Audit Procedures for Utilities Gross Receipts Tax
Chapter 3 - Miscellaneous Gross Receipts Tax (Electricity, Gas, Water)
- General Information
- Subject Taxpayers
- Nontaxable Utilities
- First Report
- Quarterly Reports
- Payment Action
- Tax Rates
- Newly Annexed Areas
- Taxable Receipts
- Nontaxable Receipts
The Miscellaneous Gross Receipts Tax is described in the Tax Code, Chapter 182. The gross receipts tax applies to electric, gas, and water utilities. The Miscellaneous Gross Receipts tax was recodified into the Tax Code in 1981, and at that time it also applied to telegraph and telephone companies. The gross receipts tax on telephone and telegraph was later repealed, and now applies only to the electric, gas, and water utilities.
The gross receipts tax applies only to gross receipts from business done inside an incorporated town or city, and the tax rate increases based on population. The tax is considered an occupation tax, and is allocated to the foundation school fund and the general revenue fund. (Tax Code, Sec. 182.121, 182.122)
Texas Tax Code Ann. Chapter 182 describes the miscellaneous occupation taxes based on the gross receipts from operations.
- Subchapter A describes telegraph companies
- This section was repealed October 1, 1985, and will not be discussed in this manual.
- Subchapter B describes utility companies.
- This section is described in Chapter 3 of this manual.
3 rates depending upon population of city in which receipts are derived. See “Tax Rates.”
reports are due quarterly, on the last day of the month following the calendar quarter
Reported Data: Taxpayer reports their quarterly gross receipts on Form #20-103. First Reports are submitted using Form #20-100. Reported data is available on mainframe inquiry using tax type 23. Copies of taxpayer returns are available through the FileNet Imaging System.
Statute of Limitations: 4 year statute of limitations (Tax Code, Sec. 111.201). For tax type, use “Miscellaneous Gross Receipts Tax, Tax Code, Chapter 182.”
Taxpayer History: a “taxpayer history” is available using inquiry XIRPTS, tax type 23
Audit Write-up: all audits generated in Work Manager will be under Tax Type 23. In the cover letter, refer to this tax as the “Miscellaneous Gross Receipts Tax.” An Audit Adjustment Report for non-automated taxes must be completed.
Audit Exams: Schedules should be prepared to fit the situation. The auditor should use judgment in determining how the adjustments can be best displayed given the particular circumstance. Always use the notations “Quarter Ending” for report periods. If the taxpayer began business during the audit period, the beginning period should be noted as “First Report.”
Tax Code, Chapter 182, only provides two definitions:
Based on Section 182.021, a "utility company" includes the following for local sale and distribution located within an incorporated city or town in this state:
- a gas, or water works, or water plant
- an electric light or electric power works, or light plant
- a retail electric provider, as defined in Section 31.002 of the Utilities Code
The definition does not include a plant or utility used for distribution but who does not make retail sales to the ultimate consumer within an incorporated city or town in this state.
The following types of utilities are exempt from taxation under the Miscellaneous Gross Receipts Tax:
- A plant or utility used for distribution but who does not make retail sales to the ultimate consumer within an incorporated city or town in this state. (Tax Code, Sec. 182.021)
- Municipal utilities:
Any utility owned and operated by any city or town, county, water improvement district or conservation district. (Tax Code, Sec. 182.026)
A utility organized under the "Electric Cooperative Corporation Act" is exempt. (Miscellaneous Tax Rule. 3.52)
- Single customer gas utilities:
A gas pipeline company which sells to only one industrial consumer is exempt. [Utilities National Gas Co. v. State, 133, Texas 313, 128S.W.2d 1153 (1939), and Attorney General Opinions #V-994, #0-3776 dated August 1, 1941, and #V- 1084 dated August 17, 1950.]
Every person, company, etc. engaged in business in Texas which has to pay a tax on gross receipts is required to have a permit to transact business. Currently, this means that all utility companies doing business in Texas must have a Gross Receipts Permit, which has to be renewed each year. There is no fee required for the permit, but the company must apply to Revenue Accounting for the permit annually. (Tax Code, Sec. 182.086)
Any utility company, which begins transacting business in Texas on or after the first day of the quarter, must file a special Gross Receipts Tax Report for business started on or after the beginning of the quarter. The due date is considered to be the first day of business in Texas.
This first report is submitted on Form #20-100, which includes a certification on the type of business conducted and the date the business began. With this first report, the tax is a fixed sum of fifty dollars ($50.00) payable in advance. (Tax Code, Sec. 182.083)
Every utility company which has to pay the Miscellaneous Gross Receipts Tax must file reports with the Comptroller quarterly on the last day of January, April, July, and October of each year. (Tax Code, Sec. 182. 081, 182.082)
The comptroller may require a person required to report under this chapter to supply additional or supplemental reports containing information necessary to compute the tax due. (Tax Code, Sec. 182.084)
If a person that begins business on or after the first day of the quarter is an incorporation, reincorporation, or survivor of a merger of a person or persons that were previously subject to a tax under this chapter, its report required under Section 182.081 of this code must show the combined gross receipts during the preceding quarterly period of the person or persons that were incorporated, reincorporated, or merged to form the new entity. The gross receipts tax provided for in this chapter must be paid on the reported combined gross receipts required under this subsection. (Tax Code, Section 182.083)
Quarterly gross receipts are reported using Form #20-103. The form has three sections, one for reporting gross receipts on gas, one for electricity, and one for water. Each section has three lines for the separation of gross receipts by population.
If a taxpayer is operating two, or all three of these utilities, the report form should have the gross receipts listed for each section.
If the taxpayer is operating in multiple cities, the receipts from business in each city must be allocated by population. For example, if all cities in which the utility is operating have populations of 10,000 or more, then all receipts will be listed on the line “over 9,999.” If they are conducting business in smaller towns, then the gross receipts must be appropriately listed on the line for that city’s population. The population is determined by the most recent federal census. The 1990 and 2000 Federal Census population tables are included in Appendix A.
For the Miscellaneous Gross Receipts tax, the payment is actually made in advance for a future period, but is based upon and calculated upon business done in a prior period.
For example, a company pays $50.00 for the first quarter in which business is transacted, which is due at the first day of business. The $50.00 payment is to cover the first quarter in advance. The next payment is then made at the end of the first quarter and is the payment for the second quarter in advance, but is based on and calculated upon the business done in the first quarter. This system continues until the company goes out of business, and if the company does go out of business during a quarter, a tax return is not required to be filed at the end of that last quarter.
For example, a company begins business on January 15, 2005, and goes out of business on October 20, 2005.
Pays for Qtr
Calculated on receipts from 1-15-05 through 3-31-05
Calculated on receipts from 4-1-05 through 6-30-05
Calculated on receipts from 7-1-05 through 9-30-05
NOTE: Audit schedules should use "First Report" and "Quarter Ending" for report periods.
A tax is imposed on each utility company located in an incorporated city or town having a population of more than 1,000 according to the last federal census preceding the filing of the report. (Tax Code, Sec. 182.022)
The tax rate is determined by the population of the city in which the gross receipts are derived. If a utility is providing service in more than one city, the tax rate applies according to the gross receipts derived in each city and the population of each city.
Incorporated areas of more than
Incorporated areas of 2,500 or more
*The population figures for the 1990 and 2000 Federal census are included in Appendix A. This classification remains unchanged until the publication of the next federal census even if their actual population increases or declines subsequent to the last federal census.
The publication of the federal census is always delayed for some time after the end of the year for which it is taken. The 2000 federal census population figures should be applied to all quarterly report periods beginning July 1, 2001. 200109170L
Only one utility company pays the tax on a commodity. If the commodity is produced by one utility company and distributed by another, the distributor pays the tax. (Tax Code, Sec. 182.023)
Newly Annexed Areas
When a rural area is annexed by an incorporated city, the newly annexed area comes under the provisions of the Miscellaneous Gross Receipts tax law as of the date of annexation since such an area is within the annexing city as of that date. 8112912H
There are some penalties imposed by the statute on miscellaneous gross receipts taxes:
- Penalty for failure to pay the tax due under the statute: If anyone fails to pay the tax by the due date, a penalty of 5 percent of the tax will be imposed, and after 30 days an additional penalty of 5 percent of the tax will be imposed, for a total of 10 percent. The minimum penalty is $1 per period. (Tax Code, Section 108.102)
- Audits may include an additional penalty of 50% if approved by the Manager of Audit Division. (Tax Code, Section 111.061(b).)
- Tex. Tax Code Ann. Ch. 182, Sec. 182.104 imposes a penalty of $50.00 to $500.00 daily for each day's business that is transacted in violation of Chapter 182, when a permit has not been obtained or has been suspended. This is a civil penalty that should only be assessed by a court of competent jurisdiction. [See Tex. Atty. Gen. Op. No. MW-19 (1979].
Taxable receipts for Miscellaneous Gross Receipts include the following:
- Charges for providing gas, electricity, and water to residential, commercial, governmental and industrial customers
- Transmission and distribution services 200107391L
- Competition transition charges 200107391L
- Late Penalties and forfeited discounts: if the customer billing shows an amount for a late payment penalty or a forfeited discount, it is taxable. 200204035L
- Forfeited customer deposits: any amount required to be deposited for utility service which is later forfeited by the customer is taxable when transferred to an income account.
- Charges for the sale of wastewater
- Guard/security lights: electric or gas lights which are charged to the customer on a flat rate per month for the appliance and the power to run the appliance are taxable.
- Bad debt recoveries of taxable receipts previously deducted
- Charges for meter tests
- Charges for load reports
- Charges for out-of-cycle meter reading
- Charges for statements of electric usage
- Charges for special billings
- Charges for energy pulse
- Charge for reading a meter due to a change in the billable party 200207291L
- Service charges for overhead costs 200204035L, 200201770L
- Minimum billing charges 200204035L
- Interest earned on security deposits 200204035L
- Delinquent notification charge, a charge for a company employee to go to a customer’s residence or place of business in order to leave a notice that service is to be terminated for failure to pay delinquent amounts owed for gas service previously rendered. 200207291L
- Municipal franchise fees and other reimbursements from customers for charges paid to a city 200107391L, 200201770L
- Taxes or assessments levied on a utility which are passed on to the customers 200204035L
Nontaxable items for the Miscellaneous Gross Receipts Tax include:
- Charges for utility service outside the city limits
- Sales for resale: if a commodity is produced by one utility company and distributed by another, the distributor pays the tax. The sale to the distributor is not taxable. [TEX. TAX CODE ANN., Chap, 182, Section 182.003.]
- Interdepartmental sales between departments or divisions of the utility itself
- Connect, disconnect, and reconnect charges 200207291L , 200205251P
- Garbage collection
- Sewer treatment/disposal
- Sales taxes collected on the sale of the utility 200204035L
- Money collected under a Bill Payment Assistance Program 200204035L
- Returned check charges for reasons of non-sufficient funds, account closed, payment withheld, invalid signature, or improper preparation. 200207291L
- Fees charged to natural gas distribution companies and master operators by the Railroad Commission to cover the cost of the Commission’s pipeline safety program. (Utilities Code, Section 121.211(g), effective 09/01/03)
- System benefit fund fees 200107391L
- Nuclear decommission fees 200107391L
- Transition charges 200107391L
- Sale of electricity generated by an advanced clean energy project as defined by Health & Safety Code, Section 382.003 (see House Bill 3732, 80th Regular Session, 2007). Effective 9-1-2007.