Is electricity used to run coolers and cooling rooms that flower shops use to extend the life of cut flowers an exempt manufacturing/processing use, or a taxable use?

Plain-English summary

A taxpayer wrote to the Texas Comptroller's Tax Policy Division (responding to a February 9, 1995 letter and an accompanying industry publication about cut-flower care) to argue that electricity used in flower-shop coolers and cooling rooms should be treated as an exempt "processing" use, because florists must "harden" flowers — refrigerate them — before using them in arrangements.

The Comptroller (Eddie Washington, Tax Administration Division) explained the dividing line under Rule 3.300: electricity used in refrigeration is processing only while it is actively lowering a product to its target temperature. Once the target temperature is reached, electricity used to keep the refrigeration equipment running is maintenance — a taxable commercial use — because it is being used to maintain or prevent deterioration of tangible personal property rather than to change it.

Applying that rule to the publication's own description of flower handling:

• Precooling — rapidly cooling flowers to their proper storage temperature right after harvest — is a fast process, taking roughly 30 minutes to 1 hour.
• Storage in a floral cooler afterward lasts much longer: cut flowers may be held anywhere from 1-2 days (e.g., Bouvardia, Delphinium) up to 7 days (gladiolas), 7-14 days (carnations), or up to three weeks (chrysanthemums).

Because the storage period vastly exceeds the short precooling period, the Comptroller concluded that "it appears that the predominant use of electricity used in refrigeration is for storage" — i.e., taxable maintenance, not exempt processing. The letter also notes that "processing" as used in the industry publication (referring to recutting stems, removing damaged leaves, etc., to prolong vase life) does not carry the same meaning as "processing" under Rule 3.300, and that the natural processes the publication seeks to slow down — transpiration, ethylene-driven maturation, bacterial growth — are not themselves "processing" for tax purposes. The letter distinguishes this from an earlier September 6, 1994 letter, which held that assembling floral arrangements (as opposed to preparation steps beforehand) is processing under Rule 3.300's manufacturing definition. It also gives an analogous example: a grocer that keeps already-cooled 46°F milk in a refrigerator set for 38°F bakery items is not "processing" the milk, even though the cold slows spoilage, because spoilage/decomposition is a natural process, not something the electricity is causing to happen.

The letter concludes that florists should keep records — delivery temperatures, target temperatures, time needed to reach target temperature, and electricity used for storage afterward — because electricity used to run refrigeration equipment after flowers have been hardened (precooled) is taxable maintenance use.

What this means for you

Flower shop owners and florists

Don't assume all the electricity your coolers use qualifies for a manufacturing/processing exemption just because refrigeration extends your flowers' vase life. Only the electricity used during the brief window it takes to bring flowers down to their target temperature (precooling, typically 30 minutes to an hour) is arguably processing. Electricity used to keep the cooler running afterward — for the much longer storage period — is taxable maintenance use. In practice, the Comptroller expects the predominant use of a flower cooler's electricity to be storage, meaning it is generally taxable.

Accountants and tax professionals advising florists

If a client wants to argue for a manufacturing/processing exemption on refrigeration electricity (e.g., via a predominant use study under Rule 3.295), they will need records showing delivery temperatures, target temperatures, the time required to reach target temperature, and how much electricity is used for storage versus precooling. Given how briefly precooling lasts relative to typical storage periods (days to weeks), expect the predominant-use analysis to favor taxability in most flower-shop scenarios.

Businesses in other industries with similar cold-storage questions

The letter's reasoning — that lowering a product's temperature to a target level is processing, but maintaining it there afterward is taxable maintenance — is stated as a general principle under Rule 3.300, illustrated here with an example involving a grocer's milk cooler. The same distinction could be relevant to any business trying to characterize refrigeration electricity as exempt.

Common questions

Q: Is electricity used to refrigerate cut flowers exempt from Texas sales/use tax as a manufacturing or processing use?
A: Only the portion used to precool flowers down to their target temperature is processing. Electricity used afterward to maintain that temperature during storage is taxable maintenance use.

Q: How long does precooling take, versus storage?
A: Precooling is fast — about 30 minutes to 1 hour. Storage afterward can last anywhere from 1-2 days up to about three weeks, depending on the flower (e.g., gladiolas up to 7 days, carnations 7-14 days, chrysanthemums up to three weeks).

Q: Does "hardening" flowers before use in arrangements count as processing?
A: The letter treats "hardening" as placing flowers in refrigeration, i.e., precooling/storage — so the same processing-versus-maintenance analysis applies; it is not automatically exempt.

Q: Does assembling floral arrangements count as processing?
A: Yes — the letter reaffirms an earlier September 6, 1994 letter holding that assembling floral arrangements is processing under Rule 3.300's manufacturing definition. But steps taken to prepare for assembly (like the refrigeration discussed in this letter) are not included in that.

Q: Why isn't slowing a flower's natural deterioration considered "processing"?
A: The letter treats processes like transpiration (water loss), ethylene-driven maturation (petal/leaf drop), and bacterial growth as natural occurrences. Activities that merely slow these natural processes — including refrigeration, humidity control, and preservatives — are not "processing" under Rule 3.295, similar to how cooling milk to slow spoilage isn't processing the milk.

Citations and references

Regulations:

• 34 Tex. Admin. Code Rule 3.300 (definition of processing/manufacturing)
• 34 Tex. Admin. Code Rule 3.295 (taxable and exempt uses of gas and electricity)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9507223L

Original ruling text

July 14, 1995

Dear **:

This is in response to your letter of February 9, 1995, and the accompanying
publication entitled "**" published by **.

Electricity used in refrigeration for processing qualifies as processing when
the electricity is used to lower the product to its target temperature. Once
the target temperature is reached, electricity used to operate the
refrigeration equipment is considered to be used to maintain the product.
Electricity used to maintain or prevent the deterioration of tangible personal
property is a taxable commercial use.

You state that all the florists you talked to claim that they must "harden"
flowers before using the flowers in a floral arrangement.

The publication states the following on the flower:

A cut flower is a living organism in delicate balance with the surrounding
environment. Changes in temperature, humidity and other factors can alter this
balance, perhaps leading to an untimely death. Furthermore, flower structure is
a complex mix of vessels, leaves and petals which must be handled with care.
Points of interest listed below highlight some of these special characteristics
to consider when dealing with cut flowers.

Flowers are temperature sensitive. After harvest, living processes inside the
flower are temperature sensitive. When the temperature becomes too high, food
is used up too fast and water is lost faster than it is replaced. This can lead
to faster deterioration and wilting and even premature death.

Flowers are sensitive to dry air. Normally, a cut flower actually "perspires"
by losing water vapor from the surface of the leaves. In dry air, flowers lose
water faster than normal which causes them to wilt. Prolonged water stress can
lead to shorter vase life.

Flowers are sensitive to gases in the atmosphere. Some gases (like ethylene)
can be harmful to flower quality, causing wilting, petal drop, leaf curling and
yellowing leaves.

The publication discusses "inspection and processing" as being "vital to
longevity." Inspection is defined as checking the flowers upon delivery for
quantity, assortment and transport damage. Inspection is to be performed
immediately upon receipt,"[e]ven if the flowers will not be processed right
away." Processing is defined as "recutting flower stems and removing lower leaf
damage. Bacteria and healing block the stems of cut flowers causing early
deterioration. Recutting them removes the blockage and allows the stems to
absorb water and preservative solutions.

Preservatives are used to help extend flower life by replenishing food,
reducing acidity or alkalinity, reducing bacteria action.

Refrigeration is the process of removing heat from a product. Refrigeration is
important because:

1. Flowers deteriorate three (3) times faster in a cooler at 41 degrees F (5
   degrees C) than at 30 degrees F (-1 degree C). The rate of most chemical
   reactions increases two or three times with every 18 degrees F (10 degree C)
   rise in temperature. "Processes in flowers (like breaking down of "food") occur
   faster as temperature increases which means DETERIORATION RATE IS ALSO
   ACCELERATED AT HIGHER TEMPERATURES.

2. Changes in relative humidity affect flower water loss. A flower "stored at
   10 C, water will be lost from the product stored at 50% relative humidity five
   times as fast as product stored at 50% (sic) relative humidity. Thus, crops at
   80% (sic) relative humidity will wilt faster..." High relative humidity can
   help extend lasting qualities by conserving water loss which occurs through
   transpiration. The combination of low temperature and high humidity helps to
   reduce microorganism growth and slow development and deterioration.

Following harvest, floral crops must be cooled to their proper storage
temperature as soon as possible. Non-precooled flowers placed in a refrigerated
truck cool very slowly and rarely reach the desired temperature by the time
they reach the destination. Precooling is a method of quickly cooling the
packed boxes of flowers that is usually performed by growers The precooling is
a rapid process (taking 30 minutes to 1 hour) that involves:

• open vents in ends of boxes
• stacking boxes in front of precooling unit, (match vents in boxes with
  openings in precooler)
• a fan to push or pull (depending on placement) of air through the boxes (once
  the product is cooled to the desired temperature, the fan is turned off)
• boxes are removed to regular refrigeration

Efficient precooling requires adequate air-flow capacity. A rule of thumb
suggest between 100 and 125 cubic feet per minute of air through at 3/4 inch
back pressure. For example: to cool 25 boxes, 25 x 100 = 25,000 cubic feet per
minute for capacity of the fan.

Adequate air flow during precooling prevents drying out of flowers and good
lighting (high intensity lamps) simulates natural sunlight for flowers to
maintain photosynthesis and colors appear more accurately.

Many kinds of flowers keep best if packed without water in boxes of drums.
Proper packaging to prevent moisture loss is critical and proper temperature
and humidity control is essential.

Ethylene is a hormone that stimulates the aging process in flowers and plants,
causing petals to drop, leaves to fall and fruits to ripen. It is actually an
odorless gas that is given off by most, possibly all higher plants. Ethylene
can be controlled through proper temperature control and proper ventilation. As
temperature increases, it takes less ethylene and less time to damage flowers.
Silver thiosulfate protects flowers by slowing the effect of ethylene on the
flowers. This compound greatly extends vase live, increases bud opening and
prevents flower drop. Treatment time is generally 1 hour for dry flowers and 2
hours if flowers have been in water.

Cut flowers may be stored (either dry or in water with a preservative) in a
floral refrigerator for periods ranging from 1 or two days. The storage period
vary from flower to flower, e.g., Bouvardia and Delphium hybrids may be stored
for 1 to 2 days, gladiolas up to 7 days, carnations 7 to 14 days and
chrysanthemums up to three weeks.

In your letter, you state that the florists you talked to claim that they must
"harden" all flowers before they use them in floral arrangements. "Hardening"
is placing the flowers in refrigeration.

RESPONSE: The term "processing" as used in the publication does not have the
same meaning as the term does in Rule 3.300. The activities described in the
publication are performed to prolong the quality of the cut flowers while they
are being held for sale and to lengthen their vase life after the sale.

The lowering of the temperature of a product to a target temperature is
processing. Keeping a product at a targeted temperature is considered
maintenance.

The publication recommends that, after harvest, the cut flowers be cooled to
their proper storage temperature as soon as possible. This is referred to as
precooling. Precooling is a rapid process taking from thirty minutes to one
hour. The flowers listed in the publication may be stored from one to two days
up to three weeks. Depending on the types of flowers, number of shipments,
shipment quantity and temperature of floral stock when received, it appears
that the predominant use of electricity used in refrigeration is for storage.

Florists should have records of deliveries received, temperature of the
shipment, the target temperature, the time required to lower the flowers to the
target temperature, and the amount of electricity used to store the flowers
after "processing." The electricity used to operate refrigeration equipment
after flowers have been hardened constitutes taxable maintenance.

Please note that in my letter of September 6, 1994, I stated that the activity
of assembling floral arrangements is processing. This does not include steps or
activities in preparation of making the floral arrangements. See the definition
of manufacturing found in Rule 3.300.

The publication makes numerous references to prolonging and extending the
storage and vase life of cut flowers by slowing or reducing processes that take
place in cut flowers, including transpiration (moisture loss though leaves),
maturation (petal and leaf drop) caused by ethylene and reducing bacterial
growth. Besides refrigeration, ventilation and humidity control, chemical
preservatives and biocides are used to prolong flower life and slow wilting.

The lowering of the temperature of a product that will be sold does not always
constitute processing. For example, a retail grocer receives homogenized milk
cooled to 46 degrees F, but uses a refrigerator that stores canned bakery items
(biscuits, crescent rolls, etc.) at 38 degrees F may conclude that lowering the
temperature of milk is processing. This is not processing even if the milk's
shelf life is increased (because the lower temperature retards or slows
spoilage). Spoilage or decomposition is the process that naturally occurs in
all organic compounds. Spoilage is the result of maturation in organic
compounds.

Petal drop and leaf loss occurs naturally as part of flowering plant
maturation. Activities to slow this natural occurrence is not processing under
Rule 3.295.

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

You may call toll free l-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.

Eddie Washington
Tax Administration Division