| (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).
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