Is chilled or heated water taxable in Texas, and does adding anti-corrosion chemicals to a closed water system change that?

Subject

Water — Chilled Or Heated Is Not Taxable

Plain-English summary

A business had already been told by phone that the sale of heated and chilled water by its client was not taxable, and asked the Comptroller's Tax Policy Division to confirm that in writing. The letter confirms it: water is not taxable, period -- regardless of whether it's sold chilled or heated.

The follow-up question was whether adding chemicals to prevent corrosion in a closed water system would change that answer. It doesn't. The Comptroller's office checked with a municipal water supplier (referred to as the City of ABC) to see what chemicals it adds to city water: chemicals to prevent scale, break up dirt clods, kill bacteria, and promote healthy teeth. None of that makes city water taxable, and by the same reasoning, adding corrosion-preventing chemicals to water in a customer's closed system doesn't make the sale of that water taxable either.

Bottom line: exempt. The sale of chilled or heated water is not taxable, and adding anti-corrosion chemicals to protect a closed system doesn't change that outcome.

What this means for you

Businesses selling chilled or heated water

Selling water -- whether chilled or heated for a client's system -- is not a taxable sale in Texas under this letter. That holds true even when you treat the water with chemicals.

Businesses treating water in closed-loop systems (e.g., HVAC or industrial cooling/heating loops)

Adding chemicals solely to prevent corrosion in a closed system does not convert the water sale into a taxable sale. The Comptroller drew a direct comparison to municipal water treatment: cities already add chemicals for scale prevention, dirt/sediment control, bacteria control, and fluoridation, and that routine treatment doesn't make city water taxable.

Common questions

Q: Is chilled water taxable in Texas?
A: No. The letter states plainly that water is not taxable, whether sold chilled or heated.

Q: Does adding corrosion-inhibiting chemicals to water make it taxable?
A: No. The Comptroller compared this directly to the chemicals municipal water suppliers already add (for scale, dirt clods, bacteria, and dental health) without making city water taxable -- the same logic applies to corrosion-preventing chemicals added to a customer's closed system.

Q: Does it matter whether the water is heated or chilled?
A: No, the letter treats both the same -- it confirms "the sale of heated and chilled water by your client was not taxable."

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9612887L

Original ruling text

December 9, 1996

Dear ***:

Recently, I advised you by telephone that the sale of heated and chilled
water by your client was not taxable. You asked that I confirm this in
writing which is the purpose of this letter. Water is not taxable. The
question arose as to whether it became taxable because your client added
chemicals to prevent corrosion in the closed system.

Following our initial conversation, I had the City of ABC contacted to
determine what chemicals they add to the city water supply. The city adds
chemicals to prevent scale, to break up dirt clods, to kill bacteria and
to promote healthy teeth. This does not cause the city water to become
taxable. Similarly, adding chemicals to prevent corrosion in your client's
customer's system does not cause the sale of the water to become taxable.

I hope this satisfactorily answers your question.

Sincerely,

Wade Anderson
Director, Tax Policy