Is electricity used to pump treated municipal effluent to a pond, and then pump that pond water to irrigate a golf course, exempt from Texas sales tax?

Plain-English summary

A private country club operated two electric meters: one used exclusively to pump effluent (treated wastewater) from a municipality into a pond, and a second used exclusively to pump water out of that same pond to irrigate the club's golf course. The club asked whether the electricity used to run these pumps was exempt.

The Comptroller said no, for both meters. Rule 3.295(g)(1) exempts natural gas or electricity used to transport a material -- or its components -- extracted from the earth, listing examples like oil, natural gas, coal, coal slurry, crushed stone, sand, gravel, and water. But the water at issue here originated as municipal effluent, not water extracted from the earth. Because effluent is neither extracted from the earth nor itself a material from the earth, the electricity used to pump it (both into the pond and then out again for irrigation) doesn't qualify for the exemption.

What this means for you

Golf courses and country clubs using reclaimed/effluent water for irrigation

Don't assume electricity for irrigation pumps is automatically exempt just because it moves "water" -- the Rule 3.295(g)(1) exemption is tied to water extracted from the earth (e.g., well water), not treated municipal effluent or reclaimed wastewater. If your irrigation source is effluent, the pumping electricity is taxable.

Businesses claiming the earth-extracted-materials electricity exemption generally

This letter is a useful boundary case: the exemption in Rule 3.295(g)(1) turns on the origin of the material being transported, not simply on whether the material is water. Trace your water source back to confirm it's genuinely extracted from the earth before claiming the exemption.

Common questions

Q: Is electricity to pump effluent to a holding pond exempt?
A: No, per this letter -- effluent is not a material extracted from the earth, so it doesn't qualify under Rule 3.295(g)(1).

Q: What about electricity to pump that same pond water out for irrigation?
A: Also not exempt, per this letter, for the same reason -- the water's origin is effluent, not earth-extracted water.

Q: Would electricity to pump well water for irrigation be treated differently?
A: Rule 3.295(g)(1) lists water among the examples of materials extracted from the earth that qualify for the exemption when transported by electricity -- this letter's negative answer turns specifically on the water's effluent origin, not on water in general.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.295(g)(1) (electricity/natural gas used to transport earth-extracted materials)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9701233L

Original ruling text

January 29, 1997

Dear **:

Thank you for your letter of January 13, 1997, concerning the taxation of
electricity used to operate pumps.

Facts: Meter number one is used exclusively for pumping effluent from a
municipality to a pond. Meter number two is used exclusively for pumping water
out of the pond for the purpose of irrigating a golf course. Both meters are
in the name of a private country club.

Question: Is the electricity used to operate the pumps exempt?

Answer: The electricity used to operate the pumps is not exempt. Rule
3.295(g)(1) concerning natural gas and electricity states:

Sales or use tax is not due on natural gas or electricity used to transport a
material or its components extracted from the earth. Examples of materials or
components extracted from the earth would be oil, natural gas, coal or coal
slurry, crushed stone, sand and gravel, and water. (Emphasis added.)

The effluent is neither extracted from the earth nor a material from the earth.

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

You may call me toll free 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,
Eddie C. Washington
Tax Policy Division