Was electricity used to ripen produce exempt from Texas sales tax?

Plain-English summary

The Comptroller assumed the taxpayer sold produce, particularly tomatoes, because the request did not fully describe the business.

Electricity used for refrigeration while produce was kept in temperature- and humidity-controlled rooms until it reached a salable stage was exempt processing use. Electricity used for later storage was taxable. Washing, grading, sorting, and packing were not processing, so power used for those activities was also nonexempt, as was electricity for offices, warehouses, maintenance, and other nonprocessing uses.

Rule 3.295 governed predominant use, the supporting study, and the exemption certificate to the utility. For qualifying past use, the taxpayer could request a refund from the utility in writing, subject to the four-year limitation described in the letter and Rule 3.325.

What this means for you

This ruling separated the controlled transformation of produce to a salable ripeness from later handling and storage. Mixed-use electricity required the predominant-use analysis and documentation described in Rule 3.295.

Common questions

Was refrigeration during controlled ripening exempt? Yes.

Was refrigeration for storage after ripening exempt? No.

Were washing, grading, sorting, and packing treated as processing? No.

How could the taxpayer seek a refund for qualifying past electricity use? By making a written request to the utility identifying the periods, subject to the stated four-year limit.

Citations and references

• Comptroller Rule 3.295(d), (e), and (l) — natural gas and electricity, predominant use, study, and exemption certificate
• Comptroller Rule 3.325 — refund procedure and limitation period

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9010L1054A13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller October 17, 1990

Dear *****:

Thank you for your letter regarding sales tax on electricity used in
your business.

A description of your business activities was not provided to deter-
mine if you are processing tangible personal property for sale. I
am assuming from the name of the business and your letterhead that
you are in the business of selling produce, specifically tomatoes.
If the tomatoes and/or other produce are put through a ripening pro-
cess, i.e., the produce is placed in ripening rooms where the temper-
ature and humidity are controlled until the produce is ripened to a
salable stage, the electricity used in the refrigeration is exempt
use. Any subsequent storage of the produce would be taxable use of
electricity.

Washing, grading, sorting, and packing produce is not processing and
the electricity used in these operations would be nonexempt. Electri-
city used for the office, warehouse, storage, maintenance, and any
other nonprocessing uses would be nonexempt.

Enclosed is Rule 3.295 for your information about the exemption for
natural gas and electricity. Please refer to Sections (d) and (e)
regarding predominant use and the study required to determine predom-
inant use. Section (L) explains completion of the exemption certifi-
cate that must be issued to the utility company to claim sales tax
exemption if the electricity qualifies for exemption.

To claim a refund of sales tax on past use of electricity that quali-
fied for exemption, you will need to request the refund in writing
from the utility company. You will need to specify the past periods
for which you are claiming a refund. The statute of limitations lim-
its refunds to four years from the date on which the tax is due and
payable to this office. Please see enclosed Rule 3.325.

This opinion is based on the facts presented. If there are addition-
al 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 512/463-4600. You may write to me at Tax Correspondence, Comp-
troller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence