Is electricity used to show a vacant model home or house exempt from Texas sales tax as residential utility use?

Plain-English summary

The Comptroller answered a real estate agency's question about whether electricity used at a vacant home is exempt from Texas sales tax the same way electricity used in an occupied residence is. The answer is no.

Texas sales tax law exempts electricity and natural gas purchased for use in a building or structure that is occupied as a home or residence. A vacant home being shown to prospective buyers is not occupied as anyone's home or residence, so electricity purchased to keep the lights (or other utilities) on for showing or demonstration purposes is treated as a commercial use and is taxable. The letter also notes that electricity a builder purchases while constructing a residential home is likewise a commercial use and taxable — the residential exemption doesn't kick in until the home is actually occupied as a home or residence.

What this means for you

Real estate agencies and brokers

If you pay the electric bill on a vacant listing, model home, or model apartment so you can show it to buyers, that electricity purchase is taxable — it does not qualify for the residential utility exemption, because no one is occupying the property as a home.

Home builders

Electricity used while a residential home is under construction is also a commercial use and is taxable under this letter's reasoning. The exemption applies to electricity used in a building once it is occupied as a home or residence, not before.

Property owners and managers

The exemption turns on actual residential occupancy, not on whether a building is designed as or intended to become a home. A vacant or model unit used for marketing/demonstration purposes stays in taxable, commercial-use territory until someone actually lives there.

Common questions

Q: Is electricity used to show a vacant home to buyers exempt from sales tax?
A: No. The Comptroller ruled this is a taxable commercial use, not an exempt residential use, because the home isn't occupied as a residence.

Q: What about electricity used while a home is being built?
A: Also taxable. The letter states electricity purchased by a builder in the process of building a residential home is a commercial use.

Q: When does the electricity/natural gas exemption apply?
A: Texas sales tax law exempts electricity and natural gas purchased for use in a building or structure that is occupied as a home or residence — actual residential occupancy is the trigger.

Q: Can I rely on this letter for my own situation?
A: Only if you were the taxpayer who received it. This letter can be the basis of a detrimental reliance claim only for the taxpayer it was directly issued to, and it may no longer reflect current Comptroller policy even though it isn't marked superseded. Check with a Texas tax professional about your specific facts.

Citations and references

No statutes or rules were cited by section number in this letter; it refers generally to "the sales tax law" exemption for electricity and natural gas used in a building occupied as a home or residence.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9304L1234A14

Original ruling text

April 14, 1993

Dear **:

Thank you for your letter of March 29, 1993, concerning the taxability of
electricity. Electricity purchased by a real estate agency for a vacant
residential home in order to show the home is taxable as commercial use.
Electricity purchased by a builder in the process of building a
residential home is also a commercial use. The sales tax law exempts
electricity and natural gas purchased for use in a building or structure
occupied as a home or residence.

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

You may call toll free 1-800-531-5441, extension 3-4683. If you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division

NOTE: Previous Accession Number 93050096.L02