Does electricity used in a vacant apartment unit count as residential use that is exempt from Texas sales tax?

Subject

Apartment Complex/Multifamily Dwelling — Vacant Units — Residential Use Of Electricity Guidelines

Plain-English summary

This letter responds to a utility company's question about the state sales tax exemption for residential use of gas and electricity, after Section 151.317 of the Texas Tax Code was amended effective October 1, 1995.

Based on the amended statute, the Comptroller now treats electricity used in vacant apartments as residential use, which qualifies for the sales tax exemption. That policy has two carve-outs:

• It does not cover electricity used by a separate business that operates inside an apartment building or complex.
• It does not apply to electricity used in mixed-use complexes -- those that also offer daily or weekly rentals.

The letter also draws a line in time: before October 1, 1995, electricity used in a vacant apartment by the property management company was not considered residential use, so the exemption only applies going forward from the amendment's effective date.

As with other STAR letters of this era, the Comptroller notes the opinion is based on the facts submitted and that other, similar facts could yield different results. (This letter appears to be a companion to a later, September 1996 follow-up letter -- Texas Letter Ruling 9609L1435A04 -- in which the same utility company asked more detailed implementation questions, such as refund periods and exemption certificates, that build on the policy set out here.)

What this means for you

Apartment complex owners and property managers

Electricity used in a vacant apartment unit is treated as residential use exempt from state sales tax, effective October 1, 1995. That exemption does not extend to electricity used by an on-site business operating within the building or complex, or to complexes that also rent units on a daily or weekly basis.

Utility companies serving multifamily housing

You should treat vacant-apartment electricity as exempt residential use starting with the October 1, 1995 effective date of the amended Section 151.317, subject to the business-use and mixed-use-complex exceptions. For periods before that date, electricity used in a vacant unit by the property management company was not residential use.

Accountants and tax professionals

Note the two exceptions carved out of the vacant-apartment residential-use policy: (1) electricity used by a separate business operating in the building or complex, and (2) electricity used in mixed-use complexes that also offer daily or weekly rentals. Also note the effective-date cutoff -- pre-October 1, 1995 vacant-unit electricity paid for by the property management company is not residential use under this letter.

Common questions

Q: Is electricity used in a vacant apartment unit exempt from Texas sales tax as residential use?
A: Yes, effective October 1, 1995, following the amendment to Section 151.317 of the Tax Code.

Q: Are there exceptions to this vacant-apartment exemption?
A: Yes. It does not cover electricity used by a separate business operating in the apartment building or complex, and it does not apply to mixed-use complexes that also offer daily or weekly rentals.

Q: What about electricity used in vacant units before October 1, 1995?
A: Electricity used in a vacant apartment by the property management company prior to that date was not considered residential use.

Q: Could this answer change under different facts?
A: Yes -- the letter states the opinion is based on the facts submitted, and other, similar facts may yield different results.

Citations and references

Statutes:

• Texas Tax Code Section 151.317 (as amended, effective October 1, 1995)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9607L1431G01

Original ruling text

July 31, 1996

Dear ***:

Thank you for your letter concerning the state sales tax exemption for
residential use of gas and electricity.

Effective October 1, 1995, the language in Section 151.317 of the Tax Code
was amended. Based on the amended language in the statute, we now consider
residential use of electricity to include electricity used in vacant
apartments. This policy regarding vacant apartments does not include use
in a separate business that operates in an apartment building or complex.
It also does not apply to electricity used in mixed-use complexes (complexes
that also offer daily or weekly rentals). Prior to October 1, 1995, any
electricity used in a vacant apartment by the property management company
is not considered residential use.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line
is 512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division

NOTE: Previous Accession Number 9607581L