Is the natural gas used by a tortilla factory (tortilleria) exempt from Texas sales tax as gas used in manufacturing, or is it taxable commercial/residential use?

Subject

Tortilleria (Tortilla Factory) — Gas Used to Make Food Ready for Immediate Consumption Is Taxable Commercial Use

Plain-English summary

A taxpayer who operates tortilla factories (tortillerias) asked the Texas Comptroller whether the natural gas they use to make tortillas is exempt from sales tax as an ingredient of manufacturing, or whether it's taxable.

The Comptroller ruled the gas is taxable. The key facts were how the food is sold: tortillas come off the conveyor belt, get wrapped in waxed paper, and are kept warm in a container until sold. The tortillerias also sell other ready-to-eat items, like barbacoa on Sundays. There's no seating area — most customers buy through a drive-up window.

Because the food is packaged warm and sold ready for immediate consumption (rather than, say, being sold cold or frozen for the customer to cook later), the Comptroller treated the gas used to make it as being used in a commercial (non-exempt) way, similar to a restaurant, rather than as gas used in an exempt manufacturing/processing operation. The ruling notes it is based on the specific facts described and could change if the facts were different.

What this means for you

Tortilla makers, bakeries, and similar food producers

If your product comes off the line warm, packaged, and ready to eat right away — especially if you sell it through a walk-up or drive-up window with no real "manufacturing for resale as a raw/unprepared good" element — the utilities you use to make it are likely taxable, not exempt. The presence (or absence) of seating didn't save this taxpayer from tax; what mattered was that the food was ready for immediate consumption when sold.

Restaurants and quick-service food sellers

This ruling reinforces that gas, electricity, and other utilities used to prepare food meant for immediate eating are generally treated the same as utilities used by a restaurant — taxable commercial use — even if you don't have a dining room.

Accountants and tax professionals

When evaluating a manufacturing/processing utility exemption claim for a food producer, look closely at whether the end product is sold ready for immediate consumption versus sold as a packaged good for later home preparation. That distinction drove the outcome here, even though the letter does not cite a specific statute or rule by number.

Common questions

Q: Why was the gas taxable if the taxpayer runs a "factory"?
A: The label "factory" didn't control the outcome. The Comptroller looked at how the food was actually sold — warm, packaged, and ready to eat immediately from a drive-up window — and treated that as commercial use rather than exempt manufacturing/processing use.

Q: Would the answer be different if the tortillas were sold cold or frozen for later use?
A: The ruling doesn't say directly, but it emphasizes that the tortillas were packaged warm for immediate consumption. Since the ruling turns on that fact, a producer selling a shelf-stable or frozen product for later home cooking could have a different outcome — but that scenario isn't addressed here.

Q: Does having no seating area make the gas exempt?
A: No. This tortilleria had no seating and relied on a drive-up window, and the gas was still ruled taxable. The absence of a dining area did not change the result.

Q: Can this taxpayer rely on this ruling if the Comptroller changes its policy later?
A: Only the taxpayer who received this specific letter can rely on it, and only for the facts described. The letter itself says the opinion could change if the facts are different, and STAR letters generally may not reflect current policy if the law or Comptroller guidance has since changed.

Q: Does this ruling cite any statutes or regulations?
A: No. The letter as published does not cite a specific Texas Tax Code section or Comptroller rule; it simply confirms the taxpayer's own understanding that the gas use is commercial and taxable.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208L1192A09

Original ruling text

August 7, 1992

Dear **:

Thank you for your letter regarding the taxability of the gas used in the
tortilla factories (tortillerias).

I understand that the tortillas are usually packaged in a waxed type of paper
when they come off the conveyor belt, and that they are then stored in a
container of some sort to keep them warm. Other items may be made and sold by
the tortilleria. For example, barbacoa (bar-b-cue) may be sold on Sunday. You
state that the tortillerias do not have seating areas, and that most customers
use the drive-up window to make a purchase.

You asked if the food is considered processed for immediate consumption
(commercial use) and if the gas used by the tortilleria would therefore be
taxable. You are correct in your presumption that this is commercial use of
the gas and it is therefore taxable.

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

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll free at
1-800-252-5555.

Joan Hale
Tax Administration Division