Could a bread plant combine two gas meters for predominant-use testing, and was conveyor electricity exempt?

Plain-English summary

Two natural-gas meters operated in parallel through one supply line and one load line, making separate manufacturing-use percentages impossible to determine. Texas allowed both meters to qualify based on the combined study, but stressed that this was a facts-specific exception to the normal requirement that each meter qualify on its own.

Electricity used by conveyors was not exempt merely because the conveyors were necessary and essential to production. The letter treated them as intraplant transportation because they moved bread without themselves cooling, manufacturing, or processing it.

Conveyor electricity could qualify if the conveyor was integral to a piece of production equipment, such as a conveyor inside an oven, or if the conveyor itself performed a manufacturing process. The tangible-property exemption language in section 151.318 did not control the natural-gas and electricity exemption under section 151.317.

Common questions

Could the two gas meters be tested together? Yes, only as a special exception on the stated metering arrangement.

Was electricity for ordinary production-line conveying exempt? No.

When could conveyor electricity qualify? When the conveyor was integral to production equipment or itself performed manufacturing or processing.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8905L0939A08

Original ruling text

May 30, 1989

Dear **:

Thank you for your letter regarding natural gas and electricity uses in the
**'s bread plant.

Your first situation concerns natural gas. You explained that there are two
meters which are operated in parallel in that there is one main supply line
into the metering gang and one main load line out of the metering gang. Due to
the arrangement of the metering gang, it would be impossible to determine the
percentage of manufacturing and non-manufacturing related usage on each meter
individually.

You estimated that non-manufacturing usage for the study period is 388.8 MMBtu
of the total 17,126.2 MMBtu (8,231.7-meter 2087, 8,894-5meter 2194). Based on
this information, it appears that the natural gas for both meters would qualify
for exemption. Be advised that each meter must qualify for exemption on its
own and an exception to this requirement is being allowed in this situation
only based on the facts presented and may not be applied to any other
situation.

Your second situation concerns conveyors. As we previously discussed,
conveyors are considered intraplant transportation and the electricity to
operate the conveyors is non-exempt use. The electricity would be considered
directly used to operate production equipment and exempt only in situations
where the conveyor is an integral part of a piece of equipment, i.e., a
conveyor inside an oven, or where the conveyor is actually performing a
manufacturing process on the item being produced.

You stated that the conveyors are utilized as part of the production phase:
for example, they are used for running product through metal detection,
slicers, baggers, seeders, ovens, and in the cooling process. I understood
from our telephone conversation that the conveyor itself is not a cooling
system, but the bread is air-flow cooled while the conveyor is moving.

It appears that the conveyors are necessary and essential to the process, but
do not themselves manufacture or process the product, the electricity does not
qualify as exempt use. While a manufacturer is allowed sales tax exemption on
certain tangible personal property that is "necessary ad essential" to the
process (Section 151.318 TEX. TAX CODE), this language does not apply to the
use or consumption of natural gas and electricity (Section 151.317).

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need additional information, please call toll free
1-800-252-5555 or the regular number 512/463-4600. My extension is 3-4666. You
may write to Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Jo Ann Dieck
Tax Correspondence