A home in Texas pays no state sales tax on electricity. A business pays it on the whole bill. For a shop spending $3,000 a year on power that is about $250, and it is the one line a business bill carries that a home bill never does. This guide covers the rates, who doesn’t have to pay, how to stop the charge, and why it never changes which plan is cheapest.
The rates
The state rate is 6.25 percent. Cities, counties, transit authorities and special districts add local sales tax of up to 2 percent, so the combined rate is up to 8.25 percent, set by where the meter is. The tax applies to the full price the provider charges for electricity, delivery charges included, and it appears as its own line on the bill.
Why homes don’t pay it
State law exempts the residential use of electricity from state sales tax. Cities are allowed to tax it locally, and some do, which is why a home bill in one city carries a line of 1 or 2 percent and the same bill a few miles away carries none. Everything billed on a commercial meter is taxed as a business.
Who is exempt
Two kinds of business buy electricity tax-free, and they get there differently.
- Exempt organizations. Religious, charitable and educational nonprofits, and governments, once the Comptroller has granted them Texas sales-tax exemption. An IRS 501(c)(3) determination is not enough by itself; the state exemption is a separate, free application to the Comptroller. Churches, private schools, food banks, animal shelters and most 501(c)(3) charities qualify.
- Predominant use. Electricity used in manufacturing, processing, fabricating or agriculture is exempt, and when more than half of the electricity through a meter goes to those uses, the whole meter is exempt. Proving it takes a predominant-use study by a licensed engineer that lists every piece of equipment and its share, backed by a year of bills. Small manufacturers, machine shops, print shops and farms are the usual claimants; a restaurant, an office or a store is not.
How to stop the charge
- Get the exemption first: the Comptroller’s exempt-organization letter, or the completed study.
- Fill in the Texas Sales and Use Tax Exemption Certification (the back of Form 01-339), naming the provider as the seller and the reason for the exemption.
- Send it to the provider. The tax comes off from the next bill; it does not come off on its own, and the provider is right to charge it until the certificate arrives.
- Tax already paid can be recovered for up to four years: ask the provider for a credit, or file a refund claim with the Comptroller if the provider won’t.
- When you switch providers, send the certificate again. It is given to a seller, and the new provider doesn’t have the old one’s copy.
Other taxes on the bill
Two smaller items appear on business and home bills alike and are not sales tax: a PUC assessment of one-sixth of one percent that funds the Public Utility Commission, and a reimbursement for the state gross receipts tax that utilities pay on sales inside most cities. Both apply to every plan and sit outside the Electricity Facts Label, which is why this site’s prices say “before taxes and fees.”
Why the tax never changes which plan is cheapest
Sales tax is a percentage of the bill, and the same percentage for every plan. Multiplying every plan’s year by 1.0825 keeps them in the same order; it only stretches the gaps.
| Plan | Before tax | After tax |
|---|---|---|
| Plan A | $3,000.00 | $3,247.50 |
| Plan B | $3,200.00 | $3,464.00 |
| Gap | $200.00 | $216.50 |
So the before-tax total is the right number to shop on whether or not you pay the tax, and it is the number this site shows on the small-business rates page and in a business’s results. A taxable business can multiply any price here by its local rate to see the bill; an exempt one is looking at its actual cost. The one thing tax does change is the size of a saving: $200.00 a year before tax is $216.50 after it.
What to do
If the business is a nonprofit or might qualify by predominant use, start the exemption; it is worth about 8 percent of the power bill every year, which is more than the gap between most plans. Then compare plans before tax on the business’s own 12 months, pick the cheapest full-year plan, and switch. The tax is the same whichever you choose.