Are natural gas and electricity used at a personal care home taxed as residential or commercial utility service?

Plain-English summary

A taxpayer asked the Comptroller whether natural gas and electricity used in personal care homes should be taxed as residential utility service, the same way it is for nursing homes.

The taxpayer described personal care homes as housing for people who can no longer live independently and need supervision or help with some essential tasks, but who do not need the constant medical supervision provided at nursing homes. Personal care homes are licensed by either the Texas Department of Health or the Texas Mental Health & Mental Retardation Department, and most require residents to contract for a year.

The Comptroller agreed that personal care homes can qualify as residential for gas and electricity purposes -- but only on one condition: the predominant use of the natural gas and electricity must be by persons who initially contracted to reside at the personal care home for periods exceeding 29 days. The letter notes this opinion is based on the facts presented, and could change if the facts are different.

What this means for you

Personal care home operators

If the predominant use of gas and electricity at your facility is by residents who signed on for stays longer than 29 days (most personal care homes require a full year, per the letter), the utility service can be billed and taxed as residential rather than commercial/industrial.

Utility providers billing personal care facilities

You can treat a personal care home's gas and electricity as residential use if the operator confirms that predominant use is by residents contracted for more than 29 days -- consistent with how nursing homes are already treated.

Accountants and tax professionals advising care facilities

This ruling is fact-specific: it turns on the 29-day-plus contract length and "predominant use" by residents (as opposed to, say, staff or non-resident uses). If your client's facts differ -- shorter-term stays, or use that isn't predominantly residential -- this letter's conclusion may not apply, and the Comptroller flags that a different fact pattern could yield a different answer.

Common questions

Q: Are personal care homes treated the same as nursing homes for gas and electricity tax purposes?
A: Yes, according to this letter -- the Comptroller agreed personal care homes can qualify as residential, just as nursing homes do.

Q: Is there a condition attached to that residential treatment?
A: Yes. The predominant use of the natural gas and electricity must be by persons who initially contracted to reside at the personal care home for periods exceeding 29 days.

Q: What if residents' stays are shorter than 29 days?
A: The letter doesn't address that scenario directly, but its holding is expressly conditioned on the 29-day-plus contract requirement, so shorter stays would fall outside what this letter approved.

Q: Does licensing (Texas Department of Health vs. Texas Mental Health & Mental Retardation Department) affect the answer?
A: The letter mentions both types of licensing as background on what a personal care home is, but the residential-use conclusion turns on the predominant-use/29-day contract test, not on which agency licenses the facility.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9611784L

Original ruling text

November 18, 1996

Dear ***:

Thank you for your letter of November 11, 1996, asking
about the taxation of natural gas and electricity used in personal care homes.

Your letter states that persons who are no longer able
to live independently and need supervision or help in performing some essential
tasks live in personal care homes. The persons living in personal care homes
do not require the constant medical supervision available in nursing homes.
Personal care homes are licensed either by the Texas Department of Health or
the Texas Mental Health & Mental Retardation Department.

Most personal care homes generally require persons to
contract for a year.

Because nursing homes are considered residential for
purposes of natural gas and electricity, you think personal care homes should
qualify as residential also.

Response: We agree provided the predominant use of
natural gas and electricity is by persons initially contracting to reside at
personal care homes for periods exceeding 29 days or longer.

This opinion is based on the facts presented. If there
are additional or different facts, the opinion may change.

You may call me at 463-4987 if you have any questions
or need more information. You may also write to Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,

Karey W. Barton, Manager
Tax Policy Division