Is the electricity that powers a mixer/cuber that makes a carbonated drink in a store exempt as electricity used to produce goods for sale?

Plain-English summary

The Southland Corporation (operator of 7-Eleven stores) asked whether the electricity used to power a mixer/cuber in a retail food store is subject to sales tax. The mixer/cuber combines flavored syrup, carbon dioxide and water into a carbonated beverage, dispensed to the customer in a cup.

The Department held the electricity is taxable — it doesn't qualify for the production exemption. (This is the companion to the Slurpee-machine opinion TSB-A-83(33)S, decided the same day on identical reasoning.)

• The drink it makes is taxable prepared food and drink. Section § 1105(d) taxes receipts from sales of drink sold by restaurants and other establishments. The carbonated beverage's sale is taxable under § 1105(d) (citing Burger King v. State Tax Commission, 51 N.Y.2d 614; 20 NYCRR 527.8).
• A § 1105(d) drink is not "tangible personal property." The production exemption in § 1115(c) covers electricity used directly and exclusively to produce tangible personal property for sale. But food and drink taxed under § 1105(d) is well established not to be "tangible personal property" for Tax Law purposes (Burger King).
• So the exemption doesn't apply, and the power is taxable. Because the mixer/cuber produces a § 1105(d)-taxable drink, not tangible personal property, the electricity falls outside § 1115(c) and is subject to sales tax under § 1105(b).

What this means for you

The production-electricity exemption only reaches power used to make goods ("tangible personal property") for sale. If the machine makes prepared food or drink taxed under § 1105(d), New York doesn't treat that as tangible personal property — so the electricity running the machine isn't exempt production power.

Making a taxable end product doesn't automatically make your inputs exempt. Even though the store collects tax on the drink, the exemption's category is narrow: goods, not restaurant-style food and drink. A fountain/carbonated drink falls on the taxable-power side.

Consistency across the equipment. The Department applied the same rule to the Slurpee machine (TSB-A-83(33)S) and the ice-maker that feeds this mixer/cuber (TSB-A-83(31)S). All three run food/drink operations, so their electricity is taxable.

Common questions

Q: We run a carbonated-drink machine in our store. Is the electricity for it exempt production power?
A: No. The drink is taxable prepared food/drink under § 1105(d), which isn't "tangible personal property," so the electricity doesn't qualify for the § 1115(c) production exemption and is taxable under § 1105(b).

Q: We collect sales tax on the drink — doesn't that make the power exempt?
A: No. The exemption is for electricity used to produce tangible personal property; a § 1105(d)-taxable drink isn't that, so the power stays taxable.

Q: Does the same rule apply to our ice-maker and frozen-drink machine?
A: Yes. The Department reached the same result for the ice-maker (TSB-A-83(31)S) and the Slurpee machine (TSB-A-83(33)S).

Citations and references

Statutes and regulations:

• Tax Law § 1105(d) — tax on food and drink sold by restaurants and other establishments
• Tax Law § 1105(b) — tax on sales of gas, electricity and other utilities
• Tax Law § 1115(c) — exemption for fuel and utilities used directly and exclusively to produce tangible personal property for sale
• 20 NYCRR § 527.8 — prepared food and drink

Other authorities referenced:

• Burger King v. State Tax Commission, 51 N.Y.2d 614

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_32s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-83(32)S
Sales Tax
July 6, 1983

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO S820930B

On September 30, 1982 a Petition for Advisory Opinion was received from The Southland
Corporation, 425 Cherry Street, Bedford Hills, New York 10507.
The issue raised herein is whether sales tax is due on purchases of electricity used to power
a mixer/cuber used to manufacture a carbonated beverage sold in a retail food store. The mixer/cuber
combines flavored syrup, carbon dioxide and water into a carbonated beverage. The product
dispensed from the mixer/cuber is delivered to the purchaser in a coated paper or plastic cup.
Section 1105(d) of the Tax Law imposes a sales tax on "the receipts from every sale of . . .
any . . . drink of any nature . . . when sold in or by restaurants, taverns, or other establishments in this
state . . . :
(1) in all instances where the sale is for consumption on the premises where
sold;
(3) in those instances where the sale is for consumption off the premises of the vendor, except
where food (other than sandwiches) or drink or both are (A) sold in an unheated state and (B) are of
a type commonly sold for consumption off the premises and in the same form and condition,
quantities and packaging, in establishments which are food stores other than those principally
engaged in selling foods prepared and ready to be eaten."
Accordingly, sales of the product of the mixer/cuber are subject to the sales tax imposed
under section 1105(d) of the Tax Law. Burger King v. State Tax Commission, 51 N.Y. 2d 614; 20
NYCRR 527.8(c), (d), (e)(2)(iv) Ex. 4.
Section 1115(c) of the Tax Law provides for an exemption from sales tax with respect to
electricity used or consumed directly and exclusively in the production of tangible personal property
for sale. However, the proposition that food and drink sold by a restaurant or other establishment,
which is subject to tax under section 1105(d) of the Tax Law, is not "tangible personal property" for
purposes of the Tax Law is well established. Burger King v. State Tax Commission, 51 N.Y. 2d 614.
Accordingly, electricity used to power a mixer/cuber, which produces a drink the sale of which is
subject to tax under section 1105(d) of the Tax Law, does not come within the exemption provided
for under section 1115(c) of the Tax Law. The purchases of such electricity are therefore subject to
sales tax, pursuant to section 1105(b) of the Tax Law.

DATED: June 10, 1983

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

s/FRANK J. PUCCIA
Director
Technical Services Bureau
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR