Do carry-out pizza and wholesale-bakery retailers that prepare food for consumption elsewhere qualify for the noncommercial-use sales tax exemption on the fuel and electricity they use, the same way manufacturers do?

Plain-English summary

A requester asked the Commission for an advisory opinion on two related retail food scenarios: (1) a pizza business that only sells for carry-out or home delivery, with no dine-in seating or service, and (2) a retail/wholesale bakery preparing food items for consumption elsewhere, often at a later time. Neither business had tables, chairs, waitstaff, or self-heating equipment — the kind of features that make an operation a "restaurant" under the Sales and Use Tax Act. The requester argued that both businesses use gas and electricity to "produce or compound" a resold product, just like a manufacturer, and that Utah's rule exempting noncommercial fuel/electricity use isn't limited to businesses with a manufacturing SIC code (2000–3999) — so these retailers should qualify for the same noncommercial exemption.

The Commission (via its Auditing Division) disagreed. While it's true the noncommercial-use exemption for fuel/electricity isn't formally tied to SIC codes the way the separate manufacturing equipment exemption is, there's still a strong correlation: the exemption is available only for uses like agriculture, mining, and manufacturing — categories that look a lot like those SIC-code industries. Everything else defaults to commercial consumption. Utah Code § 59-12-102 defines a "retail establishment" as a commercial user, and both the pizza processor and the bakery are retail establishments — regardless of their lack of restaurant-style seating or service. So their fuel and electricity use is taxable commercial consumption, not exempt noncommercial use, even though they're technically "producing or compounding" a product for resale.

What this means for you

Pizza shops, bakeries, and similar carry-out/wholesale food producers

Don't assume that skipping dine-in seating, tableware, or self-heating equipment converts your operation into an exempt "manufacturer" for fuel and electricity purposes. The Commission looks at whether you're a retail establishment selling to the public, not just at whether you lack restaurant trappings — and retail establishments are commercial consumers by definition.

Food businesses comparing themselves to manufacturers

The "producing or compounding a product for resale" language in Rule R865-19-35S doesn't automatically extend the noncommercial fuel/electricity exemption to ordinary retail food preparation. The exemption is aimed at categories like agriculture, mining, and manufacturing — a food retailer's kitchen operations generally fall outside that scope even if the process resembles compounding.

Accountants and tax professionals advising retail food clients

If a client wants to claim the noncommercial-use exemption on utility bills, look past the absence of restaurant features and ask whether the business is fundamentally a retail establishment. Under this ruling, that classification alone is dispositive against the exemption.

Common questions

Q: Does removing tables, chairs, and self-heating equipment make a food business exempt from sales tax on its fuel and electricity?
A: No. The Commission found that carry-out and wholesale food retailers without those features are still retail establishments and therefore commercial consumers, regardless of the absence of typical restaurant amenities.

Q: Is the noncommercial fuel/electricity exemption tied to having a manufacturing SIC code?
A: Not formally, but the Commission found a strong correlation between the exemption's scope (agriculture, mining, manufacturing) and those SIC-code industries. A retail establishment doesn't qualify just because it lacks a manufacturing code — it still needs to fall within an exempt use category, which retail food preparation does not.

Q: Does "producing or compounding a product for resale" qualify a business for the exemption?
A: Not by itself, at least for a retail establishment. The Commission treated the retail-establishment classification as controlling over the producing/compounding characterization in this case.

Q: Can I rely on this ruling for my own food business?
A: No — it binds the Commission only for the taxpayer and facts described. Confirm your own business's classification with the Commission or a Utah tax professional.

Citations and references

Statutes and rules cited:

• Utah Code Ann. § 59-12-102 (defines "retail establishment" as a commercial user for fuel/electricity tax purposes)
• Utah Admin. Rule R865-19-35S (fuel, gas, and electricity used for commercial consumption is taxable; noncommercial use in agriculture, mining, and manufacturing is not)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/92-028.pdf

Original ruling text

Response
October 30, 1992

October
30, 1992

XXXXX

Re:
Tax on Electricity and Fuel

Dear
XXXXX:

Your
request for an advisory opinion that fuel and electricity used by a pizza
retailer selling only to carry-out and home delivery customers and used by a
retail/wholesale bakery that prepares food for consumption elsewhere quality
for exemption from sales tax has been referred to the Auditing Division for
their analysis.

It
is the division staff recommendation that:

1.
Although it is true that the definition of noncommercial use of fuels and
electricity is not dependent upon the user operating in an activity covered by
SIC codes 2000 to 3999, there is certainly a direct correlation between those
SIC activities and the requirement that the exemption for fuels and electricity
is available only for use in agriculture, mining and manufacturing. All
activities not specifically defined as noncommercial or residential consumption
are considered as commercial consumption. Section 59-12-102 in defining
commercial consumption says that a "retail establishment" is a commercial
user. Therefore, the pizza processor and the bakery are considered retail
establishments which are commercial users of fuel and electricity.

To
arrange for Americans with Disabilities Act accommodations, please contact the Tax
Commission at (801) 530-6920, (801) 530-6077 or TDD (801) 530-6269 allowing
three working days notice.

For
the Commission,

Joe
B. Pacheco

Commissioner

XXXXX

August
6, 1992

Mr.
Joe Pacheco, Commissioner

Utah
State Tax Commission

Heber
J. Wells Building

160
East 300 South

Salt
Lake City, Utah 84134

RE:
Advisory Opinion Request - Taxability of Certain Gas and Electricity Purchases

Dear
Commissioner Pacheco:

A
question has come up recently regarding the taxability of gas and electricity used
at certain retail establishments for preparation of food items. Specifically,
we request an advisory opinion on the taxability of fuel and electricity under
the following scenarios:

A
retail establishment prepares food items for consumption elsewhere. This type
of retailer would include businesses that sell pizza where the pizza processor
or "manufacturer" would only sell for carry-out or home delivery.

A
retail/wholesale establishment such as a bakery that prepares food items for
consumption elsewhere and usually at a later time.

In
both cases the retailer does not provide the typical facilities or services
associated with a restaurant. (Restaurants are considered
"commercial" under the definition section of the Sales and Use Tax
Act.) There are no tables or chairs, waitresses, microwave ovens for
self-heating product, etc. These businesses are using gas and electricity for
"producing or compounding" of a product which will be resold (see
Rule R865-19-35S).

We
feel there is an often misunderstood concept among the public (and even with
some employees within the Tax Commission) that in order to qualify for an
"exemption" of sales tax on fuel or electricity, the vendor must have
an SIC code between 2,000 and 3,999. Rule R865-19-35S states that fuels and
electricity used for commercial consumption are subject to sales tax, and
conversely, fuels and electricity used for noncommercial purposes are not
subject to sales tax. The "exemption" for fuel, gases and electricity
is not dependent on SIC codes as is the case for the manufacturing exemption.

The
law and rule define non-taxable,
non-commercial consumption of gas, fuel and electricity as being for use
in mining or extraction of minerals off highway agriculture, including
commercial greenhouses, irrigation, pumps, farm machinery, and other farming
activities to production the agricultural product up to the time of harvest or
placing production into storage facilities and use in manufacturing tangible
personal property or use in producing or compounding of a product which will be
resold.

REQUEST
FOR ADVISORY OPINION

Based
on the foregoing information, it is respectfully requested that your advisory
opinion will find that retail or wholesale establishments as described are
"considered" non-commercial, the same as any other producer,
manufacturer or compounder of products which will be resold.

If
you or your staff need additional information or would like to discuss the
issue before issuing your opinion, please advise; otherwise we hope we can
expect an early reply.

Thank
you.

Respectfully,

XXXXX