Texas Letter Ruling 9210L1199F14: Local Tax — City Ordinance — Enacting Tax On Telecommunications/Gas And Electricity — Whether Will Expire If City Changes Providers

Subject

Local Tax — City Ordinance — Enacting Tax On Telecommunications/Gas And Electricity — Whether Will Expire If City Changes Providers

Plain-English summary

This is an internal Comptroller memo, not a ruling issued to a taxpayer. A staff member in Tax Administration (John Christian) responded to a colleague in Revenue Accounting (Linda Bell) about three ordinances passed by a city imposing local tax on telecommunications services, natural gas, and electricity.

The ordinances were unusual: their preambles and section headings named three specific companies (an electric cooperative, Texas Utilities, and a gas company) as the service providers. That raised the question of whether the taxing ordinances would "expire" — that is, stop applying — if the city later switched to different companies for gas or electric service.

The memo concludes the ordinances would not expire. Four reasons are given:

1. The actual operative taxing language in each ordinance is general — it authorizes tax "on all electrical services sold within the City" or "on all gas services sold within the City," without limiting it to the named companies.
2. Each ordinance contains a clause directing that it "be liberally construed to achieve its remedial purposes."
3. Each ordinance contains a severability clause, so that even if one part were held unconstitutional, the rest would remain valid.
4. The specific companies are mentioned only in the preambles and section headings — not in the operative tax-imposition language — so nothing in the ordinances actually limits the tax to sales by those named companies.

The author notes he "would not have recommended" naming the current providers in the ordinance text in the first place, but still believes the tax would continue to apply even if the city later contracted with other companies for electricity and natural gas.

What this means for you

Cities and municipal officials drafting utility tax ordinances

If your city's ordinance imposing a local utility tax happens to name specific service providers in its preamble or section headings, that alone won't necessarily limit or void the tax if you switch providers later — as long as the actual taxing clause is written broadly (e.g., "a tax is hereby authorized on all electrical services sold within the City"), and the ordinance includes liberal-construction and severability clauses. Even so, the memo's author suggests avoiding naming current providers in ordinance text to begin with, since it created ambiguity that had to be resolved by legal analysis.

Utility companies (telecommunications, gas, electric providers)

If you begin serving a city under a utility tax ordinance that was originally drafted naming a different, prior provider, this memo indicates the Comptroller's view is that the tax still applies to your sales in that city — you are not exempt just because the ordinance's preamble references a different company by name.

Accountants and tax professionals advising local governments or utilities

This memo shows the Comptroller's internal reasoning process on an ordinance-drafting question: look past the preamble/heading language naming specific companies and focus on the actual operative tax-imposition clause, plus any liberal-construction and severability clauses, to determine the true scope of a local utility tax ordinance.

Common questions

Q: Does naming a specific utility provider in a city ordinance limit the tax to that provider only?
A: Not according to this memo, if the operative taxing language itself is written generally (e.g., taxing "all" gas or electrical services sold in the city) and the provider names appear only in the preamble or section headings, not in the actual imposition-of-tax language.

Q: What happens to the tax ordinance if the city switches to a new gas or electric company?
A: The memo concludes the ordinances "will continue in effect even if the city later contracts with other companies for electricity and natural gas."

Q: What ordinance features supported this conclusion?
A: The memo pointed to (1) broad, unrestricted taxing language, (2) a liberal-construction clause, (3) a severability clause, and (4) the fact that the named companies appeared only in preambles and section headings, not in the tax-imposition provisions themselves.

Q: Is this a formal letter ruling that a taxpayer can rely on?
A: No. This is an internal Comptroller staff memo between two divisions (Tax Administration and Revenue Accounting/Tax Allocation) discussing how to interpret specific city ordinances — it was not issued in response to a taxpayer's ruling request.

Citations and references

No statutes, rules, or other authorities are cited in the original text of this memo.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9210L1199F14

Original ruling text

DATE: October 16, 1992

TO: Linda Bell, Tax Allocation, Revenue Accounting

FROM: John Christian, Tax Administration

SUBJECT: City of **; Local tax on utilities

Thanks for sending me copies of the city of **'s ordinances enacting
city tax on telecommunications services and natural gas and electricity.

I understand the ordinances are unusual in that they specify three companies
(** County Electric, Texas utilities and **** Gas) in the
preambles and section headings. This raises the question of `whether the
ordinances would "expire" if the city substituted service providers.

For the following reasons, I am of the opinion that the ordinances clearly
authorize the municipal sales and use tax on all sales of gas and electricity,
and not only sales by the named providers:

1. Ordinances No. 218-92 and 220-92 say "A tax is hereby authorized on all
   electrical services sold within the City of **, Texas." Ordinance No.
   221-92 says "A tax is hereby authorized on all gas services sold within the
   City of ****, Texas."

2. All three ordinances contain a clause that says "This ordinance is to be
   liberally construed to achieve its remedial purposes."

3. All three contain a severability clause, which says if a portion is "held
   unconstitutional, such holding shall not effect (sic) the validity of the
   remaining portions of this ordinance."

4. The providers are named only in the preambles and section headings, and the
   imposition of tax is nowhere expressly limited to services provided by those
   companies.

I would not have recommended naming the current service providers in the
ordinance, but I believe the ordinances will continue in effect even if the
city later contracts with other companies for electricity and natural gas.