Sec. 151.318.  PROPERTY USED IN MANUFACTURING.  (a)  The following items are exempted from the taxes imposed by this chapter if sold, leased, or rented to, or stored, used, or consumed by a manufacturer:

(1)  tangible personal property that will become an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale;

(2)  tangible personal property directly used or consumed in or during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary or essential to the manufacturing, processing, or fabrication operation and directly makes or causes a chemical or physical change to:

(A)  the product being manufactured, processed, or fabricated for ultimate sale;  or

(B)  any intermediate or preliminary product that will become an ingredient or component part of the product being manufactured, processed, or fabricated for ultimate sale;

(3)  services performed directly on the product being manufactured prior to its distribution for sale and for the purpose of making the product more marketable;

(4)  actuators, steam production equipment and its fuel, in-process flow through tanks, cooling towers, generators, heat exchangers, transformers and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are related to the transformers, electronic control room equipment, computerized control units, pumps, compressors, and hydraulic units, that are used to power, supply, support, or control equipment that qualifies for exemption under Subdivision (2) or (5) or to generate electricity, chilled water, or steam for ultimate sale;  transformers located at an electric generating facility that increase the voltage of electricity generated for ultimate sale, the electrical cable that carries the electricity from the electric generating equipment to the step-up transformers, and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are related to the step-up transformers;  and transformers that decrease the voltage of electricity generated for ultimate sale and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are related to the step-down transformers;

(5)  tangible personal property used or consumed in the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to a pollution control process;

(6)  lubricants, chemicals, chemical compounds, gases, or liquids that are used or consumed during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if their use or consumption is necessary and essential to prevent the decline, failure, lapse, or deterioration of equipment exempted by this section;

(7)  gases used on the premises of a manufacturing plant to prevent contamination of raw material or product, or to prevent a fire, explosion, or other hazardous or environmentally damaging situation at any stage in the manufacturing process or in loading or storage of the product or raw material on premises;

(8)  tangible personal property used or consumed during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to a quality control process that tests tangible personal property that is being manufactured, processed, or fabricated for ultimate sale;

(9)  safety apparel or work clothing that is used during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if:

(A)  the manufacturing process would not be possible without the use of the apparel or clothing;  and

(B)  the apparel or clothing is not resold to the employee;

(10)  tangible personal property used or consumed in the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to comply with federal, state, or local laws or rules that establish requirements related to public health;  and

(11)  tangible personal property specifically installed to:

(A)  reduce water use and wastewater flow volumes from the manufacturing, processing, fabrication, or repair operation;

(B)  reuse and recycle wastewater streams generated within the manufacturing, processing, fabrication, or repair operation;  or

(C)  treat wastewater from another industrial or municipal source for the purpose of replacing existing freshwater sources in the manufacturing, processing, fabrication, or repair operation.

(b)  The exemption includes:

(1)  chemicals, catalysts, and other materials that are used during a manufacturing, processing, or fabrication operation to produce or induce a chemical or physical change, to remove impurities, or to make the product more marketable;

(2)  semiconductor fabrication cleanrooms and equipment; and

(3)  pharmaceutical biotechnology cleanrooms and equipment that are installed as part of the construction of a new facility on which construction began after July 1, 2003.

(c)  The exemption does not include:

(1)  intraplant transportation equipment, including intraplant transportation equipment used to move a product or raw material in connection with the manufacturing process and specifically including all piping and conveyor systems, provided that the following remain eligible for the exemption:

(A)  piping or conveyor systems that are a component part of a single item of manufacturing equipment or pollution control equipment eligible for the exemption under Subsection (a)(2), (a)(4), or (a)(5);

(B)  piping through which the product or an intermediate or preliminary product that will become an ingredient or component part of the product is recycled or circulated in a loop between the single item of manufacturing equipment and the ancillary equipment that supports only that single item of manufacturing equipment if the single item of manufacturing equipment and the ancillary equipment operate together to perform a specific step in the manufacturing process;  and

(C)  piping through which the product or an intermediate or preliminary product that will become an ingredient or component part of the product is recycled back to another single item of manufacturing equipment and its ancillary equipment in the same manufacturing process;

(2)  hand tools;

(3)  maintenance supplies not otherwise exempted under this section, maintenance equipment, janitorial supplies or equipment, office equipment or supplies, equipment or supplies used in sales or distribution activities, research or development of new products, or transportation activities;

(4)  machinery and equipment or supplies to the extent not otherwise exempted under this section used to maintain or store tangible personal property;  or

(5)  tangible personal property used in the transmission or distribution of electricity, including transformers, cable, switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units not otherwise exempted under this section, and lines, conduit, towers, and poles.

(d)  In this section, "manufacturing" includes each operation beginning with the first stage in the production of tangible personal property and ending with the completion of tangible personal property having the physical properties (including packaging, if any) that it has when transferred by the manufacturer to another.

(e)  This section does not apply to any taxable item rented or leased for less than one year to a person engaged in manufacturing.

(f)  For purposes of Subsection (c)(1), piping through which material is transported forward from one single item of manufacturing equipment and its ancillary support equipment to another single item of manufacturing equipment and its ancillary support equipment is not considered a component part of a single item of manufacturing equipment and is not exempt.  An integrated group of manufacturing and processing machines and ancillary equipment that operate together to create or produce the product or an intermediate or preliminary product that will become an ingredient or component part of the product is not a single item of manufacturing equipment.

(g)  Repealed by Acts 1999, 76th Leg., ch. 1467, Sec. 4.01(3), eff. June 19, 1999.

(h)  to (m) Repealed by Acts 1997, 75th Leg., ch. 1390, Sec. 3, eff. Oct. 1, 1997.

(n)  A person engaged in overhauling, retrofitting, or repairing jet turbine aircraft engines and their component parts is entitled to an exemption from the tax imposed by this chapter for the purchase of machinery, equipment, or replacement parts or accessories with a useful life in excess of six months, or supplies, including aluminum oxide, nitric acid, and sodium cyanide, used in electrochemical plating or a similar process that are used or consumed in the overhauling, retrofitting, or repairing.

(o)  The production of a publication for the dissemination of news of a general character and of a general interest that is printed on newsprint and distributed to the general public free of charge at a daily, weekly, or other short interval is considered "manufacturing" for purposes of this section.

(p)  For the purposes of this section, the manufacturing of computer software begins with the design and writing of the code or program for the software and includes the testing or demonstration of the software.

(q)  For purposes of Subsection (b), "semiconductor fabrication cleanrooms and equipment" means all tangible personal property, without regard to whether the property is affixed to or incorporated into realty, used in connection with the manufacturing, processing, or fabrication in a cleanroom environment of a semiconductor product, without regard to whether the property is actually contained in the cleanroom environment.  The term includes integrated systems, fixtures, and piping, all property necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity, or other environmental conditions or manufacturing tolerances, and production equipment and machinery.  The term does not include the building or a permanent, nonremovable component of the building, that houses the cleanroom environment.  The term includes moveable cleanroom partitions and cleanroom lighting. "Semiconductor fabrication cleanrooms and equipment" are not "intraplant transportation equipment" as that term is used in Subsection (c)(1).

(q-1)  For purposes of Subsection (b), "pharmaceutical biotechnology cleanrooms and equipment" means all tangible personal property, without regard to whether the property is affixed to or incorporated into realty, used in connection with the manufacturing, processing, or fabrication in a cleanroom environment of a pharmaceutical biotechnology product, without regard to whether the property is actually contained in the cleanroom environment.  The term includes integrated systems, fixtures, and piping, all property necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity, or other environmental conditions or manufacturing tolerances, and production equipment and machinery.  The term does not include the building or a permanent, nonremovable component of the building that houses the cleanroom environment.  The term includes moveable cleanroom partitions and cleanroom lighting. "Pharmaceutical biotechnology cleanrooms and equipment" are not "intraplant transportation equipment" as that term is used in Subsection (c)(1).

(r)  A taxpayer claiming an exemption under this section has the burden of proof that the exemption is applicable and that no exclusion under Subsection (c) applies.

(s)  The following do not apply to the semiconductor fabrication cleanrooms and equipment in Subsection (q) or the pharmaceutical biotechnology cleanrooms and equipment in Subsection (q-1):

(1)  limitations in Subsection (a)(2) that refer to tangible personal property directly causing chemical and physical changes to the product being manufactured, processed, or fabricated for ultimate sale;

(2)  Subsection (c)(1);  and

(3)  Subsection (c)(4).

(t)  In addition to the other items exempted under this section, pre-press machinery, equipment, and supplies, including computers, cameras, photographic props, film, film developing chemicals, veloxes, plate-making machinery, plate metal, litho negatives, color separation negatives, proofs of color negatives, production art work, and typesetting or composition proofs, that are necessary and essential to and used in connection with the printing process are exempted from the tax imposed by this chapter if they are purchased by a person engaged in:

(1)  printing or imprinting tangible personal property for sale;  or

(2)  producing a publication for the dissemination of news of a general character and of a general interest that is printed on newsprint and distributed to the general public free of charge at a daily, weekly, or other short interval.

 

Acts 1981, 67th Leg., p. 1564, ch. 389, Sec. 1, eff. Jan. 1, 1982.  Amended by Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 7, Sec. 13, 19, eff. Oct. 2, 1984;  Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 1, pt. 4, Sec. 26;  Acts 1989, 71st Leg., ch. 154, Sec. 1, eff. Aug. 28, 1989;  Acts 1991, 72nd Leg., ch. 705, Sec. 15, eff. Sept. 1, 1991;  Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 14.081(a);  Acts 1993, 73rd Leg., ch. 404, Sec. 1, eff. Oct. 1, 1993;  Acts 1993, 73rd Leg., ch. 587, Sec. 14, eff. Oct. 1, 1993;  Acts 1995, 74th Leg., ch. 1000, Sec. 17, eff. Oct. 1, 1995;  Acts 1997, 75th Leg., ch. 1010, Sec. 4.40, eff. July 1, 1997;  Acts 1997, 75th Leg., ch. 1040, Sec. 22, eff. Oct. 1, 1997;  Acts 1997, 75th Leg., ch. 1390, Sec. 1 to 3, eff. Oct. 1, 1997;  Acts 1999, 76th Leg., ch. 62, Sec. 19.01(91), eff. Sept. 1, 1999;  Acts 1999, 76th Leg., ch. 1467, Sec. 2.19, eff. Oct. 1, 1999;  Acts 1999, 76th Leg., ch. 1467, Sec. 4.01, eff. June 19, 1999;  Acts 2001, 77th Leg., ch. 1263, Sec. 22, eff. Oct. 1, 2001;  Acts 2001, 77th Leg., ch. 1420, Sec. 21.001(100), eff. Sept. 1, 2001;  Acts 2003, 78th Leg., ch. 1310, Sec. 106, eff. June 20, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 1266, Sec. 6(a), eff. July 1, 2007.Type your paragraph here.

Texas Tax Code for Manufacturers

​Texas Tax Code 151.317. Gas and Electricity

Texas Tax Rule 3.295

Texas Tax Code 151.318 Property Used in Manufacturing 

Sec. 151.317.  GAS AND ELECTRICITY.  (a)  Subject to Section 151.1551 and Subsection (d) of this section, gas and electricity are exempted from the taxes imposed by this chapter when sold for:

(1)  residential use;

(2)  use in powering equipment exempt under Section 151.318 or 151.3185 by a person processing tangible personal property for sale as tangible personal property, other than preparation or storage of prepared food described by Section 151.314(c-2);

(3)  use in 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 described by Section 151.314(c-2);

(4)  use directly in exploring for, producing, or transporting, a material extracted from the earth;

(5)  use in agriculture, including dairy or poultry operations and pumping for farm or ranch irrigation;

(6)  use directly in electrical processes, such as electroplating, electrolysis, and cathodic protection;

(7)  use directly in 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;

(8)  use directly in providing, under contracts 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;

(9)  a direct or indirect use, consumption, or loss of electricity by an electric utility engaged in the purchase of electricity for resale; or

(10)  use in timber operations, including pumping for irrigation of timberland.

(b)  The sale, production, distribution, lease, or rental of, and the use, storage, or other consumption in this state of, gas and electricity sold for the uses listed in Subsection (a), are exempted from the taxes imposed by a municipality under Chapter 321 except as provided by Section 321.105.

(c)  In this section, "residential use" means use:

(1)  in a family dwelling or in a multifamily apartment or housing complex or building or in a part of a building occupied as a home or residence when the use is by the owner of the dwelling, apartment, complex, or building or part of the building occupied;  or

(2)  in a dwelling, apartment, house, or building or part of a building occupied as a home or residence when the use is by a tenant who occupies the dwelling, apartment, house, or building or part of a building under a contract for an express initial term for longer than 29 consecutive days.

(d)  To qualify for the exemptions in Subsections (a)(2)-(8), the gas or electricity must be sold to the person using the gas or electricity in the exempt manner.  For purposes of this subsection, the 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 exempt activities identified in Subsections (a)(2)-(8) is considered use by the purchaser of the gas or electricity.

(e)  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 on the predominant use of the natural gas or electricity measured by that meter.  The comptroller may prescribe by rule the procedures by which a purchaser must establish the predominant use of the natural gas or electricity. 

Acts 1981, 67th Leg., p. 1563, ch. 389, Sec. 1, eff. Jan. 1, 1982.  Amended by Acts 1987, 70th Leg., ch. 411, Sec. 1, eff. Oct. 1, 1987;  Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 1, pt. 4, Sec. 25;  Acts 1995, 74th Leg., ch. 1000, Sec. 16, eff. Oct. 1, 1995;  Acts 1997, 75th Leg., ch. 1040, Sec. 21, eff. Sept. 1, 1997;  Acts 1999, 76th Leg., ch. 631, Sec. 15, eff. Oct. 1, 2001;  Acts 1999, 76th Leg., ch. 1467, Sec. 2.18, eff. Oct. 1, 1999;  Acts 2001, 77th Leg., ch. 1263, Sec. 21, eff. Oct. 1, 2001;  Acts 2003, 78th Leg., ch. 1310, Sec. 104, 105, eff. Oct. 1, 2003.

Amended by:

Acts 2011, 82nd Leg., R.S., Ch. 225, Sec. 6, eff. September 1, 2011.

Type your paragraph h<<Prev Rule                Texas Administrative Code          Next Rule>>
TITLE 34            PUBLIC FINANCE
PART 1             COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3         TAX ADMINISTRATION
SUBCHAPTER O     STATE SALES AND USE TAX
RULE §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) 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.
(2) 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.
(3) 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).
(4) 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.
(5) 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.

(6) Residential use--Use in a family dwelling or in a multifamily apartment complex or housing 
complex or nursing home or in a building or portion of a building occupied as a home or residence 
when the use is by the owner of the dwelling, apartment, complex, home, or building
or part of the building occupied. Residential use also includes use in a dwelling, apartment, 
complex, house, or building or part of a building occupied as a home or residence when the use is 
by a tenant who occupies the dwelling, apartment, complex, house, or building or part of a building 
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.). For purposes of the exemption for 
residential use of natural gas and electricity, nursing homes qualify for exemption only for 
periods beginning after December 31, 1987.
(b) Sales tax applicable. The furnishing of natural gas or electricity is a sale of tangible 
personal property. All the provisions in the Tax Code, Chapter 151, applying to the sale of 
tangible personal property, apply to the sale of natural gas or electricity.
(c) Gas and electricity are exempted from the taxes imposed by this chapter 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) direct use in:
(A) powering equipment that qualifies for exemption under Tax Code, §151.318, (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 food for 
immediate consumption;
(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 food for immediate consumption;
(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; or
(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.
(d) 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)(4) of this section is considered use by the purchaser of the gas or electricity.
(e) 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 continually must establish predominant use on 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)(4)(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 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 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.
(f) Determining predominant use: utility studies.
(1) Persons claiming a sales tax exemption because the predominant use of natural gas and 
electricity through a single meter is for processing, manufacturing, fabricating, or other 
nontaxable use must have performed a utility study to establish this predominant exempt use.
The study must list all uses of the utility, both exempt and taxable, the times of usage, the 
energy used, and whether the use was taxable or exempt. Twelve consecutive months of utility usage 
must be a part of the study. 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. 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 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 study based upon projected uses which 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.
(2) 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 paragraph 
(1) of this subsection, the utility company is not required to make any additional inquiry before 
honoring the exemption request.
(3) 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. (4) 
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.
(5) This subsection does not apply to persons whose use of natural gas or electricity is for 
processing, manufacturing, or other 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, in the future, if factors relative to the original study change. 
(g) Exemption certificates.
(1) 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."
(2) The exemption is valid only as long as the person continues to use natural gas and electricity 
in a manner which 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.
(3) Persons whose use of natural gas or electricity is solely in family dwellings will not be 
required to furnish exemption certificates.
(4) 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.
(h) 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 a product which was
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) A material will not be considered to be manufactured when an additive is combined with a 
material for ancillary reasons, for example, odorant added to natural gas.
(i) 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.

Source Note: The provisions of this §3.295 adopted to be effective January 1, 1976; amended to be effective October 25, 1978, 3 TexReg 3571; amended to be effective November 26, 1984, 9 TexReg 5836; amended to be effective February 9, 1987, 12 TexReg 311; amended to be
effective February 1, 1988, 13 TexReg 348; amended to be effective January 1, 1990, 14 TexReg 6675; amended to be effective June 25, 1991, 16 TexReg 3195; amended to be effective March 7, 1996, 21 TexReg 1583; amended to be effective September 20, 2000, 25 TexReg 9220; amended to be effective April 13, 2005, 30 TexReg 2082