Is the electricity that powers an ice-maker serving a store's carbonated-drink machine exempt as production electricity?

Plain-English summary

The Southland Corporation (operator of 7-Eleven stores) asked whether the electricity used to power an ice-maker in its stores is subject to sales tax. The ice cubes are transferred to a mixer/cuber and used to keep it cold enough to make a carbonated soft drink; some ice is then placed in the cups the drink is sold in.

The Department held the electricity is taxable — it doesn't qualify for the production exemption. (This follows its companion opinions on the mixer/cuber, TSB-A-83(32)S, and the Slurpee machine, TSB-A-83(33)S.)

• The drink is taxable prepared food and drink. The mixer/cuber makes a carbonated soft drink whose sale is taxable under § 1105(d) (Burger King v. State Tax Commission, 51 N.Y.2d 614).
• A § 1105(d) drink is not "tangible personal property." The § 1115(c) exemption covers electricity used directly and exclusively to produce tangible personal property for sale — and food and drink taxed under § 1105(d) is well established not to be tangible personal property.
• So the exemption doesn't apply, and the power is taxable. For the same reasons given for the mixer/cuber it serves, the electricity powering the ice-maker falls outside § 1115(c) and is subject to sales tax under § 1105(b).

What this means for you

The production-electricity exemption reaches only power used to make goods for sale. Equipment that supports making prepared food or drink taxed under § 1105(d) — including an ice-maker feeding a drink machine — isn't making "tangible personal property," so its electricity isn't exempt production power.

Support equipment follows the end product. The ice-maker doesn't itself sell a good; it cools a machine that makes a taxable drink. Because that drink isn't tangible personal property, the ice-maker's power is taxable too — the whole food/drink operation lands on the taxable-power side.

Collecting tax on the drink doesn't exempt the inputs. As with the drink machines it serves, the fact that the store charges sales tax on the beverage doesn't convert the supporting electricity into exempt production power.

Common questions

Q: We run an ice-maker that feeds our drink machine. Is the electricity for it exempt production power?
A: No. The drink produced is taxable under § 1105(d) and isn't "tangible personal property," so the electricity — including for the supporting ice-maker — doesn't qualify for the § 1115(c) exemption and is taxable under § 1105(b).

Q: The ice also goes into the cups — does that change anything?
A: No. The Department treated the ice-maker like the mixer/cuber it serves; the electricity is taxable regardless.

Q: Is this consistent with the store's other drink equipment?
A: Yes. The same result was reached for the mixer/cuber (TSB-A-83(32)S) and the Slurpee machine (TSB-A-83(33)S).

Citations and references

Statutes and regulations:

• Tax Law § 1105(d) — tax on food and drink sold by restaurants and other establishments
• Tax Law § 1105(b) — tax on sales of gas, electricity and other utilities
• Tax Law § 1115(c) — exemption for fuel and utilities used directly and exclusively to produce tangible personal property for sale

Other authorities referenced:

• Burger King v. State Tax Commission, 51 N.Y.2d 614
• The Southland Corporation, State Tax Commission Advisory Opinion, Petition No. S820930B (TSB-A-83(32)S)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_31s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-83(31)S
Sales Tax
July 6, 1983

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820930C

On September 30, 1982 a Petition for Advisory Opinion was received from The Southland
Corporation, 425 Cherry Street, Bedford Hills, New York 10507.
The issue raised herein is the taxability of electricity used to power an ice-maker used in 7-11
retail food stores.
The ice cubes produced by the ice-maker are transferred to the holding bin of a machine
called a mixer/cuber. The mixer/cuber is used to produce a carbonated soft drink receipts from the
sale of which are subject to tax under section 1105(d) of the Tax Law. (See Southland Corporation,
State Tax Commission Advisory Opinion, Petition No. S820930B, , 1983). The ice cubes are used
to keep the temperature in the mixer/cuber at a sufficiently low level to permit the production of the
carbonated beverage. The ice cubes are subsequently removed from the mixer/cuber and placed in
the cups in which the drink is sold.
For the reasons set forth in the above-cited Advisory Opinion, the electricity used to power
the ice-maker, like that used to power the mixer/cuber, is not subject to the exemption from sales tax
provided for under section 1115(c) of the Tax Law. Southland Corporation, supra; Burger King v.
State Tax Commission, 51 N.Y. 2d 614. The electricity is accordingly subject to sales tax, pursuant
to section 1105(b) of the Tax Law.

DATED: June 10, 1983

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

s/FRANK J. PUCCIA
Director
Technical Services Bureau

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR