Whether you pay sales tax on utilities and residential services depends heavily on your state: about half the states with a sales tax apply it to at least some residential energy, most exempt water, federal law prohibits any tax on internet access, and local franchise fees usually appear on your bill no matter what your state does. Cable and phone service carry their own stack of surcharges that sit outside ordinary sales tax rules. The line items on your bill reflect all of these systems layered together.
What States Actually Tax on an Energy Bill
Most states that tax utilities treat electricity, natural gas, propane, heating oil, and similar fuels as tangible personal property rather than services. Because the quantity is measured and delivered to a specific address, tax codes handle these purchases much like a product bought off a shelf. The sales tax applies to the total sale price before credits or discounts.
That default is what a residential exemption cuts against. Without an exemption, the standard state sales tax rate applies to your electric, gas, or fuel oil bill just as it would to a retail purchase.
Residential Exemptions for Electricity, Gas, and Fuel
The biggest factor in whether sales tax appears on your energy bill is whether your state exempts energy used for residential purposes. A significant number of states carve out full or partial exemptions for electricity, natural gas, and other fuels consumed in a home, treating home heating and cooling as closer to a necessity than a retail purchase.
To qualify, the energy has to be consumed at a location that serves as a primary residence. Transient occupancy like a short-term hotel stay generally doesn’t count. The exemption typically covers electricity, natural gas, bulk propane, fuel oil, and utility delivery charges for gas and electric service. Some states extend it to coal and wood pellets used for home heating.
These exemptions eliminate the state-level sales tax on qualifying residential accounts. Local sales taxes may or may not follow the state exemption, and that inconsistency catches people off guard. You can see zero state tax on an electric bill and still owe a few dollars in county or city sales tax if the local jurisdiction didn’t opt into the exemption.
If you run a business out of your home, some states require you to show that residential use exceeds a threshold, often 50 percent, before the full exemption applies. That usually means filing an exemption certificate or a signed affidavit with your utility provider.
Water and Sewer
Water and sewer charges get favorable treatment in most states. Many jurisdictions exempt water delivery and wastewater services from sales tax entirely, treating them as essential public health services rather than commercial transactions. Where water is taxed, some states tax only the per-gallon commodity charge while exempting fixed service fees; others exempt water entirely but still allow local utility taxes or surcharges.
Sewer service, often billed alongside water, usually follows the same exemption because it’s a charge for waste treatment infrastructure rather than a product delivery. A handful of states and municipalities do impose taxes or fees on sewer service, so the line items are worth checking.
Internet Access Cannot Be Taxed
Internet service sits apart from every other utility. Federal law specifically prohibits state and local governments from taxing internet access. The Internet Tax Freedom Act imposed a moratorium in 1998, Congress made it permanent in 2016, and the last grandfathered states lost their exception on June 30, 2020.1GovInfo. 47 USC 151 – Purposes of Chapter; Federal Communications Commission Created No state or local government can now impose sales tax, gross receipts tax, or any similar levy on the cost of connecting to the internet.
The protection covers the core access service and incidental features like email, cloud storage, and a homepage provided with the subscription. It does not cover streaming subscriptions or digital downloads billed separately; states can and do tax those under their own rules.2Office of the Law Revision Counsel. 47 USC 151 – Purposes of Chapter; Federal Communications Commission Created
One limit: equipment rental. If your provider charges a monthly fee to lease a modem or router, that charge is typically treated as a rental of tangible personal property and may be subject to your state’s sales tax. The service portion stays tax-free.
Cable, Phone, and Telecom Surcharges
Cable and satellite television don’t get federal protection. These services face a patchwork of state sales taxes, communications services taxes, franchise fees, and gross receipts levies that stack up. Combined rates on cable bills have been documented from roughly 3 percent to over 20 percent depending on the jurisdiction, with many major cities landing in the 13 to 17 percent range.
Phone service, whether landline or VoIP, carries its own layer of charges. State and local 911 surcharges fund emergency call infrastructure and vary by jurisdiction. The federal Universal Service Fund contribution is a percentage of each carrier’s interstate revenue that supports broadband access in rural areas, schools, and low-income households. For the second quarter of 2026, the FCC set the contribution factor at 37 percent of interstate end-user revenues.3Federal Communications Commission. Contribution Factor and Quarterly Filings – Universal Service Fund (USF) Management Support Carriers pass that cost through as a separate line item, distinct from any state or local sales tax.
Home Services: Trash, Security, Landscaping, Cleaning
Services are generally harder to tax than goods in the United States, but several recurring home services do carry sales tax in some states.
- Residential trash collection is exempt in many states, especially where a local government provides or contracts the service. Where private haulers handle it as a commercial transaction, some states apply sales tax at the general rate.
- Alarm and security monitoring is taxed in roughly 19 states. Some states classify monitoring as a professional service; others treat it as telecom-adjacent and apply communications tax rules.
- Landscaping gets split treatment. Work that permanently alters real property, such as grading, tree removal, or hardscaping, may be taxed differently from routine maintenance like mowing. Several states exempt recurring lawn mowing while taxing one-time installation projects.
- Residential house cleaning and maid services are taxable in fewer than 20 states plus the District of Columbia. Most states don’t tax janitorial services in a home.
The common thread: states that broadly tax services tax these too, while states with a narrower base exempt most household maintenance.
Solar and Renewable Energy Equipment
About 25 states offer sales tax exemptions for residential solar energy systems. These typically cover solar panels, inverters, mounting hardware, and in some cases battery storage. The exemption applies to equipment and installation costs, which matters on a system that can run into the tens of thousands of dollars.
Details vary. Some exemptions cover only equipment you own outright; others extend to third-party-owned systems where a company installs panels and sells or leases the electricity back to you. Claiming the exemption usually means presenting a sales tax exemption certificate to the installer or retailer at purchase. Check your state’s tax authority or the Database of State Incentives for Renewables and Efficiency (DSIRE) for current eligibility before assuming it applies.
Local Franchise Fees and Gross Receipts Taxes
Even when your state exempts residential utilities from sales tax, your local government probably adds its own charges. These show up as franchise fees, municipal utility taxes, or local gross receipts taxes, and they operate independently from the state sales tax system.
Franchise fees are the most common. They function as rent that utility companies pay local governments for using public rights-of-way for power lines, gas pipelines, and other infrastructure. The fee is typically a percentage of the utility’s gross revenues within that jurisdiction and is passed directly to customers as a line item. A rate of 5 percent is common, with fees ranging from about 1 percent upward depending on the local agreement.
Gross receipts taxes work differently: the local government taxes the utility company’s total revenue, and the company may or may not itemize that cost on your bill. These local charges often aren’t subject to the residential exemptions that eliminate state sales tax, so a bill can show zero state sales tax and still carry several dollars in local utility taxes and franchise fees. Unlike a sales tax exemption, there’s rarely a way for an individual customer to opt out.
How to Claim a Residential Exemption
If your state exempts residential energy from sales tax and you’re still seeing the charge on your bill, the fix is usually a phone call or a form. Most utility companies will stop collecting sales tax once you provide documentation confirming the account serves a residential property. The specific process depends on the state and utility, but it generally involves one of the following.
- Filing an exemption certificate. Many states have a standardized form on the state tax authority’s website. Texas, for example, uses a form specifically designed for residential electricity exemptions.
- Updating your account classification. Sometimes the utility just needs to switch your account from commercial to residential, which can happen when you move into a space previously used as a business.
- Submitting a mixed-use affidavit. If you operate a business from your home, a sworn statement confirming that more than half of the energy consumed supports residential use may be required.
Once the exemption is in place, it typically remains active as long as the account stays residential. If your circumstances change, such as converting a home to commercial use, you’re responsible for telling the utility company. Some states conduct periodic audits, and failing to maintain accurate documentation can result in retroactive tax assessments covering the period you were incorrectly exempt.