What certificates, meter-by-meter studies, records, refund proof, and ongoing monitoring were required for customers claiming a utility sales-tax exemption?

Plain-English summary

The body is dated June 16, 1986. Each utility meter had to qualify separately. A customer with multiple accounts could issue one certificate only if it listed every account number claimed exempt and gave the reason; an unidentified blanket certificate was not acceptable.

When one meter served both taxable and exempt uses, a usage study had to show more than 50% exempt use. A continuous manufacturer or processor needed 12 consecutive months at the same location before establishing predominant use. A seasonal operation established the exemption only for its processing or manufacturing period. An otherwise exempt church, school, or similar organization could claim exemption when service began if the meter had no taxable use.

The claimant bore responsibility for qualification, retained the study for audit, and faced tax, penalty, and interest if the study was missing or invalid. Equipment and business changes had to be considered for refunds and future qualification. If later changes made use predominantly taxable, the customer had to withdraw the certificate.

The utility company also had seller responsibilities. Certificates had to state a specific reason for exemption. A properly completed certificate accepted in good faith relieved the utility of further liability, while questionable certificates were to be denied and referred to the Comptroller.

A refund required a written request, was limited to four years from the request date, and could be paid only to the person responsible for the utility bill for the period that person paid it.

Common questions

Could one certificate cover multiple utility accounts? Yes, if it identified every account and stated each exemption reason.

Did each meter qualify independently? Yes.

What threshold applied to mixed-use meters? More than 50% exempt use shown by a valid study.

What happened after business or equipment changes? The claimant reassessed eligibility and withdrew the certificate if use became predominantly taxable.

Who could receive a refund? The person responsible for paying the bill, for the period that person paid it.

Citations and references

• 34 Tex. Admin. Code Rules 3.295 and 3.287 were enclosed with the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8606L0817G05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller June 16, 1986

Dear *:

Thank you for your letter of May 28, 1986 regarding sales tax exemption
certificates received from utility customers.

A customer having multiple utility accounts must issue an exemption
certificate for each account for which tax exemption is being claimed. A
single exemption certificate is acceptable provided each account number
for
which tax exemption is being claimed is listed on the certificate along
with
the reason for exemption.

A single exemption certificate without identifying the account numbers
would
not be acceptable since not all accounts may qualify for exemption. Each
meter must qualify for exemption on its own.

A new account coming on line would not be entitled to tax exempt status
if
the utility must qualify for exemption based on predominant use. Persons
that will have both taxable and exempt uses of electricity on the same
meter
must determine to, a utility usage study that over 50% of the utility is
exempt use.

A person who performs a processing or manufacturing function continually
must
establish that the utility qualifies for exemption based on twelve
consecutive months of use at the same location. Thus, a person engaged
in
manufacturing or processing must be in business one year before
predominant
use can be established.

If a processing or manufacturing function is performed for only part of
the
year (i.e., seasonal), the exemption must be established for the period
that
manufacturing or processing occurs and exemption can be claimed only for
those exempt periods.

The above information would apply to any entity/business that must prove
exemption based on predominant use.

An entity that has been issued exempt status for sales tax purposes such
as a
church, school, or religious, educational or charitable organization can
claim exemption when the utility service is applied for so long as there
will
be no taxable uses of the utility on a single meter.

It is the responsibility of the person claiming exemption to determine
that
the utility qualifies for exemption. When there are both taxable and
exempt
uses measured by a single meter, the person must establish by a utility
usage
study that over 50% of the utility is for exempt use. A copy of the
study
must be kept in the person's files for verification in the event of an
audit
by this department. If a study is not available to our auditors or the
study
is not valid, the tax plus applicable penalty and interest will be
assessed.
This is why the person must make every effort to determine that the
exemption
is applicable before claiming exemption.

A person who determines that the utility qualifies for exemption can
claim a
sales tax refund provided that the past use was the same as at the time
the
study was performed determining predominant exempt use. Any changes
(additions, deletions, upgrades, etc.) in equipment or other items using
the
utility and any changes in business activity during the time period
covered
by the refund request must be taken into account.

The person is responsible for being sure that the utility qualifies for
exemption in the future. If any changes in the business are made which
result in the predominant use being taxable, the person must withdraw the
exemption certificate issued to the utility company. Failure to do so
will
result in assessment of tax, penalty and interest.

The utility company has the same responsibilities as any other seller
selling
taxable items. The utility company is responsible for knowing which
types of
uses qualify for exemption and which types of uses are taxable.

The exemption certificate issued to you must contain the specific reason
for
exemption (i.e., manufacturing widgets for sale rather than just
manufacturing; pumping oil from the ground rather than "exploration for
or
production and transportation"). The utility company is received of
further
liability for the tax when the properly completed exemption certificate
is
accepted in good faith. Any questionable certificate should be denied
and
the customer referred to us.

A sales tax refund cannot be made without a written request for refund.
The
statute of limitations limits refunds to four years from the refund
request date.

The refund can be made only to the person who is responsible for paying
the
utility bill and only for the period for which the bill was paid by that
person.

I am enclosing Rules 3.295 and 3.287 for your information.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change. If you have any questions or
need more information, please call me at 1-800-252-5555 toll free from anywhere
in Texas. The regular number is 512/463-4600. You may write me at the Tax
Administration Division.

Sincerely,
(Mrs.) Jo Ann Dieck
Tax Policy
Tax Administration Division