Is electricity used to power refrigeration equipment that merely stores already-exempt food products (with no processing) exempt from Texas sales tax?

Plain-English summary

The Texas Comptroller confirmed that electricity used to power refrigeration equipment that only stores food products — even food that is itself exempt from sales tax — remains taxable, because Texas's electricity exemption for manufacturing turns on what the equipment DOES, not on whether the product inside it is tax-exempt.

The distributor stores raw meat, dairy, and produce — all exempt "food and food products" under Section 151.314(a) — at its Texas warehouse, performing no processing or manufacturing on any of it. Texas exempts electricity that powers equipment qualifying for the manufacturing exemption, but that manufacturing exemption itself specifically excludes equipment used solely to store or maintain tangible personal property, whether the stored item is exempt food or taxable prepared food. Because the refrigeration equipment here does nothing but store already-finished food products — no chemical or physical change, no processing — it can't qualify as "manufacturing" equipment in the first place, so the electricity that runs it doesn't qualify for the manufacturing-electricity exemption either. The distributor's separate argument — that Texas's general sales/use tax parity rule (Section 151.301) should extend the food exemption to the electricity used to store it — also failed, because that parity rule only mirrors an EXISTING exemption between sales and use tax; it doesn't create a new exemption where none exists.

What this means for you

Grocery distributors, cold-storage warehouses, and food logistics companies

The tax-exempt status of the food you store does NOT extend to the electricity that keeps it cold. Pure storage/maintenance refrigeration is taxable electricity use regardless of what's inside — the manufacturing electricity exemption requires the equipment to be doing actual processing, not just holding a temperature.

Businesses considering claiming a manufacturing electricity exemption for storage equipment

Confirm your equipment does something beyond storage/maintenance (a physical or chemical change to the product) before claiming the manufacturing-electricity exemption under Section 151.317(a)(2) — pure cold storage, even of otherwise-exempt goods, won't qualify.

Accountants and tax professionals

The controlling chain is Section 151.317(a)(2) (electricity exemption tied to manufacturing equipment) → Section 151.318(c)(4) (storage/maintenance equipment specifically excluded from the manufacturing exemption) → the taxpayer's failed Section 151.301 parity argument, which only mirrors existing exemptions rather than creating new ones.

Common questions

Q: If the food I'm storing is exempt from sales tax, is the electricity I use to refrigerate it also exempt?
A: No. The food's tax-exempt status doesn't transfer to the electricity used to store it — electricity exemptions depend on whether the equipment qualifies as manufacturing equipment, and pure storage/maintenance equipment specifically doesn't qualify.

Q: Does it matter whether the stored food is itself taxable (like prepared food) or exempt (like raw groceries)?
A: No. Storage/maintenance equipment is excluded from the manufacturing exemption regardless of whether the item being stored is taxable or exempt.

Q: Can another food distributor rely on this ruling?
A: No. It's binding on the Comptroller only for the requesting taxpayer and facts presented, and cannot be relied on by any other taxpayer.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.317(a)(2) (Gas and Electricity exemption, tied to manufacturing equipment)
• Tex. Tax Code § 151.318(c)(4) (Property Used in Manufacturing — storage/maintenance equipment excluded)
• Tex. Tax Code § 151.314(a) (Food and Food Products exemption)
• Tex. Tax Code § 151.301 (Exemptions — sales/use tax parity, doesn't create new exemptions)
• 34 Tex. Admin. Code § 3.295(b) (Natural Gas and Electricity — presumption of taxability)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201710004L

Original ruling text

October 19, 2017

RE: Private Letter Ruling No. 171170639

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated April 18, 2017. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You request guidance on the taxability of electricity purchased to operate equipment that stores food products. You originally requested a private letter ruling on this issue in September 2016. In response, the agency issued a general information letter on October 7, 2016. You submitted two follow-up questions, which the agency addressed by email on November 15, 2016 and January 3, 2017. You now request clarification of this prior guidance because it did not address whether there is a distinction between storing exempt food products and taxable prepared foods.

Facts Presented

** (Taxpayer) is an out-of-state corporation with a wholesale grocery distribution center in CITY, Texas, where Taxpayer stores food, including raw meat, dairy, and produce. The food products Taxpayer stores are exempt from sales tax under Section 151.314(a), “Food and Food Products.” Taxpayer does not perform any type of manufacturing or processing on the food being stored.

Currently, Taxpayer pays sales tax on the electricity used primarily to operate this food storage equipment.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Is the purchase of electricity primarily used to operate equipment that stores exempt food products, as described by Section 151.314(b), exempt from sales tax?

Ruling: The purchase of electricity that is primarily used to operate equipment that stores exempt food products is taxable.

Analysis:

Sales tax is imposed on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “taxable item” means tangible personal property and taxable services. Section 151.010. The sale of electricity is a sale of tangible personal property and is presumed to be taxable, unless an exemption applies. See Rule 3.295(b) (Natural Gas and Electricity).

Section 151.317 (Gas and Electricity) exempts the sale of electricity used for certain purposes. There is no exemption for electricity used to store exempt food products. Section 151.317(a)(2) exempts electricity used to power equipment that qualifies for the manufacturing exemption under Section 151.318 (Property Used in Manufacturing). However, equipment used solely to store or maintain food, whether exempt food products or taxable prepared food, does not qualify for a manufacturing exemption because Section 151.318(c)(4) specifically excludes equipment used to maintain or store tangible personal property. Therefore, the purchase of electricity that is used to operate equipment that stores food does not meet the qualifications for exemption provided by Section 151.317(a)(2).

Taxpayer believes Section 151.301 (Exemptions) supports an exemption for electricity used when storing exempt items. Section 151.301 specifies that if a taxable item, such as electricity, would be exempted from the sales tax imposed by Section 151.051 (Sales Tax Imposed) by a statutory exemption provided under Subchapter H (Exemptions), the item is also exempt from the use tax imposed under Section 151.101 (Use Tax Imposed), and vice versa. In other words, if a purchase of electricity were exempt from sales tax under Section 151.317, it would also be exempt from use tax.

The Texas Tax Code and Texas Administrative Code are accessible at https://comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 171170639.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.