Were sales of untreated water to farmers and manufacturers taxable, and did a water-only seller need exemption certificates or a sales-tax permit?

Plain-English summary

A seller pumped untreated water from the Trinity River through relift plants and canals for irrigation customers and an upcoming industrial customer.

The Comptroller said water was exempt from sales and use tax by statute. Sales were nontaxable whether the customer was a farmer or manufacturer. No customer exemption certificate was needed, and a business selling only water did not need a sales-tax permit because it sold no taxable items.

The seller remained the taxable consumer of equipment used to provide the water service, such as equipment used to remove water from the river.

Items used exclusively on a farm or ranch could qualify for a specific Rule 3.296 exemption and be bought with an exemption certificate. Neither the water seller nor farmers received a blanket exemption from tax.

STAR carries an alert that a 2011 amendment later required Comptroller-issued registration numbers for certain agricultural and timber exemptions beginning January 1, 2012. This page reports the 1989 ruling and does not present its certificate procedure as current law.

Common questions

Were untreated-water sales taxable? No.

Did the customer's farm or manufacturing use change that result? No.

Did a water-only seller need a sales-tax permit? No.

Was all of the seller's equipment exempt? No.

Citations and references

• 34 Tex. Admin. Code Rule 3.296

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8909L0972F12

Original ruling text

ALERT: This document may be affected by changes to the Tax Code which was amended by H.B. 268, 82nd Reg. Legislative Session, 2011. The amendment required persons claiming a sales tax exemption for certain agricultural and timber products to apply for and provide a registration number issued by the Comptroller, effective 01/01/2012.

September 27, 1989

Dear ****:

Thank you for your inquiry regarding the taxability of water.

You state that **** sells untreated water to farmers for irrigation
purposes. You indicate that you will soon have an industrial customer who
wishes to purchase water from you. You acquire the water from the Trinity
River using two relift plants and deliver the water through canals and
laterals. You also state that you were advised in a phone call to this agency
that the sale of the raw, untreated water isn't taxable.

The sale of water is exempt from sales and use tax. Therefore, your sales of
water aren't taxable whether your customer is a farmer or manufacturer. Since
sales of water are exempt by statute, you don't need to obtain an exemption
certificate from your customer. If you only sell water, you aren't required to
obtain a sales tax permit because you aren't selling taxable items.

However, you are required to pay tax on all taxable items you purchase to
provide your service. For example, you should pay tax on equipment used to
remove the water from the Trinity River.

On the other hand, if you purchase items that are used exclusively on a farm or
ranch, you may qualify for certain exemptions listed in the enclosed
Comptroller's Rule 3.296 (Agriculture, Animal Life, Feed, Seed, Plants, and
Fertilizer). If you purchase items which qualify for exemption, you may issue
an exemption certificate to your supplier in lieu of tax.

In either case, you don't qualify for a "blanket exemption" from tax.
Moreover, although farmers may purchase certain items tax-free as indicated in
Rule 3.296, they also don't qualify for a blanket exemption from tax.

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

If you have any questions, please contact Tax Correspondence. You may call
toll free 1-800-252-5555, or our regular number is 512/463-4600. My extension
is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence