United States

Texas: Facility Used to House Detainees not entitled to Exemption for Residential Utilities

Aug 21, 2017
From KPMG TaxWatch

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Under Texas law, a sales and use tax exemption applies to gas and electricity sold for “residential use.” Recently, a Texas appeals court addressed whether a private company operating detention facilities for government detainees qualified for the residential use exemption. The taxpayer’s argument was, quite simply, that because the detainees resided at the facility, it qualified for the residential use exemption. After a trial court disagreed with the taxpayer, it appealed to the Texas Court of Appeals.

Under Texas law, for purposes of the exemption, residential use is defined to include the use of gas and electricity in a building occupied as a home or residence when use of the utilities is by the owner. The taxpayer argued that the prisoners resided in the detention facilities, thus the first element was satisfied. It further argued that the owner of the various facilities “used” the gas or electricity to house government prisoners, satisfying the second element. The court determined at the outset that the two elements of the definition of residential use must be read together so that the use by the owner must be related to the occupation as a home or residence. With respect to whether the facilities were occupied as a home or residence, the court did not verbatim adopt the Comptroller’s position that “while a home is one’s castle, a prison is a cage,” it nevertheless concluded that the detention facilities were not occupied as a home under the common meaning of that word. The court next held that the use of the gas and electricity within the facilities was not “by the owner” related to the occupation of the structure as a home or residence. Although the owners and operators of the facilities used the gas and electricity, they did so as part of a commercial venture and as part of the service provided to the government pursuant to contract, not in a residential manner. Please contact Chad Woodfork at 713-319-3846 with questions on The GEO Group, Inc. v. Hegar.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.