The Texas Comptroller ruled that the purchase of a battery system did not qualify for the manufacturing exemption from Texas sales and use taxes because it was used to store electricity, not manufacture it. The taxpayer operated a wind farm and began a project to participate in the Electric Reliability Council of Texas’ Fast-Responding Regulation Service (FRRS). Each participant in the FRRS was required to make energy available on demand. To do this, the taxpayer needed a battery system, which could store and maintain the electricity so it would be available and ready for distribution.

The taxpayer argued that its purchase of the battery system qualified for the manufacturing exemption – which is available for items directly used or consumed during manufacturing of tangible personal property (such as electricity) if the use or consumption is necessary for the manufacturing operation and makes or causes a chemical or physical change to the property being manufactured. The taxpayer argued that the exemption applied because the energy underwent a chemical change when the battery converted the direct current energy from the wind farm from electrical energy to chemical energy and, upon discharge, converted the chemical energy to direct current electrical energy. However, the Comptroller disagreed and ruled that the chemical change was done for storing manufactured electricity, not to manufacture electricity, and the manufacturing exemption specifically excludes property used to maintain or store tangible personal property.


Texas Private Letter Ruling No. 20180110142309 (Aug. 14, 2018).

By Mike Kerman and Jonathan Feldman

The Delaware Chancery Court held that a town’s $27,000 building permit “fee” was in substance a tax that could not be levied against a tax-exempt water and sewer authority. The town assessed the fee upon the water and sewer authority before it would issue a permit to construct a water storage tank. Whether the town could impose such a charge depended on whether it was properly characterized as a fee or a tax, regardless of its label as a fee. The distinction, the court said, is that a fee is directly related to a service received or a burden contributed by the payer, and is intended to offset the government’s costs of regulating or policing the conduct or risks. A tax, in contrast, is an enforced contribution (not a voluntary payment) imposed without any relationship to specific benefits received by the taxpayer. Based on this distinction, the court found the building permit fee to be a tax because it was calculated without regard to any benefits to the authority and would be used within the town’s general revenue fund. The record failed to show that the town would incur costs anywhere near the $27,000 charge in processing the authority’s permit. Thus, there was no direct relationship between the $27,000 and the benefits received or burdens contributed by the tax-exempt water and sewer authority, therefore the tax could not be imposed. Camden-Wyoming Sewer & Water Auth. v. Town of Camden, C.A. No. 12347-VCS (Del. Ch. Sept. 18, 2017).

The Georgia Senate Special Tax Exemption Study Committee held its initial meeting to plan evaluation of Georgia income and sales tax exemptions by December 1, 2017.

  • The special study committee was created by a Georgia Senate Resolution during the 2017 Legislative Session.
  • The Committee will prioritize exemptions to evaluate, and then recommend whether to continue, expand, reduce, or sunset each exemption.
  • The Committee scheduled dates for its next four meetings, which will take place throughout the state.

View the full Legal Alert

By Nicole Boutros and Scott Wright

A New York State Division of Tax Appeals administrative law judge (ALJ) determined that a telecommunications provider’s electricity purchases were not exempt from sales tax as sales for resale. In so doing, the ALJ rejected the taxpayer’s assertion that it resold electricity by incorporating it into its telecommunications services, explaining that the regulation on which the taxpayer relied applies to tangible personal property purchases, which electricity is not. The ALJ further held that the taxpayer was not exempt under a separate provision for resales of electricity, finding that the taxpayer was not reselling electricity upon sale of its telecommunications services and that the electronic signals powering its network were only incidental to the services for which its customers contracted. Matter of XO Communications Services, LLC, DTA Nos. 826686 & 827014 (N.Y. Div. Tax App. Mar. 9, 2017).

By Zack Atkins & Open Weaver Banks

The Utah State Tax Commission ruled that machinery and equipment purchased by the owner of a social networking community qualified for the state’s exemption for purchases and leases of certain property used in the operation of a web search portal.  In connection with its proposed construction and operation of a data center campus in Utah, the taxpayer anticipated buying, among other things, computer servers, fiber infrastructure and network equipment, power equipment and infrastructure, backup generators, fire suppression equipment, security equipment, electrical substations, and cooling equipment.  Utah exempts from sales and use tax purchases and leases by an in-state establishment described in NAICS Code 518112, Web Search Portals, of machinery, equipment, and parts used in the operation of a web search portal and with an economic life of at least three years.  The Commission concluded that the taxpayer was described in the requisite NAICS Code and the proposed data center qualified as an in-state establishment.  It also determined that the taxpayer’s anticipated machinery and equipment purchases would qualify for the exemption, with three exceptions.  Fire suppression, security and cooling equipment, the Commission said, would not be used in the operation of the web search portal; rather, that equipment would be used to provide a proper environment for other categories of machinery and equipment to operate the web search portal. Utah State Tax Comm’n, Private Letter Rul. No. 16-001.

By Stephen Burroughs and Maria Todorova

The Commonwealth Court of Pennsylvania recently reaffirmed its decision that Level 3’s network infrastructure services (including local dial networks, telephone numbers and modems, i.e., Internet “backbone”) sold to retail Internet service providers (ISPs) constitute non-taxable Internet access services. The Commonwealth Court previously held that the taxpayer’s facility was an access point (point of presence or PoP) that enabled ISP end users to access the Internet, and its services were, therefore, Internet access services exempt from sales and use tax (see previous coverage of the court’s holding here). The Commonwealth sought reconsideration of the court’s holding, primarily arguing that: (1) the taxpayer’s services constituted a mere technological advancement to otherwise taxable telecommunications services (such as port modem management (PMM) services—see America Online, Inc. v. Commonwealth, 932 A.2d 332 (Pa. Cmwlth. 2007) here); and (2) the taxpayer merely directed end users to an ISP homepage and it was the ISP and its PoP—and not the taxpayer—that enabled end users to initiate a connection to the Internet. The court disagreed with the Commonwealth and reaffirmed its prior reasoning that: (1) the “fundamental technological differences” between taxable PMM services and the taxpayer’s Internet backbone services related to what services were provided and not how the services were provided; and (2) it was the taxpayer’s PoP that provided the access point for ISP end users to establish an Internet connection. The Commonwealth has filed a Notice of Appeal to the Pennsylvania Supreme Court. Level 3 Communications, LLC v. Commonwealth, 166 F.R. 2007 (Pa. Cmwlth. Dec. 8, 2016) (en banc). 

By Alla Raykin and Tim Gustafson

The Colorado Department of Revenue determined that energy purchased by a television broadcaster is exempt from sales tax when used to transmit broadcasts, but taxable when used for other office purposes. Colorado imposes sales tax on electricity and natural gas for commercial consumption. The Department analyzed possible exemptions applicable to the broadcaster’s use of energy and concluded that the 1937 statute exempting “radio communication” extends to television broadcasting today. However, the exemption, read narrowly, does not extend to energy used for office lighting, computers, printers, cameras, stage lighting and heating of office space. CO GIL-16-014

By Mike Kerman and Jonathan Feldman

The Florida Department of Revenue advised that certain materials and labor a taxpayer plans to use to construct a combined heating and power plant will be exempt from Florida sales and use tax. The plant will produce electricity for sale. Florida exempts purchases of machinery and equipment necessary to produce electrical or steam energy from burning fuels when such energy is primarily used to produce tangible personal property for sale. In this scenario, the electricity itself would constitute the tangible personal property produced for sale. Under the “integrated plant theory,” Florida courts have interpreted this exemption to apply to all machinery, equipment, and integral components used in the generation, but not the distribution of electricity and steam. The Department therefore advised that all of the taxpayer’s machinery and equipment will be exempt (including, among others, machinery foundations and platforms, generators, a cooling tower, electrical building and control room, and the first step-up transformers) with the exception of subsequent transformers and a pipeline that will distribute steam energy from the plant to a purchaser, because they are related to distribution. Additionally, the Department explained that labor to construct the plant is exempt to the extent it is for buildings or subsurfaces directly related to exempt machinery and equipment.  Fla. Dep’t of Revenue, Tech. Assistance Advisement No. 16A-010 (July 21, 2016) (released Sept. 20, 2016).  

By Jessica Eisenmenger and Jeffrey Friedman

The New York State Tax Appeals Tribunal sustained a determination by a Department of Taxation and Finance Administrative Law Judge that receipts obtained from the sale of retail pricing information services are subject to sales tax. Under New York law, information services are taxable, but services that are personal or individual in nature are excluded from tax. RetailData, LLC collects retail store pricing information from publicly available sources. However, RetailData’s service includes client-specific price investigations and reports that are customized for each client. The Tax Appeals Tribunal reasoned that this service does not qualify for the personal service exclusion because the source of its information is publicly available. In the Matter of the Petition of RetailData, LLC, DTA No. 825334 (N.Y. Tax App. Trib. Mar. 3, 2016).