How did a seasonal cotton gin establish predominant use and obtain an electricity exemption or refund for qualifying processing periods?

Plain-English summary

For a cotton gin operating only three or four months per year, predominant use was established during the processing period, not across the full year. A 12-month calculation applied only if the gin actually processed cotton all year.

The gin could claim exemption only for billing periods that qualified. If the utility company could not tax and exempt the proper periods separately, the gin paid tax and requested a refund from the utility.

The gin could not exempt every bill and self-accrue tax for nonexempt months, or pay every bill and take a direct state credit for exempt months. Because the utility paid the tax to Texas, the refund flowed through the utility.

STAR's subject metadata says utility studies were no longer required, but the operative text instead requires predominant-use proof under Rule 3.295(d)(2).

Common questions

Was predominant use measured over all 12 months? Only if the gin processed cotton all year.

Could the gin claim exemption for nonprocessing months? No.

Who handled a refund? The utility company.

Citations and references

• 34 Tex. Admin. Code Rule 3.295(d)(2)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8911L0969F11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

November 20, 1989

Dear *:

Thank you for your letter regarding sales tax exemption on electricity
for cotton gins.

Section (d)( (2) of Rule 3.295 is applicable to cotton gins that are
processing only part of the year. This section provides that predominant use
is to be established for the period of time the processing function occurs.
Therefore, a cotton gin that is processing only three or four months of the
year would be able to claim sales tax exemption only for that processing period
if the predominant use of electricity is exempt for that period.

Predominant use could be established and Sales tax exemption claimed
based on twelve months use only if the cotton gin was actually processing
cotton all twelve months of the year.

The cotton gin can claim tax exemption only for the billing periods that
qualify for exemption. If the utility company cannot exempt and tax the
utility bills for the appropriate billing periods, the cotton gin should pay
tax to the utility company and then claim a refund.

The cotton gin cannot claim exemption for all billing periods and then
accrue and report the tax directly to the state on the nonexempt billing
periods. The cotton gin cannot pay tax to the utility company on all billing
periods and then claim credit from the state on its sales tax return for the
billing periods that quality for exemption. The state can refund tax only to
the entity that paid the tax to the state. The cotton gin would have to obtain
the refund from the utility company who would, in turn, claim a refund or
reimbursement for the tax from the state.

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 additional information, you may call me
at 463-4666 or toll free 1-800-252-5555, extension 3-4666 from outside Austin.
You may write to Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence