Could a commercial tenant claim a Texas electricity exemption or refund when its landlord bought the utility and billed reimbursement under the lease?

Plain-English summary

A mall landlord bought utilities and recovered the tenant's share under the lease, using submeters or re-registering meters without charging more than the direct utility rate. Texas said the landlord was purchasing utilities for commercial use in connection with leasing property and receiving reimbursement as part of the lease. It was not selling utilities to the tenant, so the requested sales-tax exemption and refund did not apply.

What this means for you

Submetering and separately recovering utility costs did not make this landlord a utility reseller under the reviewed lease. The Comptroller treated the utility purchase as part of the landlord's commercial rental activity.

Common questions

Who issued the utility bills reviewed by Texas? The landlord, not a third-party utility company.

Was the landlord reselling electricity to the tenant? No.

Why did the landlord collect money from the tenant? The lease required reimbursement for the tenant's utility use as part of the property-rental arrangement.

Did the tenant qualify for the requested exemption and refund? No under the facts and lease reviewed.

Citations and references

The letter did not cite a statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9103L1083C05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller March 5, 1991

Dear ** :

Thank you for sending a copy of the lease agreement between
COMPANY ABC and FACILITY X.

The contract provides that "TENANT shall promptly pay for all
public utilities rendered or furnished to TENANT's store unit
during the term hereof ... provided separate meters are installed
for TENANT. LANDLORD may install re-registering meters and
collect any and all charges aforesaid from TENANT, making returns
to the proper public utility company or governmental unit,
provided that TENANT shall not be charged more than the rates that
would be charged for the same services if furnished direct to
TENANT's store unit by such companies or governmental units."

The billings that were previously sent with the electricity study
are from FACILITY X who is the Landlord, and not from a
third-party utility company. The Landlord is purchasing the
utilities for commercial use in conjunction with leasing property
and receiving reimbursement from the Tenants as part of their
lease agreement. The Landlord is not selling utilities to the
Tenants. Sales tax exemption and refund are not applicable.

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 toll free at 1-800-252-5555, extension 3-4666. The
regular number is 512/463-4600. You may write to Tax
Administration Division.

Sincerely,
Jo Ann Dieck
Tax Administration Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller October 4, 1990

Dear ** :

The information you sent regarding a sales tax exemption and
refund of sales tax on electricity for your client, COMPANY
ABC has been reviewed.

You stated that the restaurant is located in a mall and is sub-
metered by an outside firm as opposed to the utility company. The
bills indicate that they are sent by the mall or its management
company. Copies of the lease agreement between COMPANY ABC's and the
mall are needed to determine if the mall is just seeking reim-
bursement for COMPANY ABC's share of the total mall utility bill as
part of the property lease agreement or if, in fact, COMPANY ABC's is
purchasing electricity from a third-party utility supplier. If
COMPANY ABC's is purchasing electricity from a third-party utility sup-
plier, a copy of the agreement for utility purchases is also
needed.

If you have any questions or need additional information, you may
call me toll free at 1-800-252-5555, extension 3-4666. Please
send the requested information to me at Comptroller of Public
Accounts, Tax Correspondence Division.

Sincerely,
Jo Ann Dieck
Tax Correspondence