letter Ruling, dated Feb. 3, 2022.

Email from Taxpayer responding to a question from Tax Policy, dated Mar. 23, 2022.

Taxpayer is a natural gas distribution provider headquartered in CITY, Texas. Taxpayer provides natural gas via pipelines to customers in eight states, including Texas. Taxpayer is defined as a utility company under Section 182.021 (1) and currently reports and pays MGRT and collects and remits sales tax.

Part I

House Bill 1520, 87th Legislature, 2021, directs the Railroad Commission of Texas (The Commission) and the Texas Public Finance Authority to work together to issue customer rate relief bonds. The proceeds generated by the bonds will be used by a gas utility to pay for the extraordinary costs of natural gas during the February 2021 winter storm, Uri. The bonds issued under HB 1520 are intended to provide rate relief to customers by extending the time a gas utility may recover the extraordinary costs. HB 1520 also creates a tax exemption related to these bonds.

The Commission has issued guidance on how gas utility companies invoice the collection of customer rate relief charges. Under this guidance, the recovery amount is bundled as part of the monthly Gas Cost Recovery (GCR) rate in a single line-item charge on the customer invoice. This creates a situation where taxable and non-taxable charges are invoiced on one line-item.

Part II

House Bill 2263, 86th Legislature, 2019, added Section 182.022(d) (Imposition and Rate of Tax), effective Jan. 1, 2024. This provision provides an exclusion from the MGRT for gross receipts received from the sale of electricity to a customer that is a public school district.

Questions, Rulings, and Analysis

Our restatements of your questions are shown below, followed by our responses and analyses.

Part I

Question One: Are initial funding proceeds, subsequent customer collection of debt, and other revenues associated with the issuance of customer rate relief bonds included in gross receipts for the purposes of the MGRT?

Ruling: No, initial funding proceeds, subsequent customer collection of debt through collection of customer rate relief charges, and other revenues associated with the issuance of customer rate relief bonds are not included in gross receipts for the purposes of the MGRT.

Analysis: The tax exemption related to the customer rate relief bonds is found in Utilities Code, Section 104.375 (Tax Exemption):

“(a) The sale or purchase of or revenue derived from services performed in the issuance or transfer of customer rate relief bonds issued under this subchapter is exempt from taxation by this state or a political subdivision of this state.

(b) A gas utility's receipt of customer rate relief charges is exempt from state and local sales and use taxes and utility gross receipts taxes and assessments, and is excluded from revenue for purposes of franchise tax under Section 171.1011, Tax Code."

In connection with the issuance of customer rate relief bonds, the debt will be paid through the collection of customer rate relief charges. A gas utility that has received a regulatory asset determination under Utilities Code, Section 104.365, must bill and collect from its customers the customer rate relief charge. The Commission authorizes the amount of the customer rate relief charge and how it is to be collected.

Taxpayer's question relates to three different types of revenue: 1 – initial funding proceeds; 2 – amounts received through the collection of the customer rate relief charge; and 3 – other revenues associated with the issuance of rate relief bonds.

Initial funding proceeds and other revenues associated with the issuance of rate relief bonds are exempted from any state taxation under Utilities Code, Section 104.375(a). The MGRT is a state tax, so these revenues are exempted from the MGRT.

Customer rate relief charges are exempt from state and local sales taxes and utility gross receipts taxes under Utilities Code, Section 104.375(b). The MGRT is a utility gross receipts tax, so amounts collected through the customer rate relief charge are exempted from the MGRT. Amounts collected through the customer rate relief charges are also exempted from any state and local sales tax in Texas.

Question Two: May Taxpayer collect sales tax from its customers on only the taxable portion of the GCR rate and only include the taxable portion of the GCR rate in gross receipts for the purposes of the MGRT? How will this issue be treated during an audit, or other review, by the comptroller?

Ruling: Yes, a taxpayer may collect sales tax from its customers on only the taxable portion of the GCR rate and only include the taxable portion of the GCR rate in gross receipts for the purposes of the MGRT. In an audit, or other review, Taxpayer must provide sufficient documentation of the non-taxable portion of the GCR rate or the whole GCR rate may be subject to sales tax and included in gross receipts for the purposes of the MGRT.

Analysis: The Commission's guidance relating to the collection of customer rate relief charges creates a line item on the customer’s bill which will be composed of taxable and non-taxable items for the purposes of sales tax and MGRT. Taxpayer is not required to collect sales tax from its customers on nontaxable amounts, nor include those amounts in gross receipts for the purposes of the MGRT.

With respect to audits, or other reviews, Section 111.0041 (Records; Burden to Produce and Substantiate Claims) requires taxpayers to keep, and produce, contemporaneous records and supporting documentation appropriate to the tax to enable verification of a taxpayer's claim related to the amount of tax due. Rule 3.281 (Records Required; Information Required) provides similar rules with respect to sales tax. These provisions apply to the verification of any nontaxable portion of the GCR rate.

Part II

Question One: Does the exclusion provided by Section 182.022(d) apply to receipts from the sale of natural gas to public school districts by gas distribution companies?

Ruling: No, the exclusion provided by Section 182.022(d) only applies to receipts from the sales of electricity. It does not apply to receipts from the sale of natural gas.

Analysis: The MGRT is imposed on receipts from certain sales of gas, electricity, and water. See Section 182.021 (Definitions) and Section 182.022(a). Section 182.022(d), effective Jan. 1, 2024, states “Notwithstanding any other provisions of this chapter, a tax under this chapter may not be imposed on the gross receipts from the sale of electricity to a public school district customer” (emphasis added). Under the plain language of the statute, this exclusion only applies to the sale of electricity.

Question Two: How does the exclusion provided by Section 181.022(d) affect a "reimbursement of MGRT" charged by Taxpayer to its customers?

Ruling: It is not necessary to answer this question because our answer to Part II, Question 1 is that the public school district electricity exclusion does not apply to receipts from the sale of natural gas and there is no indication in the facts presented that Taxpayer sells electricity.

Question Three: How should Taxpayer substantiate which accounts are public school district accounts that would be eligible for the exclusion provided by Section 181.022(d)?

Ruling: It is not necessary to answer this question because our answer to Part II, Question 1 is that the public school district electricity exclusion does not apply to receipts from the sale of natural gas and there is no indication in the facts presented that Taxpayer sells electricity.

The Texas Tax Code and Texas Administrative Code are accessible at: www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. PLR20211222111124.

Sincerely,

Tax Policy Division – Direct Taxes

Texas Comptroller of Public Accounts

ENDNOTE

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.