Is propane (LP gas) sold for residential or commercial use subject to Texas sales tax?

Plain-English summary

This letter carries a STAR currency ALERT — read the note below before relying on the motor-fuel-tax point.

A taxpayer asked the Comptroller how Texas sales tax applies to propane gas sold for both commercial and residential use. The answer: propane is exempt from both state and local sales and use tax outright, under Tex. Tax Code § 151.308(a)(3) (state) and § 321.003 (local) — this exemption doesn't depend on whether the propane is used residentially or commercially. That's a broader exemption than the one Texas gives natural gas and electricity, which are exempt under § 151.317 only for residential use (and even then, some cities can reimpose local tax on residential utilities). Propane is instead taxed under a completely separate scheme — the motor fuel tax under Tax Code Chapter 153 — but only when it's used to propel a motor vehicle on public highways.

ALERT: STAR flags that the motor fuel tax framework this letter references has since changed twice: the Motor Fuel Tax Code was rewritten as Tax Code Chapter 162 effective January 1, 2004, and House Bill 1905 (84th Legislature, 2015) then repealed the fuels tax on liquefied gas/liquefied petroleum gas entirely, effective September 1, 2015. The letter's core sales-tax holding — that propane itself is exempt from sales tax regardless of use — is not flagged as superseded, but its passing reference to Chapter 153 motor fuel taxation of propane is outdated.

What this means for you

Propane dealers and distributors

You don't need to track whether a customer's propane use is residential or commercial to determine sales tax — propane is exempt from state and local sales tax either way. That's a simpler rule than the one for natural gas and electricity, where you do need to track residential vs. commercial use.

Businesses and homeowners buying propane

Sales tax should not appear on your propane bill regardless of how you use it. If you were charged sales tax on propane, ask your supplier why — the exemption is not limited to residential customers.

Anyone dealing with propane used as vehicle fuel

This letter's mention of the old motor fuel tax under Chapter 153 is outdated; today's framework is Tax Code Chapter 162, and liquefied gas/LP gas fuels tax was repealed altogether effective September 1, 2015. Check current Chapter 162 (or its absence, post-repeal) rather than relying on this 1999 letter for that specific point.

Common questions

Q: Do I owe Texas sales tax on propane bought for my business?
A: No — propane is exempt from state and local sales and use tax under § 151.308(a)(3) and § 321.003, regardless of commercial or residential use.

Q: Is propane treated the same as natural gas for sales tax purposes?
A: No. Natural gas and electricity get a narrower, residential-only exemption under § 151.317. Propane's exemption under § 151.308(a)(3) applies regardless of use.

Q: Is this letter's discussion of motor fuel tax on propane still accurate?
A: Not fully — STAR flags that the referenced Motor Fuel Tax Code (old Chapter 153) was rewritten as Chapter 162 in 2004, and the fuels tax on liquefied/LP gas was repealed entirely in 2015. Check current law for that point.

Citations and references

Statutes (as they existed in 1999, sales-tax holding itself not flagged superseded):

• Tex. Tax Code § 151.308(a)(3) (propane exempt from state sales and use tax)
• Tex. Tax Code § 321.003 (propane exempt from local sales tax)
• Tex. Tax Code § 151.317 (residential natural gas/electricity exemption)
• Tex. Tax Code § 321.105 (local tax treatment of gas)

Superseded reference (motor fuel tax point only):

• Tex. Tax Code §§ 153.001(13), 153.301 (as referenced in 1999; recodified as Chapter 162 eff. 01/01/2004)
• H.B. 1905, 84th Legislature (2015) (repealed fuels tax on liquefied gas/LP gas eff. 09/01/2015)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9911902L

Original ruling text

ALERT: Re: propane, the Motor Fuel Tax Code was rewritten as Tax Code Chapter 162 effective 01/01/2004. Then effective September 1, 2015, House Bill 1905, 84th Legislative Session (2015) repealed the fuels tax on liquefied gas or liquefied petroleum gas.

November 22, 1999

<**>

Subject: Local Sales of Propane for Commercial and Residential Use

Dear **:

Thank you for your recent e-mail concerning the taxation of propane gas used

for commercial (taxable) and residential use.

Propane gas is a motor fuel that is taxed under Texas Tax Code Chapter 153 when

used for the propulsion of a motor vehicle on public highways. See Texas Tax

Code Sections 153.001(13) and 153.301.

The reference to gas under Texas Tax Code Section 321.105 is to natural gas,

not to propane. Texas Tax Code Section 151.317 was amended effective October 1,

1999, to specifically list exempt uses of natural gas and electricity.

Residential use of natural gas and electricity is exempt from state, county,

and transit sales and use taxes. Texas Tax Code Section 151.317 exempts

residential use of natural gas and electricity sold for residential use unless

exempted and reimposed by certain cities and defers to Texas Tax Code Section

321.105.

Propane is exempt from sales and use tax under Texas Tax Code Section

151.308(a)(3) and from local sales tax under Texas Tax Code Section 321.003.

You may view or down load the sales tax law at and

then click on the following:

1. Links under Quick Links

2. Texas Statutes

3. Tax Code

4. Chapter 151, 153 or 321

5. Scroll down to the referenced statutory section

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 3-4683 if you have any

questions or need more information. You may write to Tax Policy Division,

Comptroller of Public Accounts. My e-mail address is

.

Sincerely,

Eddie C. Washington

Tax Policy Division