Texas doesn't have a sales tax on electricity for most commercial users — it was repealed years ago. So I assumed there was nothing to find on the tax side for my Austin clients. Then I looked more carefully at a manufacturing client's bill and found they're paying a city franchise fee of about 6% on top of their TDU charges. Is the franchise fee something we can get exempted or reduced?
Texas has no state income tax but watch out for the franchise tax on utilities
Texas franchise fees on utility bills are set by the individual municipality through franchise agreements with the utility. They're generally not exemptable — they're essentially a tax the city charges for the utility's use of public rights-of-way and the utility passes it through to customers. However, some Texas cities have economic development agreements that reduce or waive franchise fees for qualifying businesses. If your client has an economic development agreement with the city, check whether it includes a utility franchise fee reduction. I've found this twice in the Dallas area.
Nancy raises an important point about Texas. While the state-level sales tax on electricity is minimal for most commercial users, the local franchise fees can be significant. Marcus correctly identifies that these fees are generally not exemptable through normal channels but economic development agreements sometimes include relief. Also check whether the franchise fee is being calculated correctly — it should apply only to charges within the city limits and the base charges it applies to vary by franchise agreement. Overcharges on franchise fee calculations do happen.
Checked the franchise fee calculation on my client's bills. The city of Austin franchise fee was being applied to the entire bill including ERCOT transmission charges which should have been excluded per the franchise agreement. The overcollection was small — about $45/month — but it had been going on for years. Filed with the city and they corrected it going forward plus a 24-month refund. Not huge but a finding is a finding.