Can a taxpayer get a predominant use study and utility tax refund on a previous business location's natural gas/electric account after closing that account and moving to a new location?

Plain-English summary

A taxpayer's client had moved her business a short distance — less than a block — to a new location, closing her old utility account and opening a new one. She quickly obtained a utility tax exemption and refund on the new location based on a predominant use study. Having been at the old location for many years and paid utility sales tax there the whole time, she wanted an additional predominant use study and refund on the closed account too, so she could recover the full four-year refund period she felt she was entitled to.

Her consultant argued that the move caused no significant or untimely disruption to the business, that access to the old location was still available to perform an accurate engineering study there, and that two separate, independent, and accurate predominant usage studies could be performed without difficulty — one for each location. He felt the client shouldn't be penalized just because she closed one account and opened another right away.

The Comptroller's office declined to allow a predominant use study on the closed account. The reasoning was not about whether the study itself could be done accurately in the moment — it was about verification down the road. If a refund is later granted based on a study of the old location and the client is audited two or three years afterward, the Comptroller's own audit personnel need to be able to independently verify that study by visiting the premises. Once an account is closed and the taxpayer no longer occupies or controls that location, the state can't guarantee that access, so studies on closed accounts are not permitted. The ruling notes this outcome was based on the specific facts presented and that other facts, even if similar, could lead to a different result.

What this means for you

Businesses that relocate and want a utility tax exemption/refund

If you're moving to a new business location and plan to seek a predominant use study and refund on your utility usage, get the study done and the account reviewed before you close out the account at your old location. Once that account is closed, the Comptroller will not authorize a new predominant use study there, even if you (or your consultant) still have physical access to the space and could perform an accurate study.

Accountants and tax professionals handling multi-location utility refund claims

This letter is a reminder that the Comptroller's refusal to study closed accounts is a policy grounded in future verifiability, not present-day feasibility. Advise clients to complete predominant use studies for all locations while the accounts are still active and the client still occupies the premises, since a subsequent request tied to a closed account will be denied regardless of how confident the engineer is in the study's accuracy.

Common questions

Q: Can a predominant use study be performed on a utility account that has already been closed?
A: No. The Comptroller will not allow a predominant use study on a closed account, even if the taxpayer or their consultant still has access to the location and believes an accurate study is possible.

Q: Why does it matter if the account is closed, if the study can still be done accurately right now?
A: Because the concern is about verification later, not accuracy now. If a refund is granted and the taxpayer is later audited, the Comptroller's audit staff need to be able to independently verify the study by accessing the premises — access that may no longer be available once the account is closed and the taxpayer has vacated the location.

Q: Does moving to a new, nearby location without disrupting the business change this outcome?
A: No. Even though the taxpayer's move caused no significant disruption and the old location remained physically accessible for study purposes, the closed-account rule still applied and the additional study/refund request was denied.

Citations and references

No specific statutes or administrative rules are cited in the text of this letter, aside from a reference to Rule 3.295 (Natural Gas and Electricity) as the basis for the underlying exemption request.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9409L1316E11

Original ruling text

September 27, 1994

Dear ****:

Thank you for your letter requesting a ruling the eligibility of your
client for an exemption under Rule 3.295 - Natural Gas and Electricity.

SITUATION

Your client moved out of one location and into a new one less than a
block away. She was at the original location for many years, and was paying
utility sales taxes there. She has only been in the new location for
approximately 1 year and has just acquired an exemption and refund on her new
account.

She is requesting an additional refund on the previous location, so as to
obtain the full 4-year refund, to which she feels she is entitled. Her
contention is that (1) since there was no significant, nor untimely disruption
of her business during the process of her move and (2) since you are allowed
access to the previous location in order to perform an adequate engineering
study, she should be allowed a refund on the previous location also.

It is clear she simply moved all of her equipment out of one location and
into another. Your study on the original location will require you to analyze
lighting, a/c and heat loads which remain. You have observed the old location
and feel certain (if she were allowed) that not only would it likely qualify,
but that you could still easily perform an accurate study on that facility.

You feel that you can perform two separate, independent and accurate
predominant usage studies without any difficulty and feel that she should not
be penalized simply because she closed one account and immediately opened
another.

RESPONSE: The prohibition against allowing a predominant use study on a
closed account is because generally an independent verification by our
personnel cannot be performed while you may currently have access to the old
location to perform a predominant use study, two to three years down the line,
when/if your client is audited and the refund is questioned, our audit
personnel may not have access to the premises to verify your study.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 9409584L