Which electricity uses of a private water and sewer utility were exempt, and how did the predominant-use test apply to a mixed-use meter?

Plain-English summary

The private utility provided water and sewer service. Electricity was exempt when used to pump water from the ground, move it to storage before processing, transport it to a processing point, or operate water-processing equipment.

Electricity was taxable when used to move processed water to storage or to the ultimate consumer. Merely useful or incidental uses—including lighting, heating, controls, and office equipment—were taxable. Electricity used to provide sewer service was also taxable.

If one meter measured both categories, more than 50% of the electricity had to be exempt use. The utility needed a valid usage study clearly showing predominant exempt use before claiming the exemption.

Common questions

Was electricity used to pump groundwater exempt? Yes.

Was electricity used to distribute processed water exempt? No.

Was sewer-service electricity exempt? No.

What did a mixed-use meter require? More than 50% exempt use, supported by a valid electricity-usage study.

Citations and references

• 34 Tex. Admin. Code Rule 3.295 was 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/8608L0752B04

Original ruling text

August 7, 1986

Dear **:

Thank you for your letter of August 1, 1986, regarding sales tax exemption on
electricity.

You explained that UTILITY COMPANY, is a privately owned utility providing
water and sewer service to residents and a few commercial businesses in the
AREA subdivision.

The electricity used to operate equipment to pump water from the ground, to
transport it to a storage tank or holding facility before the water is
processed or to transport the water to a processing point and to operate
water-processing equipment is exempt use.

The electricity used to operate equipment to transport processed water to a
storage tank or holding facility and to transport water to the ultimate
consumer is taxable use.

Electricity for any purpose which is merely useful or incidental to the
operation including, but not limited to, such uses as lighting, heating,
controlling or powering office equipment is taxable use.

The electricity used in providing sewer service is taxable.

The "predominant use" theory is applied where a single electric meter measures
both exempt and taxable uses. This means that over 50% of the electricity must
be exempt use in order to claim tax exemption. A study of the electricity uses
must be performed to determine predominant use. Without a valid study of the
utility usage clearly showing predominant exempt use, sales tax exemption
cannot be claimed.

I am enclosing Rule 3.295 for your information.

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 me if you have additional questions. You may write
me, call toll free 1-800-252-5555 from anywhere in Texas or phone 512/463-4600.

Sincerely,

(Mrs.) Jo Ann Dieck
Tax Policy Section
Tax Administration Division