SALT Report 2349 – The Texas Comptroller issued guidance regarding the taxability of electricity used to extract and transport water that will be used by golf courses. The Comptroller’s updated guidance is to clear up inconsistencies found in several documents that discuss the sales tax exemption for natural gas and electricity used in exploring for, producing, or transporting materials extracted from the earth.
The Comptroller referred to STAR document 200702186L which discusses materials transported on a conveyor, as this document most accurately reflects the Department’s policy regarding the exemption for natural gas and electricity used to transport materials extracted from the earth.
The document states, “This exemption does not make a distinction between processed and unprocessed materials. Nor is it a prerequisite that the material be extracted by a taxpayer in the business of extracting the materials from the earth. The primary requirement is that the materials not contain any components or substances which do not exist in nature. Therefore, a conveyor that transports processed sand and gravel (as opposed to unprocessed sand and gravel) or a blended sand and gravel mix is still transporting materials that naturally occur. The exemption does not apply when the material contains substances which do not exist in nature or are not components of the material extracted from the earth.”
Therefore, the Comptroller noted that as long as the item being transported is naturally occurring, the exemption will apply to electricity used to transport water from a holding tank or pond to a golf course for irrigation under Tax Code 151.317(a)(4) and Rule 3.295(c)(4)(C) and (h)(1).
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