Was electricity used to wash, sort, size, weigh, pack, and market potatoes exempt as agricultural use at the producer's own facility?

Plain-English summary

The farmer brought its own potatoes to a Houston facility for water unloading, washing, visual culling, grading, sizing, weighing, packing, and sale.

Electricity operating machinery used exclusively to process, pack, or market the original producer's own agricultural products at its own facility was exempt under §§ 151.316 and 151.317. All other electricity use at the facility was taxable.

If the business was not the original producer of every potato or bought potatoes from other growers, none of the electricity qualified as agricultural use under the letter. The Comptroller also said washing, sorting, and packing were not manufacturing or processing for a separate manufacturing exemption.

STAR warns that H.B. 268 later required a Comptroller registration number for certain agricultural and timber exemptions effective January 1, 2012.

Common questions

Did electricity for the producer's own crop qualify? Yes, for the exclusively used equipment described.

What if the facility handled purchased potatoes? The agricultural-use exemption described did not apply.

Was all facility electricity exempt? No.

Citations and references

• Tex. Tax Code § 151.316
• Tex. Tax Code § 151.317

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8912L0974E11

Original ruling text

ALERT: This document may be affected by changes to the Tax Code which was amended by H.B. 268, 82nd Reg. Legislative Session, 2011. The amendment required persons claiming a sales tax exemption for certain agricultural and timber products to apply for and provide a registration number issued by the Comptroller, effective 01/01/2012.

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

December 27, 1989

Dear ***:

Thank you for your letter asking if the electricity used by your
client, COMPANY ABC, in their Houston plant is an agricultural use
exempted under SEC. 151.317.

You explained that your client owns and operates a potato farm as
original producer. They bring their potatoes into their Houston
facility by rail car. They are unloaded by a water process and
run through a washing vat. They then pull the bad and damaged (by
sight), grade and size, weigh and package the potatoes in either
boxes or bags (by automated equipment). The potatoes are then
sold.

SEC. 151.316 provides an exemption from sales tax for machinery and
equipment exclusively used in the processing, packing, or market-
ing of agricultural products by the original producer at a loca-
tion operated by the original producer.

SEC. 151.317 provides an exemption from sales tax for electricity used
in agricultural operations. Thus, the electricity used to operate
the machinery or equipment exclusively used in the processing,
packing, or marketing of agricultural products by the original
producer at a location operated by the original producer exclu-
sively for processing, packing, or marketing the producer's own
products would be exempt use.

If your client is the original producer of all of the potatoes
that are washed, sorted, sized, packed, or marketed at your
client's location, the electricity used to operate the machinery
or equipment used as you described would be exempt use. All other
uses of electricity at the facility would be taxable use.
However, if your client is not the original producer or purchases
potatoes from other growers, none of the electricity used would
qualify as agriculture use. The washing, sorting, and packing is
not processing, therefore, the electricity used in these
activities would not qualify as use in manufacturing/processing.

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

If you have any questions or need additional information, you may
call me at 463-4666. You may write to Tax Correspondence, Comp-
troller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence