Can laundry and dry cleaning businesses buy the electricity and natural gas they use to process rental linens/shirts tax-free as a noncommercial or resale use?

Plain-English summary

A representative for linen/shirt rental and dry cleaning companies asked the Utah State Tax Commission two related questions about Rule R865-19-35S, which exempts "noncommercial consumption" of electricity and natural gas — fuel used in manufacturing tangible personal property, or in producing/compounding a product (originally also "or service") that will be resold.

First issue: these companies buy clean shirts, linens, mats, etc. tax-free for resale (as a genuine wholesale purchase), then rent them out under service contracts, charging their customers sales tax on the rental. The company argued that since it uses electricity and gas to launder and reprocess these items for the next rental cycle, that power should also be tax-exempt — either because it's used to "compound a product for resale," or because the power is effectively a resold "component part" of the rented item, similar to how agricultural producers get a power exemption as a "component part" of their product. The company also pointed to an earlier, unrelated Commission ruling that let a country club buy power tax-free to recharge golf cart batteries, arguing consistency required the same treatment here.

Second issue: the Commission was in the process of removing the word "service" from the rule's noncommercial-use definition (leaving only "product"). The company asked whether that change created a "window period" during which laundries and dry cleaners that had already paid tax on their utilities could claim a refund.

The Commission's answers to both were no. On the first issue, Rule R865-19-35S(B)(3) defines noncommercial consumption to include only mining, agriculture, and manufacturing — and expressly treats everything else as residential or commercial. Laundry and dry cleaning are commercial establishments, period, so their utility purchases don't qualify regardless of the resale/component-part arguments raised. The Commission also distinguished the golf cart battery ruling as a one-off negotiated audit settlement specific to that dispute, not a general interpretation of Rule 35S that laundries could rely on. On the second issue, the rule change removing "service" was explained as a correction of a drafting error, not a substantive change in exemption policy — so there's no refund window during which laundries or dry cleaners can claim back tax paid on their utilities.

What this means for you

Laundry, dry cleaning, and linen/uniform rental businesses

Don't treat your utility purchases as exempt "noncommercial" use just because you're processing an item for resale/rental under a service contract — Utah's noncommercial-use exemption is limited to manufacturing, mining, and agriculture, and laundering/cleaning services fall outside that list even when structured around a tax-collected rental arrangement.

Businesses citing another taxpayer's settlement or specific ruling as precedent

This ruling is a caution against relying on a different taxpayer's negotiated audit settlement (like the golf cart battery example here) as if it were a general rule interpretation — the Commission may distinguish it as fact-specific and not binding precedent for your situation.

Accountants tracking rule-change refund exposure

When a Commission rule is amended, check whether the change is characterized as a substantive policy shift (which may open a refund window for the old, incorrect treatment) or a correction of a drafting error (which the Commission here said creates no refund opportunity at all).

Common questions

Q: Can a laundry or dry cleaner buy electricity/gas tax-free because it's producing a product or service for resale?
A: No — this ruling found that laundry and dry cleaning are commercial establishments, not manufacturing, mining, or agriculture, so they don't qualify for the noncommercial-use exemption regardless of resale or rental-contract structuring.

Q: Does a rule change removing "service" from the exemption definition create a refund window for laundries?
A: No, according to this ruling — the change was a correction of a drafting error, not a substantive policy change, so no retroactive refund period applies.

Q: Can a laundry rely on a different taxpayer's exemption (like a golf cart battery recharging ruling) as precedent?
A: Not under this ruling — the Commission treated that as a specific, negotiated audit settlement unrelated to Rule 35S, not a general interpretation other taxpayers can invoke.

Q: Does this ruling apply to my laundry or cleaning business?
A: Not automatically — it's a private letter ruling binding only on the Commission for the taxpayer and facts described, though other taxpayers may cite it for persuasive weight if closely similar. Consult a Utah tax professional about your own situation and verify current rule text.

Citations and references

Rules and statutes (1992-era numbering — since renumbered/amended; citations to § 59-12-102(3)(c) and § 59-12-104(28) reflect the requesting party's own letter):

• Utah Admin. Rule R865-19-35S(B)(3) (1992) (noncommercial consumption definition)
• Utah Code Ann. § 59-12-102(3)(c) (1992) (special utility-purchase exemption basis, per the request letter)
• Utah Code Ann. § 59-12-104(28) (1992) (agricultural fuel/power exemption, per the request letter)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/92-004.htm

Original ruling text

Response
May 19, 1992

Request

May
19, 1992

Re:
Electricity and Natural Gas Used by Laundry and Cleaning Establishments

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on
whether laundry and dry cleaning establishments are eligible to purchase
electricity and natural gas tax-free as a noncommercial user.

The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. The division's recommendations are as follows:

1. Rule 1 has been officially changed. The
   pertinent language now says "use in manufacturing tangible personal property
   or use in producing or compounding of a product which will be resold." A
   copy of the rule is attached. This rule was changed to correct an error, not to
   make a change in the exemption.

2. Rule 35S defines noncommercial consumption
   to include mining, agriculture and manufacturing. It specifically says all
   other activities are residential or commercial. Laundry and dry cleaning
   establishments are commercial establishments and are not eligible for exemption
   from sales tax on the purchase of electricity or other fuels.

3. The country club issue was a specific ruling
   to negotiate the settlement of an audit. It had nothing to do with 35S and was
   not an oversight.

4. As indicated in 1, above, deleting the words
   or service was to correct an error; therefore, there can be no window period
   during which laundries and dry cleaners may apply for a refund.

If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of Rights are
attached.

For
the Commission,

Joe
B. Pacheco

Commissioner

Joe
B. Pacheco, Commissioner

Utah
State Tax Commission

160
East Third South

Heber
M. Wells Building

Salt
Lake City, Utah 84134

RE: Advisory Opinion - Non-taxable Status of
Electricity and Natural Gas Used by Laundry and Cleaning Establishments

Dear
Commissioner Pacheco,

An
advisory opinion is requested which pertains to Sales Tax Rule R865-19-35S,
Section B-3. This rule states that non-taxable, noncommercial consumption is
defined as fuel used in: manufacturing tangible personal property or in
producing or compounding of a product or service which will be resold.

Our
request involves two different issues pertaining to businesses engaged in dry
cleaning and laundry services.

STATEMENT
OF FACTS - FIRST ISSUE

Certain
companies purchase linen, shirts, entrance mats, etc., for the purpose of
renting these items to individuals and/or businesses. Basically, these
companies are in the business of renting clean shirts, linens, mats, etc., to
final consumers most of which are charged Utah sales tax.

Typically,
the "rental contract" provides that the customer will be furnished a
certain number of clean shirts, linens, mats, etc., per day or per week. The
laundry/rental company purchases the shirts, linen, mats, etc., tax free for
resale along with starch, sizing, packaging supplies and other items that
become an integral or component part of the product rented or the shipping case
thereof (Rule R865-29S and 48S). Other supplies used or consumed for the
cleaning process such as soap, "perc", identification tags, etc., are
taxed at time of purchase. In addition, these companies are paying tax on
utility services from XXXXX and XXXXX. Since these companies are using power
and fuel to produce or compound a product or service, it would seem reasonable
that sales tax should not apply to these utility services. It is my
understanding the Tax Commission plans to delete the word "service"
from this rule, which has a bearing on my second question.

REQUEST
FOR ADVISORY OPINION - FIRST ISSUE

Based
on the foregoing information, it is respectfully requested that your advisory
opinion will find that a laundry/rental company as described above should be
allowed to purchase power tax-free since:

a. It is being used to compound a
"product" (i.e. shirts, linens, mats, etc.) to be resold
(i.e.-non-commercial), or

b. The power should be purchased tax free on
the basis that it is "considered" being purchased for resale as a
component part of the shirt, linen, etc., being rented.

Based
on a conversation with an engineer at XXXXX, electricity is not a tangible
product that can be "put into" another article or product. In other
words, you can not resell electricity as tangible personal property the same as
fuel oil, coal or other fuels. This is a fact our legislators recognized since
power purchased for use by utility companies it not purchased tax free under a
normal resale exemption but rather under a special exemption (59-12-102-3-c).

This
same concept (b) is expressed in a similar exemption allowed agricultural
producers who purchase fuel and power tax free as being a "component
part" (59-12-103(3-c) and (59- 12-104(28)). The point is that our
legislators realize that electricity doesn't actually become a physical
component part of a manufactured or processed item; however, when used to
compound a product for resale, compound another utility service for resale or
provide temperature control or power for off highway machinery, such power is
non-taxable (i.e., non-commercial) or exempt ("considered" for resale).

In
the country club issue of a few years back, the Tax Commission ruled that power
used to recharge batteries for golf cart rentals could be purchased exempt from
tax since the power evidently was similarly "considered" (i.e.,
59-12-102-3-c) as being a resale transaction or a component part of the taxable
golf cart rental, (refer to R.H. Hansen's letter of June 11, 1991 attached).
Just as the power doesn't become part of the battery or golf cart, so too it
doesn't become part of the rental shirts, linen, etc., However, to be
consistent, it would seem the Commission should agree that power used to
process rental items (shirts, linens, etc.) should be "considered"
sold for resale the same as power used to recharge or process batteries rented
with the golf carts.

STATEMENT
OF FACTS - SECOND ISSUE

The
current approved Rule 865-19-35S, Section B-3 states that noncommercial
consumption is defined as fuel used in manufacturing tangible personal property
or used in producing or compounding of a product or service which will be
resold.

REQUEST
FOR ADVISORY OPINION - SECOND ISSUE

Based
on the current approved revised Rule R865-19-35S B-3, would your advisory
opinion find there is a window period (when present rule was adopted until it
is amended) during which a refund is in order for all wholesale and retail
laundries and dry cleaners that paid sales tax on utility services? These
companies are obviously using the power and/or fuel to produce or compound a service
which will be resold.

If
you or your staff need additional information about the rental service
companies, please advise; otherwise we hope we can expect an early reply.

Thank
you.

Respectfully,

XXXXX