Which utility bills had to support a predominant-use exemption or refund, and what happened when an invalid exemption was claimed?

Plain-English summary

For a year-round manufacturing, processing, or other noncommercial function, predominant utility use was established from 12 consecutive months, and the latest 12 months of bills had to be included. A seasonal operation used the current bills for the period when the qualifying function occurred.

A business operating less than 12 months could use a registered engineer's or engineering graduate's projected-use study, but had to support it with an actual-use study after 12 months if the Comptroller requested one.

The same periods applied to refund studies if operations had remained the same. Changes in equipment, building size, or business activity could require additional studies and bills. Refunds were limited to four years from when tax was due. An invalid exemption produced liability for tax, penalty, and interest, generally subject to a four-year assessment period.

What this means for you

The study period should match how the business actually operates. Historical refund claims also need to account for operational changes rather than applying one current study across unlike years.

Common questions

What did a year-round business need? The latest 12 consecutive months of bills.

What did a seasonal business need? Bills covering the qualifying operating period.

Could a new business use projections? Yes, with a qualified study and later actual-use support if requested.

What followed an invalid exemption? Tax, applicable penalty, and interest.

Citations and references

The letter described four-year refund and assessment limits but did not cite a section number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1106D01

Original ruling text

April 23, 1991

Dear **:

Thank you for your letter regarding the utility studies for
natural gas and electricity. Your specific questions are restated
below with response:

1. If a firm is claiming an exemption, how many years of past
   utility bills are required to be tabulated in the utility study?

RESPONSE: If the utility customer performs a manufacturing,
processing, or other noncommercial function continually,
predominant use is established on twelve consecutive months of
use. The most current past twelve months bills must be a part of
the study.

If the utility customer performs a manufacturing, processing, or
other noncommercial function only part of the year, predominant
use is established for the period of time that the processing,
manufacturing, or other noncommercial function occurs. The most
current bills for that period must be a part of the study.

A person in business less than twelve consecutive months may have
a study performed by a registered engineer or a person with an
engineering degree based upon projected uses. A person claiming
an exemption based upon estimated projected use must be able to
support the claimed exemption with a study of actual use after
twelve consecutive months of operation if so requested by this
office.

2. If an establishment has not been claiming an exemption and is
   now requesting a refund, how many years of back utility bills
   should be shown in the utility study?

RESPONSE: The response to Question 1 applies as long as the past
operations for which an exemption could be claimed were the same.
Any changes in the past operations (i.e., the equipment, building
size, business activities, etc.) must be taken into account, and
may require additional studies with the appropriate utility bills
if the utility uses were different.

The statute of limitations limits refunds to four years from the
date on which the tax was due and payable to this office.

3. If an establishment has been claiming an exemption but does not
   qualify for an exemption, what is their liability?

RESPONSE: The establishment would be liable for the tax, plus
applicable penalty and interest on the utilities for which an
invalid exemption was claimed. Generally, the four year statute
of limitation period applies for tax assessments.

I have asked that your name be included on the mailing list to
receive the "Tax Policy News."

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. You may
write to the Tax Administration Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division

Taxpayer asked how many years of bills must be included in a study
and the electricity customer's liability if the electricity
does not qualify?

If the person is in business year around, the study is based on
twelve months use and the most current twelve months bill must be
included. If refund is claimed, any changes in business during
the refund period must be considered and such changes may require
additional studies and bills.

If the person is operating a seasonal business, exemption can be
claimed only for that period. Bills for that period are a part of
the study.

Taxpayer liable for tax, penalty and interest only if the electricity
is found to not qualify for exemption.