Did Texas utilities need exemption certificates for electricity accounts coded as agricultural irrigation?

Plain-English summary

A utility asked to automatically exempt accounts coded as “Irrigation,” similar to accounts automatically recognized as residential.

Natural gas and electricity used to pump water for farm or ranch irrigation were outside commercial use when the irrigation produced food, feed, grass, or other agricultural products for regular sale. Electricity used for a personal garden or another nonagricultural purpose remained taxable.

The Comptroller refused automatic exemption for the irrigation code. Tax Code Section 151.054 presumed gross receipts taxable unless the seller accepted a resale or exemption certificate. Irrigation customers therefore had to certify that the electricity was used exclusively or predominantly for qualifying agricultural products for sale; predominant use required a study.

STAR adds a later-law alert that 2011 legislation required people claiming certain agricultural and timber exemptions to obtain and provide a Comptroller registration number beginning January 1, 2012.

What this means for you

Qualifying agricultural use created the exemption, but the account label alone did not prove it. The utility needed customer documentation, and STAR warns that later registration requirements may also apply.

Common questions

Was power for commercial farm irrigation exempt? Yes when used for agricultural products sold in the regular course of business.

Was power for a personal garden exempt? No.

Could the utility rely only on an “Irrigation” account code? No.

When was a usage study required? When the customer claimed predominant rather than exclusive qualifying use.

What later requirement does STAR flag? A Comptroller registration number for certain agricultural and timber exemptions effective January 1, 2012.

Citations and references

• Tex. Tax Code § 151.317 (natural gas and electricity)
• Tex. Tax Code § 151.316 (farm and ranch items)
• Tex. Tax Code § 151.054(a) (presumption and exemption certificates)
• H.B. 268, 82nd Regular Legislative Session (2011 registration-number requirement; STAR alert)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9011L1066A01

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.

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, TEXAS 78774

BOB BULLOCK

Comptroller November 14, 1990

Dear ***:

Thank you for your letter regarding the requirement for exemption

certificates for a class of customers called "Irrigation."

You stated that the term "Irrigation" used by *** refers

to a customer who uses gas or electricity only for lifting water

to irrigate agricultural lands. You are asking that the require-

ment for an exemption certificate be waived and that these accounts

be automatically exempted from the sales tax on natural gas and

electricity the same as "residential" accounts were exempted in

1978.

Both the state and local tax laws contain a definition of "residen-

tial use" for natural gas and electricity purposes. The utility

companies were notified by this department that an exemption certi-

ficate would not be required from those customers that were coded

as "residential" (so designated because of other tariff or rate

schedules filings required of utilities) if the utility company's

designation of residential was consistent with the statutory defi-

nition.

Section 151.317 provides that natural gas and electricity are ex-

empt from tax except when sold for commercial use. "Commercial use"

does not include use by a person engaged in "agriculture, including

dairy or poultry operations and pumping for farm or ranch irriga-

tion."

Section 151.316 outlines the items that are exempt from sales tax

and those items that qualify for exemption if exclusively used or

employed on a farm or ranch in the production of food for human

consumption, feed for animal life, grass, or other agricultural

products to be sold in the regular course of business. Electricity

used on a farm or ranch for irrigation of food, feed, grass, or

other agricultural products to be sold in the regular course of

business is exempt use. However, electricity used on a farm or

ranch for irrigation of a garden when the products are not grown

for the purpose of resale or other non-agriculture use is taxable

use.

Effective October 2, 1984, Tax Code Section 151.054(a) was amended

to read, "Except as provided by Subsection (d) of this section, all

gross receipts of a seller are presumed to have been subject to the

sales tax unless a resale-or exemption certificate is accepted by

the seller." (emphasis added) Prior to this change, the gross re-

ceipts were presumed to have been subject to the sales tax until

the contrary was established.

Based on the provisions of the Tax Code requiring an exemption cer-

tificate for the tax free sale of items that qualify for exemption

through their use and the fact that the purchaser must state that

the electricity is exclusively for or is predominantly used (study

required) for irrigation of agriculture products for sale, exemp-

tion certificates must be obtained from the utility customers coded

as "Irrigation."

This opinion is based on the facts presented. If there are addition-

al or different facts, the opinion may change.

If you have any questions or need additional information, you may

call me toll free at 1-800-252-5555 or the regular number 512/463-

4600. My extension is 3-4666. You may write to Tax Correspondence,

Comptroller of Public Accounts.

Sincerely,

Jo Ann Dieck

Tax Correspondence