Were natural gas and electricity exempt when a Texas food business used them to prepare food sold to mobile vendors for resale?

Plain-English summary

The redacted business prepared ready-to-eat food and sold it to mobile vendors for resale. For those transactions, the Comptroller treated the business as a food processor rather than a caterer preparing food for immediate consumption. Natural gas and electricity directly used by production equipment such as stoves, ovens, mixers, and blenders were exempt.

Utilities used for refrigerators, freezers, steam tables, heat lamps, lighting, heating, air conditioning, or other nonproduction purposes were not exempt. Utilities used to prepare food for the business's own catering vehicles were also taxable because that food was prepared for immediate consumption. Shared equipment required an allocation between exempt and nonexempt uses.

If a utility study showed that the utility's predominant use was exempt, the business could claim an exemption from the supplier. Because its name suggested catering, it needed to explain that it was preparing food for resale rather than immediate consumption.

Common questions

Which production uses were exempt? Direct use in equipment such as stoves, ovens, mixers, and blenders to prepare food for resale.

Were refrigeration and facility utilities exempt? No. The letter excludes refrigeration, holding equipment, lighting, heating, air conditioning, and other nonproduction uses.

What if the same equipment served resale and catering operations? The business had to allocate the exempt and nonexempt uses.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L1018G13

Original ruling text

April 26, 1990

Dear *****:

This is to follow up our telephone conversation regarding sales
tax exemption on natural gas and electricity used by ***.

As I understand, *** prepares food ready for
immediate consumption for sale to mobile vendors who resell the
food items. In this instance, ***** is a food
processor and not a caterer preparing food ready for immediate
consumption.

The utilities directly used to prepare the food products for
resale are exempt use. This includes uses for items such as
stoves, ovens, mixers,, blenders, etc., but does not include uses
for items such as refrigerators, freezers, steam tables, heat
lamps, etc. to maintain the food products, lighting, heating, air
conditioning, and any other nonproduction uses.

If *** operates any of its own catering vehicles,
the food products are prepared for immediate consumption and the
utilities used in the food preparation are taxable. If the same
equipment is used for both exempt and nonexempt uses, allocations
must be made for each use.

If the predominant use of the utility(s) is exempt as determined
by a utility study, sales tax exemption can be claimed from the
appropriate utility supplier. Because the name of the business
"caterer" indicates that food is being prepared for immediate
consumption, *** will need to issue a statement to
the utility supplier on the exemption certificate or as a separate
document that they are preparing food for resale and not for
immediate consumption.

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, you may
call me toll free at 1-800-252-5555, extension 3-4666, or the
regular number 512/463-4666. You may write to Tax Correspondence,
Comptroller of Public Accounts.

Sincerely,

Jo Ann Dieck
Tax Correspondence