Did natural-gas and electric-service contracts qualify for prior-contract protection from Texas tax-rate increases when they passed tax changes to customers?

Plain-English summary

Natural-gas and electric-service agreements transferred the burden of any state or local sales-and-use-tax increase from the utility to its customers.

The Comptroller said those agreements did not qualify customers for a prior-contract exemption. Rule 3.319(c)(3) denied protection where the contract passed the tax increase through to the customer.

The letter also said any rate increase caused the agreements to be treated as new contracts under Rule 3.319(c)(2).

What this means for you

Utilities and customers

A fixed contract date did not preserve the old tax rate when the agreement expressly shifted later tax increases to the customer.

Accountants and tax professionals

Review both tax clauses and pricing changes. Either the pass-through provision or a rate increase could defeat historical prior-contract treatment under this letter.

Common questions

Did the agreements receive prior-contract protection? No.

Why not? They shifted tax-rate increases to customers.

What did a rate increase do? It caused the agreement to be treated as a new contract.

Citations and references

• 34 Tex. Admin. Code Rule 3.319(c)(2) and (c)(3) (prior contracts and tax pass-through provisions)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1157D09

Original ruling text

February 3, 1992

Dear **:

Thank you for your letter of January 23, 1992, and the accompanying
agreements for natural gas and electric service.

The agreements clearly will not entitle customers a prior contract
exemption from an increase in the state or local sales and use tax
rate. The agreements contain a provision which transfers the burden
of the tax increase from City Public Service to the customer.
See section (c)(3) of the enclosed Rule 3.319 - Prior Contracts.

Please note that any rate increase will cause the contracts to be
considered new contracts under section (c)(2) of Rule 3.319.

This opinion is based on the facts presented. If there are
additional 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 Administration Division,
Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division