Was electricity used to quick-chill fruits and vegetables exempt from Texas sales tax?

Plain-English summary

Electricity used to quick-chill fruits and vegetables to a buyer's required core temperature was an exempt processing use. Refrigeration after the produce reached that temperature was taxable maintenance or storage use.

The business therefore had to allocate refrigeration electricity between exempt quick-chilling and taxable continued refrigeration, with documentation explaining the allocation. Waxing produce was also processing, but washing, grading, sorting, and packing were not.

Electricity used for offices, warehouse lighting, heating and air conditioning, conveyors, washing, sorting, packing, continued cold storage, and charging truck refrigeration was taxable on the facts presented. The letter said section 151.318(a)(3), concerning services performed directly on a manufactured product, did not apply to this electricity question.

Common questions

Was all produce refrigeration exempt? No. Only the electricity used to reach the required core temperature qualified.

How was mixed refrigeration use handled? The taxpayer had to perform and document a study allocating exempt and taxable use.

Were washing and packing treated as processing? No. The letter treated waxing as processing but not washing, grading, sorting, or packing.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8906L0944F01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

Dear *****:

Thank you for your letter regarding sales tax exemption on electricity
used in "quick chilling" fruits and vegetables in the following situa-
tion:

Vegetables and fruits, i.e. cantaloupes and cucumbers are picked in the
field and transported by truck to a central facility. Upon arriving at
the facility, the fruits and vegetables and sorted and graded by size,
etc. Certain vegetables and fruits are then washed and waxed in prepa-
ration of shipment. Certain of the products must, be contract with the
buyer, be received at a predetermined "core" temperature. These products
are "quick chilled" and immediately shipped on refrigerated trucks to the
buyers destination. While in transit the "core" temperature is monitored
and all temperature readings are logged by a "tattle-tale" device. If the
produce is received by the buyer and the "core" temperature or any of the
temperatures logged during transport are different than what was
contract-
ed for, the produce is rejected by the buyer and returned.

Waxing the fruits and vegetables is processing, however, washing,
grading,
sorting and packing the produce is not processing. "Quick-chilling" the
produce to a specific core temperature is exempt use, however, any
further
refrigeration after the "core" temperature is reached is
maintenance/storage
and taxable use. The refrigeration must be allocated in a the study to
exempt use and to taxable use with documentation explaining the
allocation.

Electricity used for the office, warehouse, lighting, air conditioning,
heating, conveyors, washing, sorting, and packing equipment,
refrigeration
for maintenance/storage, including charging the truck refrigeration,
would
be taxable uses.

Your reference to SEC. 151.318(a)(3) is not applicable. This section
provides the manufacturer/processor an exemption from tax on the purchase
of "services performed directly on the product being manufactured prior
to its distribution for sale and for the purpose of making the product
more marketable."

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

If you have any questions or needed more information, please call me at
463-4666. You may write to Tax Correspondence. Comptroller of Public
Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence