Do refrigerated sandwich/pizza prep units and refrigerated worktop/undercounter units used in a restaurant qualify for Texas's manufacturing machinery and equipment sales tax exemption?

Plain-English summary

A taxpayer asked the Texas Comptroller's Tax Policy Division whether refrigerated sandwich/pizza preparation units and refrigerated worktop/undercounter units qualify as exempt manufacturing machinery and equipment.

The Comptroller said no. The letter acknowledges these units may be "perhaps necessary" for food processors, but says that doesn't matter for exemption purposes: the refrigerated units are used to store and preserve food products, and storage and preservation is not a "processing" operation. Because the manufacturing exemption under Rule 3.300 requires the equipment to be used in an actual processing operation, refrigerated sandwich/pizza prep units and worktop/undercounter units fall outside it and remain taxable.

The letter notes this opinion is based on the facts submitted, and that other, similar facts could yield a different result.

What this means for you

Restaurant and food-service equipment buyers

If you're buying refrigerated sandwich/pizza preparation units or refrigerated worktop/undercounter units for a restaurant, don't assume they qualify for Texas's manufacturing machinery and equipment sales tax exemption. The Comptroller treats units that merely store or preserve food (keep it cold) as non-exempt, even if they're used by a business that also does food processing elsewhere. Expect to pay sales tax on this type of equipment.

Food processors and manufacturers

The key distinction in this letter is between "processing" and "storage/preservation." Equipment that changes or processes food may qualify for the manufacturing exemption, but equipment whose function is simply to keep food cold — like the refrigerated units in this letter — does not, regardless of how essential it might be to your operation.

Accountants and tax professionals

This letter turns on 34 Tex. Admin. Code Rule 3.300(c)(1), which draws the line between exempt processing equipment and non-exempt storage/preservation equipment. Since this opinion is fact-specific and only protects the original recipient from detrimental-reliance exposure, verify current guidance and the specific equipment's function before advising a client to claim the exemption.

Common questions

Q: Are refrigerated sandwich/pizza prep units exempt from Texas sales tax as manufacturing equipment?
A: No. The Comptroller ruled these units do not qualify because they are used for storage and preservation of food, not processing.

Q: What about refrigerated worktop/undercounter units?
A: Same answer — the letter treats them the same way as the sandwich/pizza prep units, as non-exempt storage/preservation equipment.

Q: Why doesn't storage/preservation count as "processing"?
A: Rule 3.300(c)(1), which governs the manufacturing exemption, distinguishes processing operations (which can qualify for exemption) from storage and preservation (which does not).

Q: Does it matter that the units might be necessary for a food processor's operations?
A: No. The letter states that even though the units may be "perhaps necessary" for food processors, necessity alone doesn't make them exempt manufacturing equipment.

Q: Can another business rely on this letter?
A: No. This opinion is based on the specific facts submitted by the requesting taxpayer, and STAR letters generally protect only the taxpayer to whom they were issued from detrimental-reliance exposure.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.300(c)(1) (Manufacturing Exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9512726L

Original ruling text

December 8, 1995

Dear ** :

Thank you for your letter concerning whether refrigerated sandwich/pizza
preparation units and refrigerated worktop/undercounter units qualify as exempt
manufacturing machinery and equipment.

Although perhaps neccesary for food processors, the refrigerated sandwich
preparation units, refrigerated pizza preparation units, and refrigerated
worktop/undercounter units do not qualify as exempt manufacturing machinery and
equipment. These refrigerated units are used in the storage and the
preservation of the food products. The storage and preservation of the food
products is not a processing operation. See subsection (c)(1) of enclosed Rule
3.300 on manufacturing exemptions.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division