Is the electricity used by a florist to power coolers or cooling rooms that keep cut flowers from opening too quickly exempt from Texas sales tax as used in processing?

Plain-English summary

A florist submitted a utility study asking the Comptroller's office to treat the electricity and natural gas used to run flower coolers and cooling rooms as exempt from sales and use tax, on the theory that this refrigeration is part of "processing" the flowers. The florist argued that putting overly-open flowers into refrigeration causes the buds to close back up so they can be used in arrangements, and that this bud-closing effect is more than mere storage.

The Comptroller disagreed. Rule 3.307(g), which addresses florists, exempts items like wires, stems, and vases that are resold as part of a flower arrangement, and separately addresses manufacturing/processing exemptions under Rule 3.300. But the Comptroller concluded that a flower opening up is simply its natural maturation — essentially the flower deteriorating — and refrigeration used to slow that deterioration is storage, not processing. Because of that, the electricity and gas used to power the coolers and cooling rooms is not exempt utility use; it must be allocated to the taxable (non-processing) column rather than the exempt column in a utility study.

The letter also flagged a technical problem with the two competing versions of the submitted study: one classified the refrigeration equipment as exempt and the other as nonexempt, producing very different exemption percentages (70% vs. 54%) because not all of the refrigeration equipment's usage had been moved to the taxable column in the nonexempt version. The Comptroller reiterated that an allocation for storage is required whenever items are being stored or warehoused within a processing area.

What this means for you

Florists and flower shops

Electricity or gas used to run coolers or cooling rooms that keep cut flowers from opening (deteriorating) too quickly is not exempt as "processing" — the Comptroller treats this use as storage. If you commission a utility study to claim a manufacturing/processing exemption, refrigeration used this way needs to be allocated to the taxable, non-exempt column.

Accountants and tax professionals preparing utility studies

When a facility mixes exempt processing equipment with refrigeration or storage equipment in the same area, make sure all of that storage-related consumption is consistently moved to the taxable column across every version of the study. Inconsistent allocation between drafts (as happened here, producing 70% vs. 54% exemption results) is the kind of discrepancy the Comptroller will flag.

Common questions

Q: Is electricity used to power a florist's coolers or cooling rooms exempt from Texas sales tax?
A: No. The Comptroller ruled that this use is storage — preventing the natural deterioration of the flowers — not processing, so the electricity is not exempt.

Q: Does it matter that keeping flowers refrigerated causes their buds to close back up?
A: No. The Comptroller viewed bud-closing as simply preventing the flower's natural maturation/deterioration, which is still storage rather than processing.

Q: What does Rule 3.307(g) exempt for florists?
A: It exempts items like wires, stems, and vases that are later resold as part of a flower arrangement; it references the separate manufacturing/processing rule (Rule 3.300) for processing-related exemptions, which refrigeration for storage purposes does not satisfy.

Citations and references

• 34 Tex. Admin. Code Rule 3.307(g) (florists)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9411L1324F03

Original ruling text

November 10,1994

Dear *****:

Thank you for your letter of October 3, 1994, concerning the taxability
of natural gas and electricity (utilities) used by florists.

Rule 3.307(g) concerning florists states: "Sales tax is not due on the
purchase of wires, stems, vases, etc., which are later sold as part of a flower
arrangement. See Rule 3.300 concerning Manufacturing; Custom Manufacturing;
Fabricating; Processing." (Emphasis added.)

The study sent with your letter accounts for 14,810 KWHs (99.61%) of the
14,868 KWHs actually billed for twelve consecutive months. The near exactness
of the computed consumption does not reflect the accuracy of the study. Other
factors affect the accuracy of a study, e.g., proper classification of
equipment, operating hours, allocation of use for equipment used in processing
and non-processing functions, etc.

You state that florists have told you that coolers are a vital part of
their "processing." Florists state that they take flowers that are too open
and put them in the refrigeration to cause the bud to close up so that they may
be used in arrangements. This use, florists contend, makes the refrigeration
more than use for storage. We contend that the opening of a bud is the natural
maturation of the flower and is essentially the deterioration of the flower.
Refrigeration used to prevent the deterioration of tangible personal property
is not processing.

Two versions of the study were submitted on the floral shop; one
classifies the refrigeration equipment as exempt and the other classifies it as
nonexempt. Each version of the study shows the floral shop qualifies for
exemption at 70% and 54%, respectively. The exempt finding occurs in the latter
study because not all the refrigeration equipment computations were transferred
to the taxable column. In our telephone conversation, I mentioned to you that
an allocation should be made for storage if items are stored or warehoused in
the processing area.

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

You may call toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,

Mr. Eddie Washington
Comptroller of Public Accounts
Tax Administration Division

NOTE: Previous Accession Number 9411713L