Can a city exempt residential gas and electricity from local sales tax differently — for example, repealing the tax on one energy source but not the other, or only part of the local tax?

Subject

Natural Gas And Electricity — Statute Requires Uniform Treatment For The Two Energy Sources — Cannot Be Treated Differently

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9309L1257G02

Plain-English Summary

A taxpayer asked the Comptroller two related questions about a municipality's ability to exempt residential gas and electricity from local sales tax: (1) could a portion of the local taxes be repealed as applied to residential gas and electricity, and (2) could the tax be repealed for only gas or only electricity, rather than both.

The Comptroller's answer to both questions was "no." After discussing the questions with the Comptroller's Chief of General Law and personnel in tax administration, the letter states the uniform opinion is that the additional local taxes must be administered in conformity with the 1 cent local tax, citing Comptroller's Rule 3.378 and Section 321.103(b), Tex. Tax Code.

On the question of treating gas and electricity differently, the letter explains that the general sales tax act and all references to gas and electricity in the local taxes provide for the treatment of both energy sources in the same manner. Although the statute is silent as to dividing this treatment, the Comptroller reads the statute as requiring uniform treatment between gas and electricity — meaning a municipality cannot single out one energy source for different tax treatment than the other.

Finally, the taxpayer asked whether there was a time limit for a municipality to repeal the sales and use tax under Section 321.105, Tex. Tax Code. The letter states there is no time limit for exempting gas and electricity from the local taxes.

What This Means For You

If you're advising a municipality on local utility tax exemptions: This letter confirms that a city cannot partially repeal the local tax on residential gas and electricity, nor can it repeal the tax for one energy source while leaving it in place for the other. Any exemption action must apply uniformly to both gas and electricity together.

If you're tracking timing for a proposed local tax repeal: According to this letter, there is no deadline under Section 321.105, Tex. Tax Code, by which a municipality must act to exempt gas and electricity from local taxes — the repeal can be adopted at any time, but it must still be uniform between the two energy sources.

If you sell or bill for both gas and electricity in a taxing jurisdiction: Because the letter requires uniform tax treatment of the two energy sources, businesses should not expect a jurisdiction to apply the local tax exemption to one utility but not the other.

Q&A

Q: Can a municipality repeal just part of the local sales tax on residential gas and electricity?
A: No. The letter states directly that the answer is "no" — the additional taxes must be administered in conformity with the 1 cent local tax under Rule 3.378 and Section 321.103(b), Tex. Tax Code.

Q: Can a city exempt only electricity, or only natural gas, from local tax while taxing the other?
A: No. The letter states the statute is read as requiring uniform treatment between gas and electricity, since the general sales tax act and local tax references treat both energy sources the same way.

Q: Does the statute expressly say gas and electricity must be taxed the same way?
A: The letter notes the statute is silent as to dividing the treatment between the two, but the Comptroller nonetheless reads it as requiring uniform treatment of both energy sources.

Q: Is there a deadline for a municipality to repeal the local sales and use tax on gas and electricity under Section 321.105, Tex. Tax Code?
A: No. The letter states there is no time limit for exempting gas and electricity from the local taxes.

Original ruling text

September 22, 1993

Dear ****:

In your letter of September 22, 1993, you asked several questions
concerning the ability of **** to exempt residential gas and
electricity. Specifically, you wanted to know: 1. if a portion of the
local taxes could be repealed as applies to residential gas and
electricity, or 2. if the tax could be repealed as concerns only gas
or only electricity.

The answer to both questions is "no." After discussing these questions
with the Comptroller's Chief of General Law and personnel in tax
administration, the uniform opinion is that the additional taxes must
be administered in conformity with the 1 cent local tax. See copy of
Comptroller's rule 3.378 and Sec. 321.103(b), Tex. Tax Code attached.

As regards treating gas and electricity differently, the general sales
tax act and all of the references to gas and electricity in the local
taxes provide for the treatment of both in the same manner. While the
statute is silent as to dividing this treatment, we read the statute
as requiring uniform treatment between these two energy sources.

Finally, you asked if there was a time limit in which the municipality
could repeal the sales and use tax pursuant to Sec. 321.105, Tex. Tax
Code. There is no time limit for exempting gas and electricity from
the local taxes.

Should you have any further questions, please feel free to call me at
1-800-531-5441, extension 3-4004.

Sincerely,

Wade Anderson
Assistant Director
Tax Administration

NOTE: Previous Accession Number 93070165.3 and/or 9307165L