Is electricity used in a corporate apartment that a company leases to house out-of-town clients and associates (at no charge, for stays typically under a week) subject to Texas sales tax?

Plain-English summary

The Texas Comptroller's Tax Policy Division responded to a company that leases an unfurnished apartment from a local apartment complex, furnishes it itself (furniture, telephone service, cable, etc.), and uses it exclusively to house clients and associates visiting from out of town — free of charge — as an alternative to putting them up in a motel. Occupants typically stay no more than a week, and the company is not otherwise affiliated with the apartment complex beyond being a tenant.

The company asked whether the electricity used in that apartment unit is subject to sales tax. The Comptroller answered yes, it is taxable. Texas Tax Code § 151.317(a) exempts sales of natural gas and electricity from sales tax, but only when the use isn't "commercial use" — defined as use by a person engaged in providing a commodity or a professional or personal service. Residential use, by contrast, is exempt from state, county, transit, and special-purpose-district sales tax (though cities that had a city sales tax on or before October 1, 1979 — including most major cities like Dallas — can choose to tax residential use themselves, and most do).

The key legal test is what counts as "residential use": occupancy of a dwelling or apartment by a tenant under a contract for an express term longer than 29 consecutive days. Because neither the company nor its visiting clients and associates occupied the apartment as a residence under any such term, the Comptroller concluded the electricity use was commercial, not residential, and therefore taxable.

What this means for you

Businesses that maintain guest apartments or corporate housing

If your company leases an apartment (or similar unit) purely to house visiting clients, employees, or associates on a short-term basis — rather than as anyone's actual residence under a long-term lease — the electricity (and by the same logic, natural gas) used there is treated as commercial use and is subject to Texas sales tax. Simply not charging occupants, or using the space like a free alternative to a hotel, does not make the utility use "residential."

Companies deciding between corporate apartments and hotels/motels

This ruling shows that a corporate apartment doesn't get favorable residential utility tax treatment just because people sleep there. The 29-consecutive-day contractual occupancy requirement is the dividing line — short stays by rotating visitors don't meet it, even if the space functions like housing.

Accountants and tax professionals

The analysis turns entirely on the "residential use" definition tied to occupancy under an express contractual term exceeding 29 consecutive days. Where there's no such tenancy — as with a company-maintained guest unit used by different short-term occupants — utility sales default to taxable commercial use under § 151.317(a), regardless of the building type or lack of any charge to occupants.

Common questions

Q: Is electricity always exempt from Texas sales tax in an apartment?
A: No. Electricity and natural gas are exempt only when the use is "residential" — meaning a tenant occupies the dwelling under a contract for an express term longer than 29 consecutive days. Otherwise the use is commercial and taxable.

Q: Does it matter that the company didn't charge its visitors to stay in the apartment?
A: No. The ruling did not treat the lack of a charge as relevant. What mattered was that no one occupied the apartment as a residence under a qualifying long-term occupancy contract.

Q: Would the answer change if visitors stayed longer than 29 consecutive days under a lease?
A: The ruling doesn't address that scenario directly, but its reasoning turns on the 29-consecutive-day contractual occupancy test for "residential use," so a genuinely long-term, contractual tenancy could potentially change the analysis. This letter's answer is limited to the facts presented (typical stays of no more than a week).

Q: Do all Texas cities tax residential electricity use?
A: Cities that had imposed a city sales tax on or before October 1, 1979 may choose to tax or exempt residential use of natural gas and electricity, and the letter states most major cities, including Dallas, tax it. Other cities may exempt it. This ruling's apartment use was commercial either way, so city residential treatment wasn't the deciding issue.

Q: Can another business rely on this letter?
A: No. The letter states its opinion is based on the facts presented, and that the opinion may change if there are additional or different facts. STAR letters generally may be relied on only by the taxpayer to whom they were issued.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.317(a) (exemption for natural gas and electricity, except commercial use)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9511724L

Original ruling text

November 27, 1995

Dear**:

Thank you for your letter of November 17, 1995, concerning the taxation of
electricity used in your corporate apartment.

Your company maintains a furnished apartment for use in housing your clients
and associates when they come in from out of town. You find this to be a better
situation than housing them in a motel room. You lease an unfurnished apartment
from a local apartment complex and provide furniture, telephone service, cable,
etc. You do not charge your visitors. The apartment is used only for this
purpose and the individuals occupying it do so for normally no more than a
week. You are not affiliated with the apartment complex other than as a lessee.

Question: Is the electricity for this apartment unit subject to sales tax?

Answer: The electricity is taxable. Texas Tax Code Section 151.317(a) exempts
sales of natural gas and electricity except when sold for commercial use.
Commercial use means use by a person engaged in providing a commodity or a
professional or personal service.

Residential use of natural gas and electricity is exempt from state, county,
transit and special purpose district sales taxes. Cities that imposed a city
sales tax on or before October 1, 1979, may either tax or exempt residential
use of natural gas and electricity. Most major cities, including the City of
Dallas, tax residential use.

"Residential use" means "use in a family dwelling, apartment, house, or
building or part of a building occupied as a home or residence when the use is
by a tenant who occupies the dwelling, apartment, house, or building or part of
a building under a contract for an express term for longer than 29 consecutive
days." (Emphasis added.)

Neither you nor your visitors occupy the apartment unit as a residence. The
electricity use in the apartment is commercial use and is taxable.

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

You may call me toll free 1-800-531-5441, extension 34683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division