Were natural gas and electricity exempt when a plant manufactured restaurant equipment partly for sale to franchisees and partly for use in company-owned restaurants?

Plain-English summary

The plant manufactured restaurant equipment for two destinations: sales to franchise-owned restaurants and use in corporate-owned restaurants. Texas Tax Code § 151.317 exempted natural gas and electricity used to process tangible personal property for sale.

Utility used to manufacture equipment sold to franchisees was therefore exempt, while utility used to make equipment for the company's own restaurants was taxable. The submitted utility study did not account for that split, so the Comptroller denied the exemption and refund request.

What this means for you

A manufacturing utility study had to distinguish production for sale from production for the manufacturer's own use. A study that combined both could not support this refund claim.

Common questions

Was utility used for franchisee equipment exempt? Yes. What about equipment retained for corporate restaurants? That utility use was taxable. Why was the refund denied? The study did not allocate utility use between the two categories.

Citations and references

• Texas Tax Code § 151.317 (natural gas and electricity used to process tangible personal property for sale)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1136F03

Original ruling text

October 16, 1991

Dear ****:

Thank you for your letter of September 10, 1991, and the accompanying
utility study and request for sales tax refund that was submitted by
CORP ABC.

The study was performed on a COMPANY X manufacturing plant (account
numbers **) located at * Texas.

I called ***'s EMPLOYEE on October 15, 1991. EMPLOYEE is in the
accounting department. EMPLOYEE described the operations to consist
of the manufacturing of restaurant equipment. EMPLOYEE told me that
the equipment manufactured at this location is used in corporate-owned
restaurants as well as sold to franchise restaurants. According to
EMPLOYEE, there are approximately 900 corporate-owned restaurants and
approximately 1100 restaurants owned by franchisees.

The sales tax law (Section 151.317) exempts natural gas and electricity
used in processing tangible personal property for sale as tangible
personal property. Natural gas and electricity used to manufacture
equipment sold to franchisees is exempt, but that which is used to
manufacture equipment for use in corporate-owned restaurants is taxable.
The study does not account for utility usage in this regard.

The request for exemption and refund should be denied.

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

You may call toll free 1-800-252-5555 if you have any questions or
need more information. You may write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division