Were utilities exempt when a building owner included them in rent charged to the Mexican Consulate?

Plain-English summary

The building owner leased 75% of its office space to the Mexican Consulate and billed rent and utilities together. The exemption certificate named the consulate as the purchaser, but the utility companies actually sold the natural gas and electricity to the building owner.

The Comptroller explained that foreign governments were not automatically exempt under Texas sales-tax law. A foreign government protected by a treaty had to obtain a Mission Tax Exemption Card from the U.S. Department of State, and an authorized consular purchaser had to present a consular exemption certificate signed by that person and countersigned by the Comptroller for an official purchase.

Here, the consulate did not purchase the utilities from the utility companies. The building owner did, and the utilities were used commercially, so the purchases were taxable.

Common questions

Did the consulate's occupancy make the utilities exempt? No.

Who was the utility purchaser? The building owner, because it bought the utilities and included them in a lump-sum rent charge.

How did the letter describe a qualifying consular purchase? An authorized person used a State Department Mission Tax Exemption Card and presented the required consular exemption certificate for an official purchase.

Citations and references

The reproduced letter does not cite a statute or treaty.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8603L0708C10

Original ruling text

March 20, 1986

Dear ***:

Your letter and documents regarding sales tax exemption on natural gas
and electricity purchased by COMPANY A have been reviewed. As I
understand, the utilities are for use in an office building of which
75% of the space is leased to the Mexican Consulate. The rent and all
public utilities are billed in a lump sum amount each month. The
exemption certificates states the purchaser is "Consulate General of
Mexico" and the reason for exemption is "This is an exempt organization."

Foreign governments are not exempt entities under the sales tax law.
However, foreign governments that have treaties with the United States
prohibiting the imposition of sales tax on purchases for the consulate
must apply to the United States Department of State for a Mission Tax
Exemption Card. The card is issued to an authorized person in the
consulate to be used for official purchases only. To purchase items tax
free, the person presents each retailer a "consular exemption certificate"
signed by the person claiming exemption and counter-signed by the Comptroller.

In this situation, the Mexican Consulate is not purchasing natural gas
and electricity from the utility companies. The utilities are purchased by
the building owners. The utilities are for commercial use and are taxable.

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 use at
the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division