Was the Oklahoma Municipal Power Authority exempt from Texas sales and use tax on its share of a Texas electric plant?

Plain-English summary

The Oklahoma Municipal Power Authority was created by Oklahoma as a state governmental agency and acquired an interest in a Texas electric power plant. The Comptroller said Texas's exemption covered Texas and its political subdivisions, while the law excluded governmental entities of other states.

Although Rule 3.322(c)(7) exempted nonprofit electric cooperatives located outside Texas, the authority itself was an Oklahoma governmental agency. The fact that some or all of its members might be exempt cooperatives did not make the authority exempt.

Texas sales or use tax was therefore due on the authority's portion of taxable items used to complete, operate, and maintain the plant. The reproduced facts give the authority an 11.72% interest, but the final paragraph refers to a 3.906% interest; the source does not reconcile the difference.

Common questions

Was the Oklahoma authority exempt as another state's agency? No.

Did exempt electric-cooperative members make the authority exempt? No.

Did the letter contain a consistent ownership percentage? No. It states both 11.72% and 3.906%.

Citations and references

• Tex. Tax Code § 151.309 — Texas governmental-entity exemption described in the letter.
• Texas Comptroller Rule 3.322(c)(7) — exemption for qualifying nonprofit electric cooperatives outside Texas.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8512L0687G03

Original ruling text

December 16, 1985

Dear ***:

Thank you for your letter of December 6, 1985, requesting a ruling to
determine if a sales tax exemption is available for the Oklahoma
Municipal Power Authority (OMPA) in the following situation:

The OMPA was created by the Oklahoma Legislature effective June
2, 1981, as a state governmental agency to provide the means for
municipal and cooperative electric systems to jointly plan, finance,
own and operate electric systems to provide electric power for its
members and its members' customers located in Oklahoma.

UTILITY A (), UTILITY B () and UTILITY C () appointed
UTILITY D () their agent to manage the construction of their
electric power plant located near *, Texas. The expected
completion date is December, 1986. UTILITIES A, B, C, and D
are wholly owned subsidiaries of CORP ABC (*).

C sold 11.72% of its undivided interest in the power plant to
OMPA on July 17, 1985. The current ownership percentages are:
A - 18%, B - 55%, C - 15.28% and OMPA - 11.72%.

Your specific questions are:

(1) Since OMPA is an agency of the State of Oklahoma whose members
are cities and electric cooperatives, is a sales tax exemption
available for OMPA's portion of the tax on purchases of machinery,
equipment, etc., to complete the construction of the power plant?

(2) If the exemption is granted, what is the effective date and will it
continue for purchases of materials, supplies, repair parts, etc.,
after the plant is in operation?

As you stated, the sales tax law, Section 151.309, provides that the
State of Texas and its political subdivisions are exempt entities and Rule
3.322(c)(7) provides that nonprofit electric cooperatives located outside
Texas are exempt enables.

The sales tax law excludes governmental entities of other states from
exemption. OMPA, an agency of the State of Oklahoma, is not an exempt
entity. The fact that some or all of OMPA's members may be exempt
electric cooperatives would not make OMPA an exempt entity. Texas sales
or use tax is due on all taxable items used to complete the power plant and
to operate and maintain the plant after completion.

Sales or use tax is due on OMPA's portion of taxable items used to
operate and maintain the electric power plant located near ***,
Texas in which it owns 3.906% interest.

This opinion is based upon the facts you presented. If there are additional
or different facts, this opinion may change.

Please feel free to contact us if you have additional questions. You may
write us, call toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy Section
Tax Administration Division