When was electricity for rodeos, livestock auctions, salt-water disposal, water flooding, and exempt organizations exempt from Texas sales tax?

Plain-English summary

The Comptroller answered six separate questions about electricity:

• Roping pens, fairs, and rodeo arenas generally had taxable electricity unless the purchaser qualified under the listed Rule 3.322 exemptions. For certain organizations, the rodeo purchase also had to relate to the organization's exempt purpose.
• Electricity bought by a qualifying youth athletic organization, Lions Club, or Kiwanis Club for a sponsored rodeo was exempt; other organizations had to be tested under Rule 3.322.
• Auction-barn electricity for gates, scales, and livestock-sale functions was taxable unless the purchaser was exempt. An auction barn was not a farm or ranch, so this was not exempt agricultural use.
• Electricity used to transport salt water to a disposal well was exempt only if the salt water was naturally occurring and therefore qualified as material extracted from the earth.
• Electricity used to operate a water-flood project to increase production was exempt.
• An entity required to prove exempt status under Rule 3.322(c) could not claim the exemption until the Comptroller granted it. The effective date was the date of the exemption letter, and tax paid before that date was not refundable.

What this means for you

An electricity exemption depended on the exact purchaser, activity, and timing. A generally exempt organization could still face a purpose-related restriction, and an organization awaiting approval could not backdate its exemption under this letter.

Common questions

Was electricity for an auction barn exempt agricultural use? No.

Was electricity for a production-enhancing water-flood project exempt? Yes.

Could a newly approved organization recover tax paid before its exemption letter? No.

Was all salt-water-disposal electricity exempt? No. The transported salt water had to be naturally occurring.

Citations and references

• Comptroller Rule 3.322(b), (c)(1)-(8) — exempt organizations and purpose-related purchases

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9010L1054B08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 26, 1990

Dear *:

Thank you for your letter concerning the taxable or exempt uses
of electricity in the following situations:

1. Roping pens and rodeo arenas, for example, Texas Cowboy
   Reunion, county fairs, and rodeos.

Response: The electricity is taxable unless the purchaser is an
exempt organization listed in subsections (b), and subsections
(c)(4), (c)(6), (c)(7), or (c)(8) of Rule 3.322. If the organiza-
tion is exempt under subsections (c)(1), (c)(2), (c)(3), or
(c)(5) of Rule 3.322, purchases for the rodeo must be related
to the purpose of the exempt organization, for example, a rodeo
organization.

2. Rodeos sponsored by exempt organizations like junior rodeos
   sponsored by youth athletic organizations, Lions, Kiwanis, etc.

Response: Electricity purchased by a youth athletic organization
as defined in subsection (c)(4) of Rule 3.322, the Lions Club,
or the Kiwanis Club is exempt from sales tax. Please see Rule
3.322 regarding other exempt organizations.

3. Auction barns - electric gates, scales and other items related
   to the sale of livestock.

Response: The electricity is taxable unless the purchaser is an
exempt organization. The auction barn is not a farm or ranch and
the electricity does not qualify for exemption as agriculture use.

4. Salt water disposal pumps - a well where salt water is trans-
   ported from other wells and pumped back into the ground.

Response: The electricity to transport salt water is exempt only
if the salt water qualifies as a "material extracted from the
earth." The salt water must be naturally occurring to qualify as
a "material extracted from the earth."

5. Operation of a water flood project - to increase production.

Response: The electricity qualifies as exempt use.

6. State sales tax refunds for charitable organizations that can
   qualify for exemption from state sales tax but have not applied
   to the state.

Response: Entities that must prove exempt status as outlined in
Subsection (c) of the enclosed Rule 3.322 cannot claim tax exemp-
tion on electricity until the entity has been granted exempt
status by the Texas Comptroller's Office. The exempt status is
effective from the date of the letter granting the exemption. A
refund cannot be obtained for sales tax paid prior to the effec-
tive date of the exemption. Entities which have applied for and
been granted exempt status by the Texas Comptroller's Office are
allowed to purchase tax free items which relate to their exempt
purpose.

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 additional information, you may
call toll free 1- 800-252-5555 or the regular number 512/463-4666.
My extension is 3-4666. You may write to Tax Correspondence, Comp-
troller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence