Are TDU Delivery Charges Taxable? How Sales Tax Works on Texas Business Electricity

Yes. When a Texas business buys electricity for a taxable use, the TDU delivery charges on its bill are part of the taxable sales price, the same as the energy charge. The Texas Comptroller treats the sale of electricity as "presumed to be taxable" (34 TAC 3.295(b)) and exempts residential use, so a typical business meter pays the 6.25 percent state sales tax plus up to 2 percent in local tax, 8.25 percent at most. On a 1,500 kWh small commercial bill in Oncor territory, priced at our November 10, 2026 energy-only median and the delivery charges Oncor reported to the PUCT for November 1, that comes to $14.89 a month in sales tax, and $7.22 of it is tax on delivery.

This guide walks through which bill lines are taxed, what the tax costs in each TDU territory, and how the predominant use exemption works. It draws on the Comptroller's rules, rate filings at the Public Utility Commission of Texas (PUCT) and the texascommercialplans.com dataset of published commercial rate cards. It explains the published rules and isn't tax advice, so confirm your own accounts with a CPA or the Comptroller before you change how you pay. For the wider rate picture, start with our complete guide to commercial electricity rates in Texas.

Key takeaways

Business electricity in Texas is presumed taxable under 34 TAC 3.295(b). Residential use is exempt from state sales tax and from most local sales taxes.
Comptroller publication 96-1309 says a retail electric provider (REP) collects sales tax on the energy charge, transmission and distribution charges, competition transition charges and municipal franchise fees billed for a taxable use.
System benefit fund fees, nuclear decommissioning fees and transition charges are not taxed when the REP lists them separately.
At 8.25 percent, tax on delivery alone runs $5.73 to $7.22 a month on a 1,500 kWh small commercial bill in four TDU territories as of November 2026.
A meter qualifies for exemption only when more than half of its use is exempt over 12 consecutive months, backed by an engineer-certified utility study kept on file at the business.

Are TDU delivery charges taxable in Texas?

TDU delivery charges are taxable in Texas whenever the electricity they deliver is used for a taxable purpose and the REP bills them as part of your electricity service. The Comptroller treats transmission and distribution as a component of the sale of electricity, not as a separate service with its own tax status.

Comptroller publication 96-1309, Texas Tax Information for Retail Sellers of Electricity, says a REP may bill one lump sum or itemize the commodity, transmission and distribution, and the other components. Either way, on a taxable use it should collect sales tax on four of them: the electric energy, transmission and distribution services, competition transition charges and municipal franchise fees.

Businesses have argued the other side in refund hearings and lost. A 2025 Comptroller decision held that charges for transmission and distribution "are taxable as components of a Retail Electric Provider's sale price when sold as such to an end-consumer of electricity" (STAR 202507029H). An earlier decision, STAR 201712014H, reached the same result on bills that listed commodity, delivery, metering and customer charges on separate lines. Itemizing a delivery line doesn't take it out of the tax base.

The REP also can't mark delivery up. As those decisions note, PUCT rules cap what a REP bills for transmission and distribution at the TDU's own charge to the REP, so the delivery amount you're taxed on should match the TDU's tariff for your rate class.

Which lines on a Texas business electric bill are taxable?

On a taxable business account, nearly every line tied to the electricity itself is taxable: the energy charge, delivery, the fixed customer and metering charges inside delivery, and any gross receipts tax reimbursement. Three regulatory charges are the exception, and only when the REP lists them separately.

Sales tax treatment of common bill lines on a taxable business meter
Bill line	Sales tax treatment	Source
Energy charge	Taxable	Comptroller 96-1309
REP base or monthly charge	Taxable as part of the electricity's sales price	34 TAC 3.295(b)
TDU transmission and distribution charges, including customer and metering charges	Taxable	96-1309, STAR 201712014H
Competition transition charges	Taxable	96-1309
Municipal franchise fees	Taxable	96-1309
Gross receipts tax or PUC assessment reimbursement	Taxable, becomes part of the sales price	96-1309
System benefit fund fee, nuclear decommissioning fee, transition charge	Not taxable when listed separately	96-1309

The carve-out is narrow. Publication 96-1309 exempts system benefit fund fees, nuclear decommissioning fees and transition charges only when the REP lists them separately for the customer. If your bill rolls every delivery item into one line, those riders are taxed along with the rest of it. Watch the names, too: a competition transition charge and a transition charge are different riders with different tax treatment, even though they read almost the same on a bill.

The Electricity Facts Label won't show any of this. The PUCT defines the EFL average price to exclude state and local sales taxes and the gross receipts tax reimbursement (16 TAC 25.475(b)(8)), so every EFL you compare is a pre-tax number. Our guide to reading a commercial electricity facts label covers what else the label leaves out.

Why is business electricity taxed when home electricity isn't?

Texas taxes business electricity because the rule starts from taxable and then lists exempt uses. Residential use is on that list, so a home meter pays no state sales tax, while an ordinary business meter starts out taxable and stays that way unless its use qualifies for an exemption.

The rule's definition of residential use is narrower than many owners expect (34 TAC 3.295(a)(8)):

It covers homes, apartments, condominiums, RV parks, nursing homes and retirement homes occupied as a residence, plus common areas such as an apartment pool, a security gate or parking lot lighting.
A tenant's use counts as residential only under a contract for an initial term of more than 29 consecutive days.
It excludes hospitals, rehabilitation centers, psychiatric facilities, jails and other health care or detention facilities.

Two business situations catch people out. A landlord of nonresidential property that buys electricity directly is the consumer and owes the tax, and it can't claim an exemption based on a tenant's exempt status or use (3.295(k)). And home electricity isn't tax-free everywhere: a city that elected to tax residential gas and electricity under Tax Code 321.105 can charge its local sales tax on it, and so can certain fire control and crime control districts inside that city (3.295(d)(1)).

How much does sales tax add per kWh?

At the 8.25 percent maximum rate, sales tax adds about 0.87 to 0.95 cents to every kWh a small commercial account buys, before fixed charges. That's roughly half a cent on the median energy rate and another 0.35 to 0.44 cents on the per-kWh delivery charge, depending on the territory.

Energy-only medians and the sales tax on them, by TDU territory
TDU territory	As of	Active fixed energy-only rows	Median energy rate (cents/kWh)	Middle half (cents/kWh)	Tax on median energy (cents/kWh)	Tax on per-kWh delivery (cents/kWh)
Oncor	Nov 10, 2026	3,317	6.20	5.80 to 6.67	0.51	0.44
CenterPoint	Nov 10, 2026	2,914	6.37	6.00 to 6.86	0.53	0.35
AEP Texas Central	Nov 10, 2026	3,069	6.39	5.92 to 6.93	0.53	0.36
AEP Texas North	Nov 10, 2026	2,745	6.28	5.88 to 6.83	0.52	0.35
TNMP	Nov 10, 2026	2,830	6.25	5.84 to 6.77	0.52	Not priced
All five territories	Nov 10, 2026	14,875	6.29	5.88 to 6.81	0.52	Not applicable

Energy-only quotes leave delivery out, and they're the norm in this market: 15,452 of the 16,805 active small commercial rows in our dataset (91.9 percent) are quoted that way as of November 10, 2026. The tax on delivery column applies 8.25 percent to each utility's November 1 per-kWh delivery charge, covered in the next section.

Sales tax is the same percentage whichever REP you choose, so it doesn't change which offer is cheapest. It does change the budget. When you compare quotes with our commercial rate comparison worksheet, add the tax after you've lined up energy, delivery and fixed charges, using the rate for each meter's address. Current medians are on our rates by territory page.

How much sales tax does a small business pay on TDU delivery?

At the 8.25 percent maximum rate, a small commercial account using 1,500 kWh a month pays $5.73 to $7.22 a month in sales tax on delivery alone in the four TDU territories we can price, as of November 2026. That's 42 to 48 percent of the account's total sales tax, because delivery makes up nearly half of the pre-tax bill.

We built the example from two published sources. The energy charge is the median fixed, energy-only rate in each territory from our dataset on November 10, 2026. The delivery charges are each utility's secondary service class at or below 10 kW, from the November 1, 2026 monthly rate reports the utilities filed with the PUCT under Project 58511 (Oncor, CenterPoint). At 1,500 kWh and the 30 percent load factor the PUCT uses for small commercial EFLs, peak demand works out to about 6.8 kW, inside that class.

Sales tax on a 1,500 kWh small commercial bill at 8.25 percent
TDU territory	Delivery rates as of	Energy at median	Delivery	Pre-tax total	Tax on energy	Tax on delivery	Total sales tax
Oncor	Nov 1, 2026	$93.00	$87.46	$180.46	$7.67	$7.22	$14.89
CenterPoint	Nov 1, 2026	$95.55	$69.43	$164.98	$7.88	$5.73	$13.61
AEP Texas Central	Nov 1, 2026	$95.85	$71.66	$167.51	$7.91	$5.91	$13.82
AEP Texas North	Nov 1, 2026	$94.20	$70.16	$164.36	$7.77	$5.79	$13.56

The inputs behind each row:

Energy medians of 6.20 cents (Oncor), 6.37 cents (CenterPoint), 6.39 cents (AEP Texas Central) and 6.28 cents (AEP Texas North) per kWh.
Oncor delivery of $6.70 a month ($2.34 customer plus $4.36 metering) plus 5.3843 cents per kWh.
CenterPoint delivery of $4.96 a month ($2.01 plus $2.95) plus 4.2983 cents per kWh.
AEP Texas delivery of $5.66 a month ($1.45 plus $4.21) plus about 4.4 cents (Central) and 4.3 cents (North) per kWh, as AEP Texas rounds them in its PUCT report.

The example leaves out any REP base charge and any gross receipts tax reimbursement, and both are taxed too. A $4.95 base charge, the median among rows in our dataset that charge one, adds about $0.41 of tax at 8.25 percent. We left TNMP out because we couldn't confirm its November small secondary charges against a PUCT filing. The utilities' own reports are linked from the PUCT's TDU rates page.

Delivery increases carry tax with them. Oncor's per-kWh charge for secondary service at or below 10 kW was 5.1227 cents in its October 1, 2026 report and 5.3843 cents in its November 1 report, after an update that took effect October 4. On 1,500 kWh that's $3.92 more a month in delivery and about $0.32 more in sales tax. Over a year, the example Oncor account pays about $87 in sales tax on delivery and about $179 in sales tax overall.

What sales tax rate applies to a business meter?

A business meter pays the 6.25 percent state sales tax plus the local sales taxes in effect where the electricity is delivered. Cities, counties, transit authorities and special purpose districts can each add local tax, but 96-1309 caps the combined state and local rate at 8.25 percent, so local tax tops out at 2 percent.

Because local tax depends on location, two meters on one contract can be taxed at different rates. A business with sites inside and outside a city's limits should check the local rate on each bill against the Comptroller's published rate for that address. The examples in this guide use 8.25 percent, the most any Texas meter can pay, so a meter with a lower local rate will see proportionally less.

Is the gross receipts tax line on a bill also taxed?

Yes. When a REP passes its miscellaneous gross receipts tax or PUC assessment through as a reimbursement line, that charge becomes part of the sales price of the electricity and is subject to sales tax the same way the electricity is, according to 96-1309. The gross receipts taxes are the REP's own liability, and the reimbursement line is how it recovers them from customers.

The miscellaneous gross receipts tax applies to a REP's sales in incorporated cities, at a rate set by population: 0.581 percent in cities of more than 1,000 and under 2,500 people, 1.07 percent from 2,500 to under 10,000, and 1.997 percent at 10,000 or more (Comptroller). The PUC assessment is one-sixth of 1 percent of a REP's gross receipts from retail customers. As an illustration, a 1.997 percent reimbursement on the $180.46 Oncor bill above would be about $3.60, and sales tax would add about $0.30 on top of that.

Which businesses can buy electricity tax-free?

A business buys electricity tax-free only when the use itself is on the exempt list in 34 TAC 3.295(c), or when the buyer is exempt in its own right, such as a qualifying exempt organization or a government entity. Being a small business, or using little electricity, isn't an exemption.

The exempt uses in the rule include:

Agriculture, including dairy and poultry operations and pumping for farm or ranch irrigation, and timber operations.
Powering equipment that qualifies for the manufacturing exemption to process tangible personal property for sale, other than preparing or storing prepared food.
Lighting, cooling and heating in the manufacturing area during actual manufacturing or processing.
Exploring for, producing or transporting a material extracted from the earth.
Electrical processes such as electroplating, electrolysis and cathodic protection.
Repair of rolling stock, off-wing jet turbine engine overhaul, certain defense and national security work, and data centers certified by the Comptroller.

The manufacturing exemption stops at the production floor. Electricity for lighting, cooling and heating in support areas, which the rule lists as storage, engineering, office, accounting, research and development, break, eating and restroom areas, is taxable, and so is electricity in an area open to the public for marketing a finished product (3.295(f)(3)). A cabinet shop's production saws can count toward exempt use, while its showroom and office can't.

How does the predominant use test work?

The predominant use test settles a mixed-use meter all at once: if more than half of the electricity through a single meter goes to exempt uses, everything on that meter is exempt, and if not, all of it is taxable. The business has to establish that split from 12 consecutive months of use (3.295(f)(1)).

Seasonal operations get some room. A business that performs an exempt function for only part of the year can establish predominant use for just that period, based on its use during it (3.295(f)(2)). And because the test is applied to each meter on its own, the exempt share of one meter doesn't depend on what the rest of the building uses.

What does a predominant use study have to include?

A predominant use study is the written utility study that proves a meter's exempt share, and 34 TAC 3.295(g) sets out what it must contain. Without one, the rule says plainly, "the claim for exemption will be presumed to be invalid."

Every use of the electricity, exempt and taxable, with the times of use, the energy used and the resulting exempt percentage.
Twelve consecutive months of usage. A business open less than 12 months can use a study of projected use, then must back it with actual use after 12 months if the Comptroller asks.
Kilowatt ratings, duty factors and computations certified by a registered engineer or a person with an engineering degree from an accredited engineering college.
The owner's certification that every item using electricity is listed with correct hours, shown on the face of the study next to the engineer's.
A power of attorney if an agent prepares the claim on the business's behalf.

The study stays at your business, not with the state. It must be completed and on file at the location when you give the exemption certificate to your REP, and the Comptroller may ask to review it before or after the exemption is granted. Neither that review nor the REP's acceptance confirms the study is accurate, and if it later proves wrong, the business owes the tax, penalty and interest (3.295(g)(3) and (g)(5)).

The certificate, typically the Comptroller's Form 01-339, has to state the reason specifically. For processing, the rule supplies the wording: "A valid and complete study has been performed which shows that (insert the actual exempt percentage) of the natural gas or electricity is for processing tangible personal property for sale in the regular course of business" (3.295(h)(2)). Agricultural and timber claims also need the business's Texas Agriculture and Timber Registration Number (3.295(h)(8)). The exemption lasts only while the meter's predominant use stays exempt, and it's the business's job to tell the REP in writing if that changes (3.295(h)(4)).

Switching providers doesn't restart the clock. If your usage hasn't changed, you don't need a new study when you change REPs, but you do need to file a new exemption certificate with the new provider before claiming the exemption there (3.295(g)(8)). Add it to your switching checklist next to the steps in our small business electricity guide.

Can a business get back sales tax it paid in error?

Yes, within the statute of limitations, which is generally four years from the date the tax was due. A business without a Texas sales tax permit asks the seller first: the REP can refund the tax itself, or give the business Form 00-985, Assignment of Right to Refund, which lets it file the claim directly with the Comptroller (Comptroller sales tax refunds).

A refund needs the same study an exemption does, and two rules make it stricter. A study done looking backward must account for any changes in equipment, business activity or the square footage the meter serves during the refund period, and the Comptroller won't accept a study it can't verify independently, such as one for a closed utility account (3.295(g)(6)). And a business that gets a refund from its utility without a valid study is assessed tax, penalty and interest on the full refund if the exemption isn't proved (3.295(g)(4)).

The TxCP Four-Line Tax Check

The TxCP Four-Line Tax Check is a fast way to audit the sales tax on a business electric bill, one question per line. Run it on one recent bill for each meter you pay for, and bring anything that doesn't add up to your CPA or your REP.

Meter use: is this meter residential, exempt or taxable? If you believe it's exempt, is a 12-month predominant use study on file, and does your current REP hold your exemption certificate?
Tax base: does the taxable subtotal include energy, delivery, any base charge and any gross receipts tax reimbursement, and are system benefit fund, nuclear decommissioning and transition charges listed separately and left out?
Rate: does the combined rate equal 6.25 percent plus the local taxes for the meter's address, and is it no higher than 8.25 percent?
Look-back: if tax was charged on an exempt use, is the overpayment inside the four-year limit, and will the REP refund it or issue Form 00-985?

Does the statewide average electricity price include taxes?

Yes, by EIA's own description, which is why it can't be lined up against a pre-tax EFL price or used to estimate the tax on one meter. The U.S. Energy Information Administration says its average retail price "includes all costs for delivered electricity, including generation, transmission, distribution, taxes, and fees" (EIA). For Texas commercial customers that average was 8.96 cents per kWh in August 2026 (EIA Table 5.6.A, released October 23, 2026).

It's revenue divided by kWh across every commercial account in the state, large and small, exempt and taxable, so it can't tell you the tax on your meter. Our guide to the average commercial electricity price per kWh in Texas explains what the figure blends together. For your own budget, start from the pre-tax bill your REP and TDU produce and apply your meter's rate.

Frequently Asked Questions

Are TDU delivery charges taxable in Texas?

Yes, when the electricity is used for a taxable purpose. Comptroller publication 96-1309 lists transmission and distribution services among the charges a retail electric provider collects sales tax on, and Comptroller hearing decisions have held that delivery is part of the electricity's taxable sales price even when the bill itemizes it. On a residential or exempt meter, delivery is exempt along with the energy.

What is the sales tax rate on business electricity in Texas?

The state rate is 6.25 percent, and cities, counties, transit authorities and special purpose districts can add local tax up to a combined maximum of 8.25 percent. At 8.25 percent, tax adds about 0.87 to 0.95 cents per kWh to a small commercial bill in the four TDU territories we priced as of November 2026, before fixed charges.

Is residential electricity taxed in Texas?

Residential use is exempt from the 6.25 percent state sales tax and most local sales taxes. A city that elected under Tax Code 321.105 can tax residential electricity locally, as can certain fire control and crime control districts inside it. A tenant's use counts as residential only under a contract for more than 29 consecutive days.

What is a predominant use study for electricity in Texas?

A predominant use study is the utility study that shows more than half of the electricity through one meter goes to exempt uses, such as manufacturing or agriculture. Under 34 TAC 3.295(g) it covers 12 consecutive months, lists every use, carries an engineer's and the owner's certification, and stays on file at the business rather than going to the Comptroller.

Do I need a new predominant use study if I switch electricity providers?

No, not if your usage hasn't changed. Under 34 TAC 3.295(g)(8) the existing study stays on file at the business, but you must file a properly completed exemption certificate with the new provider before the exemption applies there.

Does the price on an Electricity Facts Label include sales tax?

No. PUCT rule 16 TAC 25.475(b)(8) defines the EFL average price to exclude state and local sales taxes and the gross receipts tax reimbursement, so every EFL is a pre-tax figure. Add your meter's sales tax rate after you compare offers.

Is this guide tax advice?

No. It summarizes published Comptroller rules and PUCT filings as of November 10, 2026. Confirm how they apply to your meters with a CPA or the Texas Comptroller before you claim an exemption or a refund.