Is steam exempt from Texas sales tax the same way ice is exempt?

Subject

Steam — Altered Form Of Water

Plain-English summary

A taxpayer wrote to the Comptroller arguing that steam should not be subject to sales tax. The Comptroller disagreed.

The reasoning is short: steam, like ice, is simply water in an altered state. The Texas Tax Code does not say anything specifically about steam. But it does specifically exempt ice, in two places -- Tax Code 151.314(c)(3) and 151.316(b)(9). The Comptroller reasoned that those ice-specific exemptions would not have been necessary if sales of ice (and, by extension, other altered forms of water like steam) were not otherwise subject to sales tax as tangible personal property. In other words, the fact that the legislature had to carve out a specific exemption for ice shows that altered forms of water are taxable unless a specific exemption says otherwise -- and no such exemption exists for steam.

The letter suggests that if the taxpayer wants to pursue the argument further, an administrative hearing may be the right venue. As with other letters of this era, the opinion is based on the facts presented and could change if the facts differ.

What this means for you

Sellers or users of steam

If you sell or use steam in Texas, this letter indicates the Comptroller's position is that steam is taxable tangible personal property, the same as most other goods -- it does not get the same treatment as ice. Being "just water in a different state" is not, by itself, a basis for exemption.

Businesses relying on the ice exemption

This letter is a reminder that Texas sales tax exemptions are narrow and specific. The ice exemptions in Tax Code 151.314(c)(3) and 151.316(b)(9) apply to ice -- they do not automatically extend by analogy to other forms of water such as steam or, presumably, water vapor. Don't assume an exemption for one form of a substance covers other forms of that same substance.

Accountants and tax professionals

This is a short, informal letter rather than a detailed policy statement, so it should be read narrowly. It reflects the Comptroller's reasoning at the time (1996) on one taxpayer's specific argument, and per STAR's usual caveats, letters like this may no longer represent current policy even where not marked superseded.

Common questions

Q: Does Texas treat steam the same as ice for sales tax purposes?
A: No. This letter states the Comptroller disagrees with that position. Ice has specific statutory exemptions (Tax Code 151.314(c)(3) and 151.316(b)(9)); steam does not.

Q: Why does the Comptroller say steam is taxable if it's just water in an altered state?
A: Because the Tax Code doesn't specifically exempt steam. The Comptroller reasoned that the existence of specific ice exemptions shows altered forms of water are taxable by default, since those exemptions wouldn't be needed otherwise.

Q: What should a taxpayer who disagrees do next?
A: The letter suggests an administrative hearing may be the appropriate arena to pursue the argument further.

Q: Could this answer change under different facts?
A: Yes -- the letter states the opinion is rendered based on the facts presented, and the opinion may change if there are additional or different facts.

Citations and references

Statutes:

• Tex. Tax Code § 151.314(c)(3) (ice exemption)
• Tex. Tax Code § 151.316(b)(9) (ice exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9607L1428A04

Original ruling text

July 16, 1996

Dear *****:

Thank you for your recent letter regarding the tax treatment of steam.
However, I disagree.

Steam, like ice, is water in an altered state. And, while the Tax Code
does not specifically mention steam, it does mention ice.

Both Tax Code 151.314(c)(3) and 151.316(b)(9) mention specific exemptions
for ice. Clearly this would not be necessary if sales of ice, like steam
and other tangible property, were not subject to sales tax. It may be that
the best arena for your arguments is in an administrative hearing.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct
line is 512/463-4680. You may also write to Tax Policy, Comptroller of
Public Accounts. My Internet address is [email protected].

Sincerely,

Al Van Allen
Tax Policy Division

NOTE: Previous Accession Number 9607495L