Ezel / Tax Rulings / TX
TX 8702L0816G11 Sales and/or Use Tax (State,Local,MTA) 1987-02-27

Could a business claim a Texas sales-tax exemption or refund for electricity used to make products it installed as real-property improvements?

Short answer: No. When installing its products into realty, the business was treated as a contractor rather than a manufacturer, and electricity was a taxable consumable supply.

Apply this to your situation

This page answers the general question as of 1987. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1987
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This 1987 Texas Comptroller letter classifies a business as a contractor when it installs manufactured products as part of real property and treats electricity as a consumed supply. Contractor, manufacturer, real-property, electricity, utility, refund, exemption, allocation, and local-tax rules may have changed or differ for mixed operations. STAR documents may no longer represent current policy even when not marked superseded. Identities are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The Texas Comptroller denied a sales-tax exemption and refund claim for electricity used by a business that manufactured products and installed some of them as part of real property.

When working on real property, the business was treated as a contractor rather than a manufacturer. Contractors did not receive a sales-tax exemption for supplies consumed while producing a product, and electricity was a consumable supply. The business was therefore correct to pay sales tax to the utility company.

What this means for you

Manufacturing a product did not preserve manufacturer treatment when the business also installed it into realty. The activity at issue controlled the classification, and the contractor consumed the electricity rather than buying it exempt.

Common questions

Was the business treated as a manufacturer for the installed work? No.

What was its classification? Contractor.

Was the electricity exempt? No.

Did the Comptroller continue processing the refund claim? No.

Citations and references

  • The letter cited no numbered statute or Comptroller rule.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller February 27, 1987

Dear ***:

Your agent, CORP ABC, applied for a sales tax exemption on your behalf.
The exemption and refund of sales tax was for electricity used by your
business.

Additional information obtained from you by telephone indicates that
you install some of the products you manufacture as a part of real
property. When you work on real property, under the sales tax law,
you are treated as a contractor rather than a manufacturer. Contractors
do not get sales tax exemptions for the supplies they consume while
producing a product. Electricity is a consumable supply item to a
contractor. You are correct in paying sales tax to the utility company
when the electricity is purchased.

Since the sales tax exemption doesn't apply to your type of business, we
are, of course, taking no further action on your refund claim.

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
512/463-4633.

Sincerely,
(Mrs.) Wanda Hutcheson
Tax Administration Division

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