The study focuses on examining the effect of service quality and service recovery on customerrnsatisfaction in three branches of ERCA local tax payers, by collecting data from customers in arnquestionnaire form and interview techniques. The three dimensions of service recoveryrndeveloped by Stephen and Tax (outcome justice, procedural justice and interactional Justice)rnand the later improved model of SERVQUAL model, the SERVPERF model which only measuresrnthe performance of the organization by excluding the expectation part of SERVQUAL modelrnwere used. A questionnaire were first translated into Amharic language and distributed to 385rnrespondents by using a cluster sampling techniques, and 284 respondents (74%response rate) fillrnall the questionnaires accordingly. The finding shows that the majority of the respondents fromrnlarge tax payers are satisfied at the operation of ERCA and the respondents in middle and smallrntax payers are moderately dissatisfied as the result of this survey finding shows. The result of thernsurvey data also shows that Empathy, followed by responsiveness, reliability and assurancernrespectively are the most determinant of customer satisfaction from the service qualityrndimensions and interactive , procedural and outcome justice respectively are the mostrndeterminant of customer satisfaction from the service recovery dimensions. And when bothrnservice recovery and service quality effect on customer satisfaction was analyzed togetherrnservice quality is the most determinant of customer satisfaction than service recovery. However,rntheir importance is nearly the same. Therefore, it is recommended that, ERCA should providernquality service and also must have effective service recovery system on its work in a morerntechnical way, by enhancing the use of modern technology on its operation and must givernindividual attention to its customers for giving an individual attention is affecting the satisfactionrnof customers specially in small and medium tax payers and the interaction the employees ofrnERCA have with their customers must be also improved