How did Texas local sales taxes apply to residential and commercial natural-gas and electricity use, and to exemption certificates?

Plain-English summary

The Comptroller said Texas special-purpose districts taxed natural gas and electricity in the same manner as counties: commercial use was taxable, while residential use was exempt.

A valid state sales-tax exemption certificate also covered the listed local sales taxes—city, mass-transit, county, and special-purpose-district tax. But the letter identified an exception for a customer claiming the residential-use exemption: a city could still impose its sales tax if it had retained or reimposed tax on residential utility use. The letter used an Austin apartment complex as its example: it could qualify for the state exemption but still owe Austin's 1% city sales tax.

What this means for you

Utility sellers and customers had to distinguish a general state exemption certificate from a residential-use claim. The former carried through to the listed local taxes; the latter could still leave city tax due where the city elected to tax residential utility use.

Common questions

How did special-purpose districts treat utility use? Commercial natural-gas and electricity use was taxable; residential use was exempt.

Did a valid state exemption certificate cover local sales taxes? Yes, according to the letter, it also applied to city, mass-transit, county, and special-purpose-district sales taxes.

Was residential utility use always exempt from city tax? No. A city that retained or reimposed the tax could tax residential use.

What example did the Comptroller give? An Austin apartment complex could qualify for the state exemption but not Austin's 1% city sales tax.

Citations and references

• No statute or administrative rule is cited in the ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9102L1071G13

Original ruling text

February 1, 1991

VIA FAX

Dear ** :

I just want to take a minute to follow up our phone conversation
with a written response.

Special purpose districts impose sales tax on natural gas and
electricity in the same way as counties. Commercial uses of
natural gas and electricity are subject to tax while all
residential uses are exempt.

If a firm issues a valid exemption certificate for state sales
tax, the certificate is also valid for local taxes such as city,
mass transit, county, and special purpose district sales taxes.
However, customers claiming tax exemption as residential use are
not exempt from the city sales tax if the city elected to retain
or has reimposed the city tax on residential use. For example,
an apartment complex within Austin may qualify for state tax
exemption, but not the 1% city sales tax.

This opinion is based on the facts you presented. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call our
toll-free number 1-800-531-5441. My direct line number is 512-
463-4680 [FAX (512) 475-0900]. You may write to me in care of
Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division