Can a cable television company claim the manufacturing exemption on the electricity it uses to produce and deliver its cable signal?

Plain-English summary

A cable television (CATV) provider asked the Comptroller whether it could claim a sales tax exemption on the electricity it uses to produce its cable signal, arguing that generating the signal amounts to "manufacturing" tangible personal property. The taxpayer pointed to Tax Code § 151.009 (defining tangible personal property), § 151.318 (defining fabrication and manufacturing), and 34 Tex. Admin. Code Rule 3.295(a)(4) (the manufacturing exemption for natural gas and electricity) as support.

The Comptroller rejected the argument. Tax Code § 151.317 and Rule 3.295 exempt electricity only when it is used in manufacturing, fabricating, or processing tangible personal property that will itself be sold as tangible personal property — the exemption does not extend to electricity used to provide or perform a taxable service. While a cable signal might, in isolation, meet the general definition of "tangible personal property" under § 151.009, Texas law specifically defines and classifies cable television service as a taxable service under § 151.0033 and § 151.0101(a)(2). Because that specific classification controls over the general definition, CATV providers are not "processing tangible personal property for sale as tangible personal property" — they are performing a taxable service — so they cannot claim the manufacturing exemption on the electricity used to deliver that service.

What this means for you

Cable television and telecommunications providers

Electricity used to generate, process, or transmit your cable signal is not exempt as manufacturing electricity, even if producing the signal involves technical processes that resemble manufacturing. Because cable television service is classified by statute as a taxable service rather than as the sale of tangible personal property, the § 151.317 manufacturing exemption for electricity does not apply to your operations.

Accountants and tax professionals advising service providers

When a client provides a taxable service (as specifically enumerated in § 151.0101) but that service technically produces something that could be called tangible personal property (like a broadcast signal), remember that Texas applies the more specific statutory classification over the general one. Don't assume the manufacturing/processing exemption for electricity applies just because a production-like process is involved — check whether the end product or activity is separately and specifically defined as a taxable service.

Businesses evaluating utility tax exemptions generally

This ruling illustrates a broader principle: the § 151.317/Rule 3.295 electricity exemption is tied to manufacturing tangible personal property that will be sold as tangible personal property. If your business's output is instead classified under the Tax Code as a taxable service — even one that involves a signal, broadcast, or other arguably "tangible" output — the manufacturing exemption for utilities used in producing that output generally will not apply.

Common questions

Q: Can a cable TV company exempt the electricity it uses to generate its signal under the manufacturing exemption?
A: No. The Comptroller held that CATV providers are not manufacturing, fabricating, or processing tangible personal property for sale, so the § 151.317 electricity exemption does not apply.

Q: Isn't a cable signal "tangible personal property" under § 151.009?
A: It might generally fit that definition, but Texas Tax Code § 151.0033 and § 151.0101(a)(2) specifically classify cable television service as a taxable service, and that specific classification takes precedence over the general definition of tangible personal property.

Q: Does the manufacturing exemption for electricity ever apply to service providers?
A: The exemption under § 151.317 and Rule 3.295 applies only to electricity used in manufacturing, fabricating, or processing tangible personal property that will itself be sold as tangible personal property — not to electricity used to provide or perform a taxable service like cable television service.

Q: Is this ruling based on the taxpayer's specific facts?
A: Yes. The letter states the opinion is based on the facts presented and that the outcome could change with additional or different facts.

Citations and references

• Tex. Tax Code § 151.009 (definition of tangible personal property)
• Tex. Tax Code § 151.317 (manufacturing exemption for electricity, natural gas, and other fuels)
• Tex. Tax Code § 151.318 (definition of manufacturing, fabrication, and processing)
• Tex. Tax Code § 151.0033 (definition of cable television service)
• Tex. Tax Code § 151.0101(a)(2) (cable television service listed as a taxable service)
• 34 Tex. Admin. Code Rule 3.295(a)(4) (manufacturing exemption for natural gas and electricity)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9404L1299D12

Original ruling text

April 22, 1994

Dear ***:

Thank you for your letter of March 29, 1994, concerning the
taxability of electricity used in the "manufacturing process" of a cable
television (CATV) signal.

You cite Texas Tax Code Section 151.009 that defines tangible
personal property and Section 151.318 that defines fabrication and
manufacturing as the bases for your contention that CATV service providers
should be eligible for exemption for electricity usage. You also cite in
particular the definition of manufacturing found in Rule 3.295(a)(4)
concerning natural gas and electricity.

The Texas Tax Code Section 151.317 and Rule 3.295 exempt
electricity used in manufacturing, fabricating, or processing tangible personal
property for sale as tangible personal property. This exemption does not apply
to electricity used to provide or perform taxable services.

Texas Tax Code Section 151.0033 defines cable television service
and Section 151.0101(a)(2) defines taxable services to include cable television
services. Texas Tax Code Section 151.009 defines tangible personal property.
While cable television signals may generally meet the definition of tangible
personal property, they are specifically a taxable service. Thus, the specific
definition takes precedence over the general definition.

CATV service providers are not processing tangible personal
property for sale as tangible personal property. Thus, CATV service providers
are not entitled to claim exemption on the electricity used to provide the
service.

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 3-683 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 9404315L