Could seasonal cotton gins claim an electricity exemption on off-season bills that spread processing-period charges across the year?

Plain-English summary

The March 14, 1985 letter expressly reconsidered an earlier answer about cotton gins whose utility rates spread processing-season charges over the rest of the year.

After reconsideration, the Comptroller allowed an exemption on off-season billings when the predominant charge on those bills was attributable to seasonal processing use.

An attached February 22 letter had reached the opposite result. It said the processing exemption applied only in months when processing occurred and when more than 50% of electricity use was for processing, so no exemption applied during the eight or nine off-season months. The later March 14 response is the operative conclusion within this record.

STAR's subject metadata says utility studies were no longer required, but the reproduced letters do not say that. This page therefore records only the reconsidered predominant-charge holding.

Common questions

Did the March letter merely repeat the February answer? No; it expressly reconsidered it. What condition applied to off-season bills? The predominant charge had to be attributable to seasonal processing use. Does the body eliminate utility studies? It does not address that point despite STAR's subject label.

Citations and references

The reproduced letters cite no numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8503L0633D09

Original ruling text

March 14 1985

Dear ***:

We have reconsidered our decision on your inquiry about sales tax
exemption on electricity for certain cotton gins.

The cotton gins located in areas where the utility rates spread in-
season charges over the remainder of the year would be entitled to
claim tax exemption on off season billings provided the predominant
charge of the off season billings is attributable to the seasonal
processing use.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division

February 22, 1985

Dear ***:

Thank you for your letter regarding sales tax exemption electricity used
in the ginning of cotton.

Your inquiry concerns the cotton gins in areas where the utility rates
spread in-season charges over the remainder of the year. The demand
charge is assessed each month based on the highest KW of demand recorded
during the processing period (3-4 months). The bills figured for the
other 8-9 months include a demand charge that, in effect, covers service
maintained during the processing period. You contend that the part of
the "off" season bills that represents the processing service charge
(demand) is exempt from sales tax since it actually is part of the charge
for processing power.

The sales tax exemption is for electricity (KWH) used for processing.
Seasonal businesses can claim the exemption only for those months in
which processing occurs and only if the predominant use (over 50%) of
electricity is for processing use.

The fact that the demand charged based on peak KWH usage is leveled and
applied to billings throughout the year does not change the fact that no
processing occurs 8-9 months of the year. Since no processing occurs,
sales tax exemption cannot be claimed for these months.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy
Tax Administration Division