Natural Gas and Electricity – Residential Use
TEXAS: There are three categories of electricity-generating energy: fossil fuels, renewable energy sources and nuclear energy. Fossil fuels, also known as hydrocarbons, include coal, petroleum and natural gas. In 2019, the use of natural gas made up approximately 38 percent of the electricity generated in the U.S., according to an article in the U.S. Energy Information Administration’s (EIA) Electric Power Monthly, February 2020, titled “Electricity Explained – Electricity in the United States.”
For Texas sales tax purposes, there are two types of uses for natural gas and electricity: residential, and nonresidential and/or commercial. This article is part one of a two-part series discussing natural gas and electricity. In part one we will define natural gas and electricity; discuss residential use of natural gas and electricity and its taxability, including exemptions for residential use; and provide information on how to request a refund if you are charged sales tax in error.
What Are Natural Gas and Electricity?
Natural gas is a flammable gas, consisting largely of methane and other hydrocarbons, occurring naturally underground (often in association with petroleum) and used as fuel. It is one of the primary sources of energy for a lot of our day-to-day activities and is recognized by the EIA as a relatively clean-burning fossil fuel, resulting “in fewer emissions of nearly all types of air pollutants and carbon dioxide (CO2) than burning coal or petroleum products to produce an equal amount of energy.”
Electricity is the supply of electric current to a house or other building for heating, lighting, or powering appliances. Texas is the largest electricity consumer among the states in this nation. The largest share of Texas’ electricity retail sales go to the residential sector, according to the EIA.
Residential Use of Natural Gas and Electricity
As both the largest energy-producing and energy-consuming state in the nation, more than a third of Texas residents use natural gas and electricity for heating and cooling their homes.
Residential use of natural gas and electricity is defined as the use of natural gas or electricity in a building or the portion of a building occupied as a residence, and includes
- use by the owner of, or tenant in a(n)
- apartment complex;
- housing complex;
- recreational vehicle (RV) park;
- nursing home; or
- retirement home; and
- use for common areas of a(n)
- apartment complex;
- housing complex;
- RV park;
- nursing home;
- retirement home; or
- homeowner’s association (HOA).
Residential use for common areas include a
- recreation room
- swimming pool
- security gate
- walkway or parking area
- street or exterior lighting
Common areas do not include on-site offices used solely to conduct business.
Residential use does not include use in a health care or detention facility, including
- rehabilitation centers
- substance abuse treatment centers
- psychiatric facilities
- prisons, jails or other detention centers
Exemption for Residential Use
The use of natural gas and electricity is presumed taxable, unless an exemption applies. Residential use of natural gas and electricity is exempt from state and local sales and use tax, except for certain local sales and use tax as described below.
A person who uses natural gas or electricity solely in a single-family residence is not required to furnish an exemption certificate (Form 01-339 (back), Texas Sales and Use Tax Exemption Certification (PDF)) to the utility company. A person whose use of natural gas and electricity is in multifamily apartment complex, housing complex, nursing home, or other residential building may be required to issue an exemption certificate if one is necessary for the utility company to distinguish exempt residential use from taxable use. Although not required by the Comptroller’s office, a utility company may request an exemption certificate to document the exemption.
Non-Exempt Local Sales and Use Taxes
Residential use of natural gas and electricity is subject to local sales and use tax when used in the following local taxing jurisdictions:
- a municipality that has elected to impose the municipal sales and use tax on the residential use of natural gas and electricity;
- 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; or
- a crime control and prevention district whose board of directors, by order or resolution, has imposed a tax on the residential use of electricity.
You can find a list of cities that currently impose tax on residential use of natural gas and electricity. You can also find a list of fire control, prevention, and emergency medical services districts and crime control and prevention districts that currently impose tax on residential use of natural gas and electricity.
Refund of Sales and Use Tax for Residential Use
If you were charged sales and use tax in error for the residential use of natural gas and electricity, you may qualify for a refund. You must first ask your utility service provider for a refund of any tax paid in error. Your utility service provider can either grant the refund request, or provide you with the form necessary so that you can claim the refund directly from the Comptroller’s office. If you need help requesting a refund, contact our office.
About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts specializes in sales/use tax refund recovery and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At Davis Davis & Harmon, LLC we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.