Does the manufacturing exemption cover a microwave oven used to cook or heat food for sale?

Subject

Microwave Oven — Used By Resturant Vs. Provided By Vendor Selling Frozen Food Through Vending Machines

Plain-English summary

This letter confirms, in writing, a phone conversation about whether microwave ovens qualify for the Texas manufacturing exemption.

The Comptroller drew a distinction based on who actually operates the oven:

• Restaurant or similar business cooks the food itself: microwave ovens, convection ovens, or other ovens used by a restaurant or like place of business to cook food that it then sells do qualify as processing or manufacturing equipment. The key fact is that the purchaser (the business) uses the microwave and sells the food.
• Vendor lets the customer use the oven: a vendor who sells frozen sandwiches through a vending machine and provides a microwave for the customer to heat up the food does not qualify for the exemption. Because the customer, not the vendor, is the one using the microwave to prepare the food, the exemption does not apply.

The letter notes that the recipient's supplier apparently believed microwave ovens never qualify for the manufacturing exemption, and the Comptroller explains that this is only true in situations like the vending-machine example -- it is not a blanket rule against microwaves.

As with other STAR letters of this era, the Comptroller notes the opinion is based on the facts presented and could change if the facts are different.

What this means for you

Restaurants and food-service businesses

If your business uses a microwave, convection oven, or similar oven to cook food that you then sell to customers, that oven can qualify for the manufacturing/processing exemption, the same as other equipment used to prepare food for sale.

Vending machine and frozen-food vendors

If you sell frozen food (such as sandwiches) through a vending machine and provide a microwave for customers to heat the food themselves, that microwave does not qualify for the exemption, because you are not the one using it to prepare the food -- the customer is.

Accountants and tax professionals

The distinguishing fact is who operates the oven and completes the food preparation before sale, not merely whether an oven is a microwave. Equipment suppliers may have overstated a blanket rule against microwaves qualifying; this letter clarifies that the actual test turns on use by the purchaser/seller versus use by the end customer.

Common questions

Q: Does a microwave oven qualify for the manufacturing exemption?
A: It can, if a restaurant or similar business uses it to cook food that the business then sells. It does not qualify if the vendor simply provides the microwave for the customer to use.

Q: Why doesn't the vending-machine vendor's microwave qualify?
A: Because the customer, not the vendor, uses the microwave to prepare (heat) the food. The exemption applies to equipment the seller uses to process the food it sells, not equipment made available for the buyer's own use.

Q: Is this a blanket rule that microwave ovens never qualify for the manufacturing exemption?
A: No. The letter explains that a supplier's information suggesting that was likely being misconstrued -- microwaves can qualify when the purchaser/seller uses them to cook food it then sells.

Q: Could this answer change under different facts?
A: Yes -- the letter states the opinion is based on the facts presented, and could change if there are additional or different facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608L1431A04

Original ruling text

August 16, 1996

Dear *****:

Thank you for your facsimilie transmission asking for
written confirmation of our telephone conversation regarding the eligibility of
microwave ovens for the manufacturing exemption.

Microwave ovens, convection ovens or other ovens use by
a restaurant or like place of business to cook food for sale does qualify as
processing or manufacturing equipment. This is the case when the purchaser
uses the microwave and sells the food. In our telephone conversation you
indicated that your supplier was under the impression that microwave ovens do
not qualify for the manufacturing exemption.

I can only guess that your supplier may have received
information that is being misconstrued. Microwave ovens or other ovens may not
qualify as manufacturing equipment in some cases. For example, a vendor who
sells frozen sandwiches through a vending machine and provides a microwave for
the customer to use to heat up the food would not qualify. Because the
customer and not the vendor is using the microwave to prepare the food, the
exemption does not apply.

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

You may call me toll free at 1-800-531-5441, ext.
3-4675. The direct line is (512) 463-4675. You also may write to Tax
Administration Division, Comptroller of Public Accounts.

Sincerely,

Tom Soto
Tax Administration Division

NOTE: Previous Accession Number 9608577L