200402401L [Tax Type: Sales] [Document Type: Letter/Memo]
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Texas Comptroller of Public Accounts STAR System
February 11, 2004
Thank you for your e-mail concerning the purchase of utilities by large retail stores that have a deli and a bakery.
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 totally taxable"based upon the predominant use of the natural gas or
electricity measured by that meter. The store needs to have a predominant use study performed to determine whether the purchase of its utilities will
A predominant use study must include all uses of the utility, both exempt and taxable; times of usage, energy used, and whether use was taxable or exempt; twelve consecutive months of utility usage must be a part of the study; 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; 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. If the owner of the business appoints an agent to act on the owner's behalf, the power of attorney must clearly state that the agent is attempting to qualify the
principal for a sales tax exemption, and if a refund of sales tax is involved, the power of attorney must also state that a sales tax refund will be made by the state through the utility company.
A person in business fess 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 study based upon projected uses that shows the predominant use as exempt. A person claiming an exemption based upon estimated use must be able to support the claimed exemption with a study of actual use after 12 consecutive months of operation if so requested by the comptroller.
The 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. Persons obtaining a sales tax refund 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. If the 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 Rule 3.295(f)(1), the utility company is not required to make any additional inquiry before honoring the exemption request.
The comptroller may request a copy of the study for review, either before or after the sales tax exemption is granted. Neither the comptroller by reviewing a study nor the utility company by accepting an exemption certificate is confirming the study's accuracy. Tax, penalty, and interest will be assessed on the business owner if the study is proven to be incomplete or inaccurate to the extent that the predominant use of the natural gas or electricity is taxable.
If a sales tax refund is being claimed retroactively, 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.
Exempt users must issue exemption certificates to the utility company to claim a sales tax exemption or to obtain a refund of sales tax. The exemption certificate must be 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."
When determining the predominant use of natural gas or electricity, utilities used to operate machinery exempt under Rule 3.295(c)(4)(A) and for lighting, cooling, and heating in the manufacturing area during actual manufacturing or processing of tangible personal property for sale are exempt. 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 and accounting areas, research and development, and break, eating, and restroom facilities. Utilities used in an area open to Ute public for the purpose of marketing a product ready for sale are taxable. Utilities used to operate other nonproduction machinery or equipment are taxable.
The exemption is valid only as long as the person continues to use natural gas and electricity in a manner that is for predominantly exempt purposes. At the time the uses of the utilities change so that the predominant use is taxable,
it is the person's responsibility to immediately notify the utility company in writing that the exemption is no longer valid.
Rule 3.295 can be found on our website at http://window.state.tx.us/taxinfo/salestax.html. Click on "Rules", and then the appropriate rule.
This opinion is based on the information presented. If there are additional or different facts, the opinion could change. Our goal is to provide you with prompt, professional service. Please take a moment to complete our t>n-line survey at http://aixtcp.cpa.state.tx.us/surveys/tpsrvc.
If you have any questions, please do not hesitate to call us toll free at
1-800-281-2505. The direct number is 512/463-4600. The e-mail address is firstname.lastname@example.org.
Stephanie Oldf'lam Tax Policy Division
ACCESSION NUMBER: 200402401L
DOCUMENT TYPE: L
TAX TYPE: SALES