Can an apartment complex give a utility company a residential-use exemption certificate for gas/electricity without first getting a formal utility (predominant use) study done?

Plain-English summary

This document is actually two things packaged together: an internal Comptroller distribution memo from Karey Barton (dated January 9, 1996) announcing a "special mailing" of a form letter to 200 utility companies, followed by the text of that letter itself, signed by Kevin Koller of the Tax Policy Division.

The substantive letter explains that the Texas Apartment Association had submitted three representative utility studies covering both small and large apartment complexes. These studies looked at meters that combined a small amount of commercial use (the manager's office) with residential common-area use (club rooms, laundry rooms, swimming pool pumps, and outside lighting) — but did not serve any individual residences directly. The studies showed taxable (nonresidential) usage of only 11 to 23 percent.

Based on those studies, the Comptroller told utility companies that apartment complexes fitting this description could submit exemption certificates directly to the utility company without first getting an individual utility (predominant use) study performed, and that the utility company could accept those certificates in good faith without requiring proof a study was done.

Important limits stated in the letter:

• The waiver does not apply to complexes with any significant nonresidential usage, such as office suites or daily/weekly rental units.
• A claim of predominant residential usage only exempts state tax — applicable local taxes must still be collected.
• The Comptroller also proposed an amendment to Rule 3.295 (gas and electricity) so that, going forward, an approved industry-wide study could waive the individual-study requirement for any homogenous industry where the study shows usage will always qualify for exemption.
• The policy is meant to save the cost of individual studies in "obvious cases" of predominant residential use; it does not bar the Comptroller from later assessing unpaid taxes if the predominant usage turns out to actually be nonresidential.

What this means for you

Apartment complex owners/operators

If your complex's utility meters mix a small amount of office/common-area commercial use with residential common-area use (and don't serve individual residences), and your usage pattern is similar to the studies described (roughly 11-23% taxable), you may be able to give your utility company a residential-use exemption certificate without commissioning your own predominant use study. This does not apply if your complex has significant nonresidential usage, such as leased office suites or short-term (daily/weekly) rental units.

Utility companies serving apartment complexes

The letter tells utility companies they may accept these exemption certificates in good faith from qualifying apartment complexes, without demanding proof that a utility study was performed.

Anyone relying on the residential-usage exemption

Remember the exemption only covers state tax — local sales/use taxes still apply and should still be collected. Also, accepting a certificate in good faith doesn't insulate the taxpayer from a later assessment if it turns out the complex's actual usage was predominantly nonresidential.

Common questions

Q: Does an apartment complex need its own predominant use study to get a utility tax exemption?
A: Not necessarily. Based on studies submitted by the Texas Apartment Association, complexes with a usage pattern similar to those studies (mixed manager's-office/common-area meters showing 11-23% taxable usage, no meters serving individual residences) can submit an exemption certificate directly to the utility company without an individual study.

Q: Does this waiver apply to every apartment complex?
A: No. It does not apply to complexes with significant nonresidential usage, such as office suites or daily/weekly rental units.

Q: Does the residential-use exemption cover local taxes too?
A: No. The letter states the exemption applies to state taxes only; applicable local taxes should still be collected.

Q: Can the Comptroller still assess back taxes if a complex's usage isn't actually predominantly residential?
A: Yes. The letter says neither the agreement nor the proposed rule amendment bars assessment of unpaid taxes when predominant usage is found to be nonresidential.

Q: Is this limited to apartment complexes, or could other industries get a similar waiver?
A: The letter mentions a proposed amendment to Rule 3.295 that would let other homogenous industries qualify for a similar study waiver if an approved industry-wide study shows their usage will always qualify for exemption.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.295 (predominant use studies/exemptions for electricity and natural gas) — the letter describes a proposed amendment to this rule to implement the industry-wide study waiver policy.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9601772L

Original ruling text

DATE: January 9, 1996

TO: Distribution List

FROM: Karey Barton

SUBJECT: Special Mailing to Utility Companies

Attached is a copy of a letter that will be sent to 200 Utility Companies. It
is scheduled to be mailed today.

If you need any additional information, contact Becky Seale at 50198.

Thank you.

Distribution List:

Otis Fields, Acct. Maintenance
John Neel, Adm. Law Judges
Harold Lee, Audit
Leo Aguirre, Central Services
Kenny McLesky, Claims
Loyd Cates, Data Services
Mary Cheryl Dorwart, Data Services
Ginger Salone, Data Services
Jacob Salisbery, Local Assistance
Dona Medlock, Enforcement
Bill Clemmer, Enforcement
Jeff Wiginton, Executive Administration
T. C. Mallett, Fiscal Management
Stephen Zeeck, Fund Accounting
Ray Bonilla, General Counsel
Martin Cherry, General Law
Andy Welch, Public Information
Debbie Peterson, ITS
Mike Borkland, Legal Services
Donny Stevens, Legislative Liaison
Bob Bearden, Local Assistance
Sandra Joseph, Open Rcds/Disclosure
Linda Pava, Quality
Barbara Allen, Research
Tom Ellis, Revenue Accounting
Dovie Ellis, Revenue Administration
Mike Reissig, Revenue Estimating
Jim Teaver, Revenue Processing
Jewel Hunter, Revenue Processing
Stephanie Muller, Sys. Development
Glen Hunt, Research & Policy Dev.
Robert Daniels, Research & Policy Dev.
Wade Anderson, Tax Policy
Karen Specht, Tax Policy
Hayden Denham, Tax Policy
Bryant Lomax, Tax Policy
Mona Shoemate, Tax Policy
Loreto Espinoza, Tax Policy
Adina Whittemore, Tax Policy
Tax Assistance Supervisors
Tax Policy Supervisors
Tax Policy, Information Support Staff
Donna Halbert, ROP

cc: John Sharp
Tom Duffy
Billy Hamilton

January 9, 1996

Dear Taxpayer:

The Texas Apartment Association submitted three representative utility studies.
The studies included both small and large complexes with meters including
commercial use of gas or electricity (the manager's office) and residential use
(club rooms, laundry rooms, swimming pool pumps and outside lighting). These
meters did not service residences (vacant or occupied). The studies indicated
taxable usage of 11 to 23 percent.

Based on these studies, we will allow apartments fitting this description to
submit exemption certificates to utility companies without performing utility
studies. Your firm may accept these exemption certificates in good faith
without certification that a study has been performed. The study requirement
waiver does not apply to complexes with any significant nonresidential usage
such as office suites, or daily or weekly rental units. Please note that a
claim of predominant residential usage will exempt the customer from state
taxes only. Applicable local taxes should still be collected.

We have proposed an amendment to Rule 3.295 on gas and electricity to implement
this policy change. The amendment waives the requirement for a utility-usage
study for each company that is in a homogenous industry for which an approved
industry-wide study shows that the natural gas or electricity used by companies
in that industry will always qualify for exemption.

This agreement and the proposed rule amendment are intended to save Texas
taxpayers the cost of performing individual studies in obvious cases of
predominant residential use. Neither will bar assessment of any unpaid taxes
when the predominant usage is found to be nonresidential.

Please let me know if I can be of additional help in this matter. You may call
me toll free at 1-800-531-5441, extension 5-0613. The direct line is
512/475-0613. You may also write to Tax Policy Division, Comptroller of Public
Accounts 111 East 17th Street, Austin, Texas 78711-0100.

Sincerely,

Kevin Koller
Tax Policy Division