Was a 4% municipal franchise fee included in the taxable sales price of electricity in Texas?

Plain-English summary

A city imposed a 4% franchise fee on an electric utility for using streets and other public ways. Half was included in the electricity charge and half was billed separately to the customer.

The Comptroller treated the full franchise fee as part of the taxable sales price of electricity. Tax Code Section 151.007(a)(2) included the total amount charged for a taxable item without deducting materials, labor, or other expenses.

The result would have been the same if the ordinance required the entire fee to be collected separately from the customer.

What this means for you

Separately labeling a utility's business expense did not remove it from the taxable price paid for electricity.

Common questions

Was the municipal franchise fee taxable? Yes.

How much of the 4% fee was taxable? All of it.

Did separate billing change the result? No.

Why was it included? It was an expense included in the total amount charged for taxable electricity.

Citations and references

• Tex. Tax Code § 151.007(a)(2) (sales price or receipts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9010L1054B03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

BOB BULLOCK
Comptroller October 25, 1990

Dear *:

Thank you for your letter of October 17, 1990, concerning the tax-
ability of the municipal franchise fee as part of the sales price
of electricity sold inside the city limits of ***, Texas.

The municipal franchise fee is taxable as part of the sales price
of electricity.

The sales tax law imposes the sales tax on the "sales price" of a
taxable item. Section 151.007 (a)(2) of the sales tax law defines
"sales price" or "receipts" as "the total amount for which a tax-
able item is sold ... valued in money, without a deduction for the
cost of materials used, labor ... or other expenses...". The muni-
cipal franchise fee is an expense imposed by the City of *
on the ** (the City of *) for the use of streets and
other public ways in the conduct of its business.

The City of * set the franchise fee at 4%. The entire amount
collected as the 4% franchise fee is subject to sales tax. Section
III of the Franchise Ordinance of the City of **** addresses
the manner in which the 4% franchise fee is paid. One half of the
fee is included as part of charge for electricity and the remaining
half is separately billed to the electricity customer. The total fee
would still be taxable even if the franchise ordinance required the
total amount to be collected from the electricity customer.

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

You may call toll free 1-800- 252-5555 if you have any questions or
need more information. You may write to Tax Correspondence, Comp-
troller of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence