Texas Sales Tax: Senate Bill 575 and Local Sales and Use Tax on Residential Use of Gas and Electricity

Senate Bill 575 (81st Legislative Session, 2009) amended Tax Code Chapter 321 to allow certain special purpose districts to impose local sales and use tax on the residential use of gas and electricity.

Effective Jan. 1, 2010, the board of directors of a fire control, prevention and emergency medical services district, or a crime control and prevention district located in all or part of a municipality that imposes a tax on the residential use of gas and electricity, will be allowed to take actions necessary to impose the tax throughout the district.

A qualifying district's board of directors, by order or resolution adopted in a public hearing held on or after Jan. 1, 2010, by a vote of a majority of the board's membership, may impose, exempt or reimpose sales and use tax on receipts from the sale, production, distribution, lease, or rental of, and the use, storage, or other consumption within the district of, gas and electricity for residential use.

A district that adopts an order or resolution imposing, exempting or reimposing sales and use tax on the residential use of gas or electricity must:

1) send a copy of the order or resolution to the Comptroller by U.S. Postal Service certified or registered mail;

2) send a copy of the order or resolution and a copy of the district's boundaries to each gas and electric company whose customers are subject to the tax by U.S. Postal Service certified or registered mail; and

3) publish notice of the order or resolution in a newspaper of general circulation in the district.

The earliest date that a tax adopted in the first calendar quarter of 2010 will become effective is July 1, 2010. As provided under Tax Code Section 321.102, a tax becomes effective on the first day of the calendar quarter following the expiration of the first complete calendar quarter occurring after the date on which the Comptroller receives a copy of the order or resolution. This means that if a board votes to impose the tax and notifies the Comptroller during the first calendar quarter of 2010, the tax cannot become effective until after the second quarter of 2010 has passed.

For example, the board of a fire control, prevention and emergency medical services district votes to impose the tax at a public hearing held Jan. 2, 2010. The Comptroller receives a copy of the order by certified mail on Jan. 4, 2010. The calendar quarter in which the Comptroller receives notification ends March 31, 2010; the additional calendar quarter lapse provided by 321.102 expires June 30, 2010. Therefore, the tax becomes effective July 1, 2010, the first day after the additional calendar quarter lapse.

The rate of the sales and use tax that a district may impose on the residential use of gas and electricity within the district is equal to the tax rate adopted by the district on all other sales of taxable items.

In a district that imposes the tax, only the municipal and qualifying special purpose district tax rates should be used to calculate the total sales tax rate that a utility should collect from residential customers.

The Local Sales and Use Tax on Residential Use of Gas and Electricity section of our Web site has more information, including a list of the special purpose districts that will be eligible to impose the tax beginning in 2010.

TAX NEWS - NOVEMBER 2009

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