Can a provider of taxable amusement services buy the gas and electricity it uses tax-free in Texas?

Plain-English summary

A provider of taxable amusement services asked whether the gas and electricity it uses to provide those services could be bought tax-free. The Comptroller said no.

Amusement services became taxable on October 2, 1984, and when the Legislature made them taxable it elected not to exempt the utilities used to provide them. More broadly, the Comptroller explained, the Legislature did not provide a utility exemption for any person providing a taxed service. The only utility exemption in the Texas Tax Code is for persons manufacturing, processing, or fabricating tangible personal property for sale as tangible personal property. The Comptroller can only administer the tax laws the Legislature enacts — it cannot create new exemptions.

The Comptroller drew an analogy to manufacturing: a manufacturer pays sales tax once on the capital equipment it uses to make its products, and then collects sales tax from its customers when it sells those products. The amusement-service provider is in the same position — it pays sales tax on its utilities and collects sales tax from its customers on the amusement services it sells.

What this means for you

Amusement and other service businesses

If you provide a taxable service, expect to pay sales tax on the gas and electricity you consume to deliver it. There is no utility exemption for service providers — that exemption is reserved for manufacturers, processors, and fabricators of tangible personal property for sale.

The two separate tax events

Paying tax on your utilities and collecting tax from your customers are distinct. You owe tax on your inputs (utilities) as the consumer, and you separately collect tax on the taxable service you sell. Don't treat collecting tax on your sales as canceling out the tax you owe on your own utility purchases.

Common questions

Q: Are utilities used to provide amusement services exempt in Texas?
A: No. The Legislature did not exempt utilities used to provide amusement services, so they are taxable.

Q: Does any service provider get a utility exemption?
A: No. The Tax Code's utility exemption is only for persons manufacturing, processing, or fabricating tangible personal property for sale.

Q: Why can't the Comptroller grant an exemption here?
A: The Comptroller only administers the tax laws the Legislature enacts and is not authorized to make tax law, so it cannot create an exemption the statute doesn't provide.

Q: Can I rely on this 1988 letter for my own business?
A: Treat it as guidance only. It is based on the specific facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rules and statutes: The letter states that the Texas Tax Code's utility exemption is limited to manufacturing/processing/fabricating tangible personal property for sale, and that amusement services became taxable October 2, 1984, but it does not cite a specific Tax Code section by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8810L0908D04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 18, 1988

Dear ***:

Thank you for you letter of October 6, 1988, regarding the taxa-
bility of utilities used to provide taxable amusement services.

The utilities use to provide amusement services that became taxa-
ble October 2, 1984, are taxable. The Legislature elected not to
exempt utilities used to provide amusement services. As a matter
of fact, the Legislature did not provide a utility exemption for
any person providing any of the services that are taxed. The Tex-
as Tax Code only provides utility exemption for persons manufac-
turing, processing, or fabricating tangible personal property for
sale as tangible personal property.

The Comptroller is authorized only to administer the tax laws the
Legislature enacts; he is not authorized to make tax laws.

Manufacturers are required to pay sales tax on their capital
equipment used in manufacturing the products that they sell and
collect tax on. In this instance, the manufacturing pays the tax
just once on the purchase of the capital equipment. The manufac-
turer the collects sales tax from its customers when the products
are sold. This is similar to your situation when you pay sales
tax on your utilities and collect sales tax from your customers
on the amusement services you sell.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

If you have any questions or need more information, you may call
toll-free 1-800-252-5555, ext. 3-4683. The regular number is
512/463-4600. You may write me at Tax Correspondence, Comptroller
of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence