34 Tex. Admin. Code § 3.295 - Natural Gas and Electricity
(a) Definitions.
The following words and terms, when used in this section, shall have the
following meanings, unless the context clearly indicates otherwise.
(1) Crime control and prevention district--A
district organized under Local Government Code, Chapter 363 (Crime Control and
Prevention Districts), located within the boundaries of a municipality that
imposes a sales and use tax on the residential use of natural gas and
electricity.
(2) Electric
utility--Any entity owning or operating for compensation in this state
equipment or facilities for producing, generating, transmitting, distributing,
selling, or furnishing electricity whose rates for the sale of electric power
are set by the Public Utilities Commission under the Public Utility Regulatory
Act. The term does not include:
(A) a
qualifying small power producer or qualifying co-generator, as defined in the
Federal Power Act, §3(17)(D) and §3(18)(C), as amended (16 United States
Code §
796(17)(D) and
§
796(18)(C));
or
(B) any person not otherwise a
public utility that owns or operates in this state equipment or facilities for
producing, generating, transmitting, distributing, selling, or furnishing
electric energy to an electric utility, if the equipment or facilities are used
primarily for the production and generation of electric energy for the person's
own consumption.
(3)
Fabrication--To make, build, create, produce, or assemble components of
tangible personal property, or to make tangible personal property work in a new
or different manner.
(4) Fire
control, prevention, and emergency services district--A district organized
under Local Government Code, Chapter 344 (Fire Control, Prevention, and
Emergency Medical Services Districts), located within the boundaries of a
municipality that imposes a sales and use tax on the residential use of natural
gas and electricity.
(5)
Manufacturing--Every operation commencing with the first stage of production of
tangible personal property and ending with the completion of tangible personal
property. The first production stage means the first act of production and it
does not include acts in preparation for production. For example, a
manufacturer gathering, arranging, or sorting raw material or inventory is
preparing for production. When production is completed, maintaining the life of
tangible personal property or preventing its deterioration is not a part of the
manufacturing process. Tangible personal property is complete when it has the
physical properties, including packaging, if any, that it has when transferred
by the manufacturer to another. Also see §
3.300 of this title (relating to
Manufacturing; Custom Manufacturing; Fabricating; Processing).
(6) Processing--The physical application of
the materials and labor necessary to modify or to change the characteristics of
tangible personal property. The property being processed may belong either to
the processor or the customer, the only tests being whether the property is
processed and whether it will ultimately be sold. Direct use of natural gas or
electricity in processing will be referred to as exempt use. Processing does
not include remodeling or any action taken to prolong the life of tangible
personal property or to prevent a deterioration of the tangible personal
property being held for sale. The repair of tangible personal property
belonging to another by restoring it to its original condition is not
considered processing of that property. The mere packing, unpacking, or
shelving of a product to be sold will not be considered to be processing of
that product.
(7) Remodeling--To
make tangible personal property belonging to another over again without causing
a loss of its identity, or without causing the property to work in a new or
different manner.
(8) Residential
use--Use of natural gas or electricity in a building or the portion of a
building occupied as a residence and includes:
(A) use by the owner of a home, apartment
complex, housing complex, condominium, campground, recreational vehicle park,
nursing home, or retirement home occupied by the owner as a
residence;
(B) use by a tenant in a
home, apartment complex, housing complex, condominium, campground, recreational
vehicle park, nursing home, or retirement home occupied by the tenant as a
residence under a contract for an express initial term of more than 29
consecutive days. Absent a contract, only the period exceeding 29 consecutive
days will be considered residential use, when supported by valid documentation
(i.e., receipts, canceled checks, etc.); and
(C) use for common areas of an apartment
complex, housing complex, condominium, campground, recreational vehicle park,
nursing home, retirement home, or homeowners' association, such as use for a
recreation room, swimming pool, security gate, or for street lights and
exterior lighting in a walkway or parking area.
(D) Residential use does not include use in
health care or detention facilities, including hospitals, rehabilitation
centers, substance abuse treatment centers, psychiatric facilities, prisons,
jails, or other detention centers, or use by the owner or operator of a health
care or detention facility.
(9) Tenant--A person who is authorized by a
lease to occupy a dwelling to the exclusion of others and who is obligated
under the lease to pay rent. The term does not include a patient or inmate of a
health care or detention facility, including a hospital, rehabilitation center,
substance abuse treatment center, psychiatric facility, prison, jail, or other
detention center.
(b)
State and local sales and use taxes applicable. The furnishing of natural gas
or electricity is a sale of tangible personal property and presumed to be
taxable. All the provisions in Tax Code, Chapters 151 (Limited Sales, Excise
and Use Tax), 321 (Municipal Sales and Use Tax Act), 322 (Sales and Use Taxes
for Special Purpose Taxing Authorities), and 323 (County Sales and Use Tax
Act), applying to the sale of tangible personal property, apply to the sale of
natural gas or electricity.
(c)
Exempt uses of natural gas and electricity. Except as provided in subsection
(d) of this section, an exemption for natural gas and electricity applies to
state and local sales and use taxes imposed by Tax Code, Chapters 151, 321,
322, and 323. Natural gas and electricity are exempted from sales and use taxes
when sold for:
(1) residential use;
(2) use in agriculture, including dairy or
poultry operations and pumping for farm or ranch irrigation;
(3) direct or indirect use or consumption,
including electricity lost in the lines, by an electric utility engaged in the
purchase of electricity for resale;
(4) use in timber operations, including
pumping for irrigation of timberland;
(5) direct use in:
(A) powering equipment that qualifies for
exemption under Tax Code, §
151.318 (Property Used in
Manufacturing) or §151.3185 (Property Used in the Production of Motion
Pictures or Video or Audio Recordings and Broadcasts), (including equipment
that is permanently affixed to or incorporated into realty) to process tangible
personal property for sale as tangible personal property, other than
preparation of or the storage of prepared food, as defined in §
3.293 of this title (relating to
Food; Food Products; Meals; Food Service);
(B) lighting, cooling, and heating in the
manufacturing area during the actual manufacturing or processing of tangible
personal property for sale as tangible personal property, other than
preparation or storage of prepared food;
(C) exploring for, producing, or transporting
a material extracted from the earth;
(D) electrical processes, such as
electroplating, electrolysis, and cathodic protection;
(E) the off-wing processing, overhaul, or
repair of a jet turbine engine or its parts for a certificated or licensed
carrier of persons or property;
(F)
providing, under contract with or on behalf of the United States government or
foreign governments, defense or national security-related electronics,
classified intelligence data processing and handling systems, or
defense-related platform modifications or upgrades;
(G) the repair, maintenance, or restoration
of rolling stock;
(H) a data center
that is certified by the comptroller as a qualifying data center under Tax
Code, §
151.359 (Property Used in
Certain Data Centers; Temporary Exemption) in the processing, storage, and
distribution of data by a qualifying owner, qualifying operator, or qualifying
occupant of the data center; or
(I) a large data center project that is
certified by the comptroller as a qualifying large data center under Tax Code,
§
151.3595 (Property Used in
Certain Large Data Center Projects; Temporary Exemption) in the processing,
storage, and distribution of data by a qualifying owner, qualifying operator,
or qualifying occupant of the data center.
(d) Local sales and use taxes on natural gas
and electricity.
(1) Residential use of
natural gas and electricity is subject to local sales and use tax in the
following local taxing jurisdictions:
(A) a
municipality which has elected to impose the municipal sales and use tax on the
residential use of natural gas and electricity under Tax Code, §
321.105 (Residential Use of
Gas and Electricity);
(B) a fire
control, prevention, and emergency services district whose board of directors,
by order or resolution, has imposed a sales and use tax on the residential use
of electricity under Tax Code, §
321.1055 (Imposition of Fire
Control or Crime Control District Tax on the Residential Use of Gas and
Electricity); or
(C) a crime
control and prevention district whose board of directors, by order or
resolution, has imposed a tax on the residential use of electricity under Tax
Code, §
321.1055.
(2) Natural gas and electricity
used in a qualifying data center is subject to local sales and use taxes
imposed under Tax Code, Chapters 321, 322, and 323.
(e) Use of gas or electricity in an exempt
manner by an independent contractor engaged by the purchaser of the gas or
electricity to perform one or more of the activities described in subsection
(c)(5) of this section is considered use by the purchaser of the gas or
electricity.
(f) Predominant use.
(1) Natural gas or electricity used during a
regular monthly billing period for both exempt and taxable purposes under a
single meter is totally exempt or taxable based upon the predominant use of the
natural gas or electricity measured by that meter. A person who performs a
processing, manufacturing, or other exempt function must establish the
predominant use of the natural gas or electricity based upon 12 consecutive
months of use.
(2) If, in the
regular course of business, a person performs a processing, manufacturing, or
other exempt function only part of the year and a nonprocessing,
nonmanufacturing, or other taxable function for the remainder of the year, the
predominant use may be established for that period of time the processing,
manufacturing, or other exempt function occurs based on the predominant use
during that period.
(3) When
determining the predominant use of natural gas or electricity, utilities used
to operate machinery exempt under subsection (c)(5) (A) of this section and for
lighting, cooling, and heating in the manufacturing area during actual
manufacturing or processing of tangible personal property for sale, as set out
in subsection (c)(5)(B) of this section, are exempt. Natural gas and
electricity used to operate lighting, cooling, and heating in manufacturing
support areas are taxable. Manufacturing support areas include, but are not
limited to, storage, engineering, office, accounting, research and development,
break, eating, and restroom areas . Natural gas and electricity used in an area
open to the public for the purpose of marketing a product ready for sale are
taxable. Utilities used to operate other nonproduction machinery or equipment
are taxable.
(g)
Determining predominant use: utility studies.
(1) A person claiming a sales tax exemption
because the predominant use of natural gas or electricity purchased through a
single meter is for processing, manufacturing, fabricating, or another
nontaxable use must have a natural gas or electricity utility study performed
to establish the predominant exempt use of the natural gas or electricity.
(A) The study must list all uses of the
utility, both exempt and taxable, the times of usage, the energy used, whether
the use was taxable or exempt, and the percentage of exempt use of the natural
gas or electricity as determined by the study.
(B) Twelve consecutive months of utility
usage must be a part of the study.
(C) The kilowatt rating or BTU rating, duty
factor, where needed for cycling equipment, and electrical or natural gas
computations must be certified by a registered engineer or a person with an
engineering degree from an accredited engineering college.
(D) The owner of the business must certify
that all items using natural gas or electricity (depending on which utility is
covered by the study) are listed and that the hours of use for each item are
correct. The certification of both the engineer and the owner must appear on
the face of the study.
(E) If a
person appoints an agent to act on its behalf, the person must execute a power
of attorney clearly stating the agent is attempting to qualify the principal
for a sales tax exemption.
(2) A person in business less than 12
consecutive months may still apply for a sales tax exemption if a registered
engineer or a person with an engineering degree performs a natural gas or
electric utility study based upon projected uses of the natural gas or
electricity which shows the predominant use to be exempt. A person claiming an
exemption based upon projected use must be able to support the claimed
exemption with a study of actual use after 12 consecutive months of operation
if requested by the comptroller.
(3) A natural gas or electric utility study
must be completed and on file at the location of the person claiming the
exemption at the time an exemption certificate is submitted to the utility
company. Without the study, the claim for exemption will be presumed to be
invalid.
(4) Persons obtaining a
sales tax refund from a utility company without a valid study will be assessed
tax, penalty, and interest by the comptroller on the full amount of the refund,
if the exemption is not proved.
(5)
The comptroller may request a copy of a natural gas or electric utility study
for review, either before or after the sales tax exemption is granted. Neither
the comptroller's review of a study nor the utility company's acceptance of an
exemption certificate confirms the study's accuracy. If the comptroller
subsequently determines a study is incomplete or inaccurate, tax, penalty, and
interest will be assessed against the person claiming the exemption to the
extent that the predominant use of the natural gas or electricity is
taxable.
(6) If a person claims a
sales tax refund, and the utility study establishing the predominant use of the
natural gas or electricity was performed retrospectively, the study must take
into account any changes in equipment or other items using utilities, any
changes in business activities, and any changes in square footage being served
by the meter that occurred during or after the sales or use tax refund period.
The comptroller will not accept a predominant use study that cannot be
independently verified, such as a predominant use study performed for a closed
utility account.
(7) This
subsection does not apply to persons who use natural gas or electricity for
processing, manufacturing, or another exempt function if an industry-wide study
for that particular industry reflects that the natural gas or electricity used
would always qualify as exempt use. The industry-wide study must be submitted
to the comptroller's office for review and approval. A subsequent study may be
required if factors relative to the original study change.
(8) If a business claiming a sales tax
exemption for natural gas or electricity purchases based on predominant use
changes its natural gas or electric utility provider, but does not change its
natural gas or electricity usage, it is not required to perform a new utility
study. A copy of the study must be on file at the business location for which
the study was performed, and a properly completed exemption certificate must be
filed with the new utility provider before the exemption may be
claimed.
(h) Exemption
certificates.
(1) An exempt user may issue an
exemption certificate to the utility company to claim a sales tax exemption on
its purchase of natural gas or electricity, or request the utility company to
refund sales tax paid to the utility company in error. Exempt users may also
request a refund of sales and use taxes paid on purchases of natural gas and
electricity from the comptroller as provided in §
3.325 of this title (relating to
Refunds and Payments Under Protest).
(2) A natural gas or electricity utility
company may only accept an exemption certificate in lieu of tax if the
exemption certificate is specific as to the reason for the claimed exemption.
For example, if a person is claiming that the predominant use of the utility is
for processing, the reason for the exemption must state, "A valid and complete
study has been performed which shows that (insert the actual exempt percentage)
of the natural gas or electricity is for processing tangible personal property
for sale in the regular course of business." For more information regarding the
exemption certificates, see §
3.287 of this title (relating to
Exemption Certificates).
(3) If an
exemption certificate is fully completed with all information required by this
section and bears an original seal of a registered engineer or is attached to a
signed statement with an original signature from the owner of the business and
a person with an engineering degree from an accredited engineering college, as
required by subsection (g) of this section, the utility company is not required
to make any additional inquiry before honoring the exemption request.
(4) The exemption is valid only as long as
the person continues to use natural gas and electricity predominantly for
exempt purposes. If the use of the natural gas or electricity changes so that
the predominant use becomes taxable, it is the person's responsibility to
notify the utility company in writing that the exemption is no longer
valid.
(5) A person who uses
natural gas or electricity solely in a single-family residence is not required
to furnish an exemption certificate.
(6) A person whose use of natural gas and
electricity is in multifamily apartment complexes, housing complexes, nursing
homes, or other residential buildings may be required to issue an exemption
certificate if one is necessary for the utility company to distinguish exempt
residential use from taxable use.
(7) A multifamily residential property may
issue a blanket exemption certificate for vacant apartments that will be
occupied as residences and billed under the property's corporate name or the
name of the property owner, if at least one unit in the property is occupied
for residential use.
(8) A person
who claims an exemption for natural gas or electricity used for agricultural or
timber operations must provide an exemption certificate to its utility provider
that contains the person's Texas Agriculture and Timber Registration Number
issued by the comptroller and the expiration date.
(9) A qualifying owner, qualifying operator,
or qualifying occupant of a qualifying data center or a qualifying large data
center project who claims an exemption for natural gas or electricity used for
a qualifying data center or used for a qualifying large data center must
provide an exemption certificate that contains the Qualifying Data Center or
Qualifying Large Data Center Project Registration Number and the Qualifying
Owner, Qualifying Operator, or Qualifying Occupant Registration Number issued
by the comptroller to its utility provider.
(i) Transportation of a material extracted
from the earth.
(1) 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.
(2) Sales or use tax is due on natural gas or
electricity used to transport products that have been manufactured from a
material extracted from the earth. Products which were manufactured from a
material extracted from the earth include substances which do not exist in
nature or are not components of crude oil, natural gas, coal, or other minerals
extracted from the earth.
(3) For
purposes of this section, a material is not considered to be manufactured when
an additive is combined with the material for ancillary reasons, for example,
when odorant is added to natural gas.
(j) Pipeline safety fees. Sales or use tax is
not due on any surcharge for pipeline safety fees added to the existing rates
of each investor-owned and municipally owned natural gas distribution company
and each natural gas master meter operator pursuant to Texas Utilities Code,
§
121.211 (Pipeline
Safety and Regulatory Fees).
(k)
Natural gas and electricity purchased by lessors of nonresidential real
property.
(1) A lessor of nonresidential real
property that purchases natural gas or electricity directly from a utility
provider is the consumer of the natural gas or electricity, and is making a
taxable use of that natural gas or electricity, unless the lessor is otherwise
exempt from sales and use tax. See §
3.322 of this title (relating to
Exempt Organizations). A utility provider may not make a tax-exempt sale for
resale to the lessor of the nonresidential real property.
(2) A lessor of nonresidential real property
may not claim an exemption for the purchase of the natural gas or electricity
based on a lessee's exempt status or a lessee's use of the natural gas or
electricity.
Notes
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