Purchases of Gas and Electricity by Privately Run Detention Facilities Do Not Qualify for Exemption

Purchases of gas and electricity used in privately run detention facilities do not qualify for an exemption for utilities purchased for residential use. In GEO Group, Inc. v. Hegar, the Comptroller issued a sales and use tax assessment for purchases of utilities used in facilities that house government detainees. GEO Group needed to prove two elements to qualify for a sales tax exemption for gas and electricity sold for residential use: (1) the gas or electricity was used in a structure occupied as a home or residence, and (2) the gas or electricity was used by the owner of the occupied structure.

GEO Group argued that its facilities were occupied as a residence because prisoners lived in the facilities. It further argued that GEO Group used the gas or electricity as the owner of the facility. The Comptroller disagreed, arguing that the prisoners did not occupy the facilities as a home or residence because they could not exercise active control of the space and they did not enjoy any of the rights that accompany the occupation of a home or residence. The Comptroller further argued that the prisoners were the party who used the utilities, rather than GEO Group.

The Court held that GEO Group failed to meet the first element to qualify for the residential use exemption because the prisoners did not occupy the facilities as a home or residence under the meaning of the statute. The Court defined “residence” to mean “the place where one actually lives or has his home.” In contrast, the term “detention” was defined to mean “a holding in custody.” The detained prisoners were not occupying the facility as a home or “residence” under the definitions of these terms. Further, GEO Group failed to meet the second element of the residential use exemption because GEO Group used the gas and electricity as part of a commercial venture between GEO Group and the government pursuant to its contracts to maintain the detention facilities.

This case is currently pending review before the Texas Supreme Court.