Texas State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Texas, with full citations and the original source on every page.
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Is a gas well foamer product ('soapsticks' or 'acidsticks') purchased by a well operator and injected downhole to stimulate gas flow subject to Texas sales tax?
Taxable. A well operator purchases a gas well foamer product (also called soapsticks or acidsticks) and injects it downhole to turn water blocking a low-pressure gas well into suds/bubbles, lowering w…
Are parts and labor for a restaurant's fire suppression unit (attached to fryers and grills) exempt from Texas sales tax as manufacturing equipment?
It depends on exactly what the fire suppression unit is attached to. A restaurant was being billed for parts and labor on a fire suppression unit -- some units needed full replacement (not up to code)…
Is sandblasting sand (or similar raw materials like rock, gravel, dirt) taxable when purchased, and does it matter whether the sand has been sorted, washed, or crushed?
Depends on whether the material is 'processed' -- and specifically, crushing or mixing is what triggers tax, not sorting or cleaning. This is a CORRECTED letter (the Comptroller's original August 7, 1…
Is a manufacturer's own aluminum casting mold taxable, and does it matter whether the mold is separately billed or the customer owns it on paper?
As of October 1, 1997, the mold used to make these particular castings no longer qualifies for the manufacturing exemption -- but the answer depends heavily on the time period and on whether there's a…
Is a television station's doppler weather radar system exempt from Texas sales tax?
Exempt only if used to generate images for broadcast -- if the same system is instead used for weather forecasting or other non-broadcast purposes, that use is taxable. A television station asked abou…
Are pallet rental fees and related delivery/transfer charges taxable for a food manufacturer, given the packaging-supplies exemption for pallets?
Taxable -- the packaging-supplies exemption for pallets doesn't apply here because the pallets are leased on a short-term (daily) basis, not for a period of one year or more. A food manufacturer packe…
For a Texas aircraft engine repair company, which charges are taxable, and does it matter whether the customer is a commercial airline, a repair shop, or a privately/corporately owned aircraft?
It depends heavily on WHO the customer is and HOW the charge is billed (lump-sum vs. separately stated) -- commercial-airline and licensed-carrier work is largely nontaxable, private/corporate aircraf…
Is a Texas recording studio's charge to musicians taxable as equipment rental, or nontaxable as a manufacturing/production service -- and does it depend on who operates the equipment?
It depends on who operates the equipment: if the studio hands over full operational control to the producer/musician with no studio personnel operating it, that's a taxable equipment rental; if studio…
Does Texas's manufacturing exemption for water-reduction/wastewater equipment cover the connecting piping, and are lubricants used to maintain exempt manufacturing equipment also exempt?
Piping only qualifies for the water-use-reduction exemption if it's a genuine component PART of a single piece of exempt equipment (not general intraplant transport piping), and lubricants/chemicals u…
Is a restaurant's ice machine exempt from Texas sales tax if it makes ice served directly to customers in drinks?
Yes, exempt -- but only if the ice machine is used exclusively to produce ice served to customers in their drinks; any other use (like ice for a salad bar or drink coolers) is a divergent use that tri…
Can a company leasing purifier/vaporizer/piping/storage-tank equipment to a semiconductor manufacturer buy it tax-free and lease it tax-free too?
Yes on both ends -- the equipment can be purchased tax-free with a resale certificate, and the monthly facility fee charged to the semiconductor manufacturer can also be exempt if the manufacturer pro…
A chemical processing plant is buying a redundant Honeywell computerized control system that runs its manufacturing operations. Is the computerized control system, and the software that runs it, exempt from Texas sales tax as manufacturing equipment?
Yes, if bought on or after October 1, 1997. House Bill 1855 amended Texas's manufacturing exemption to specifically cover electronic control-room equipment and computerized-control units that power, s…
A customer gave a seller of cut limestone an exemption certificate claiming the limestone is exempt 'unprocessed material, merely sorted, sized, screened, washed or dried.' Can the seller accept that certificate in good faith?
No. The Comptroller considers cut limestone to be 'processed material,' not unprocessed material, and it is therefore taxable. The seller should not accept an exemption certificate from a customer on …
A business stores liquid in tanks and, before selling it to final consumers, filters out impurities using a pump-and-filter system — without this filtration, the product isn't marketable. Does that filtration equipment qualify for the manufacturing exemption?
It depends on facts the letter says weren't fully provided. If the client receives the liquid already in a MARKETABLE state and is merely filtering out impurities that accumulated from its OWN storage…
A refined sugar producer built three large 'conditioning silos' that dehumidify sugar as a final processing step before packaging. Sugar cycles through silo #1 for 24-36 hours, then may go on to silo #2 or #3 for additional, variable-length dehumidification. Do all three silos qualify for Texas's manufacturing equipment exemption?
Silo #1 qualifies for exemption (as a piece of manufacturing equipment, not counting its foundation, assuming it isn't installed under a lump-sum realty-improvement contract) because it's used for a s…
A seller wants to sell one-time-use, USDA-approved polyester straps to meat packers, replacing the reusable stainless steel hooks currently used to suspend carcass beef in refrigerated rail trailers for shipping (the straps are also lighter and skip the hook-sanitizing requirement). Do these straps qualify for a sales tax exemption as packaging supplies?
Yes — the straps qualify for exemption as packaging under Rule 3.314 when sold to a meat packer that processes the meat for sale, since they function as a container/packaging supply used to ship and t…
Does a free-standing support bridge for hydrogen piping leading into a semiconductor cleanroom qualify for Texas's manufacturing equipment exemption, even though the bridge itself sits outside the cleanroom and isn't attached to the building?
Yes. The manufacturing exemption for cleanroom equipment covers piping and related equipment used in connection with manufacturing/processing/fabrication in the cleanroom, and that equipment does not …
Do xerox-type copying machines used to sell copies as part of a commercial printing business qualify for Texas's manufacturing equipment exemption, and does it matter if the machines are acquired through a lease-purchase arrangement?
Yes to both. Copying machines used to produce copies sold as part of a commercial printing business qualify for the manufacturing exemption, and the exemption extends to leased equipment — the busines…
Is a restaurant's fryer filter machine — which cleans and recirculates shortening/oil so it can keep frying food — exempt from Texas sales tax as manufacturing equipment?
It depends on the date. Before October 1, 1997, the filter machine, its parts/accessories, and repair labor were exempt because the shortening it processed became part of the fried product. Effective …
If a company designs its products, buys the raw materials and packaging, and controls production, but has a third-party subcontractor actually assemble the goods, can the company still buy its packaging materials tax-free as a manufacturer?
Yes. Because the company designs the product, supplies the raw materials and packaging, and controls the production process — even though a subcontractor's employees do the physical assembly — the Com…
Are the dies a printer uses for diecutting, foil stamping, embossing, and engraving exempt from Texas sales tax as manufacturing equipment, regardless of how long the dies last?
Yes. Diecutting, foil stamping, embossing, and engraving are processing activities, so dies used in them are exempt as accessories to exempt processing equipment under Rule 3.300 — with no requirement…
Does natural gas used to maintain a pilot light on a chemical plant's flare stack qualify for the Texas manufacturing exemption, and is a predominant-use study needed?
Yes, the gas qualifies for the manufacturing exemption from sales tax. Because the gas runs through its own meter and is used only to maintain the flare stack's pilot light, no predominant-use study i…
Does an oilfield waste bioremediation company owe sales tax on the treating agents, chemicals, and equipment it uses, and does it need to charge its clients sales tax?
The company does not charge its clients sales tax on the bioremediation service itself, and doesn't need a sales tax permit as a nontaxable-service provider. But the company must pay sales or use tax …
Does piping and conveyor equipment used to transport product in a Texas refinery or chemical plant still qualify for the manufacturing exemption after September 30, 1997?
No, not on or after October 1, 1997. H.B. 1855 made clear that piping and conveyors used to transport product do not qualify for the manufacturing exemption from that date forward — reversing the expa…
Are compressors that keep breaded fish frozen after processing exempt from Texas sales tax as manufacturing equipment?
No, the compressors are not exempt. A company that cuts, breads, and freezes fish (later shipped to its own restaurants for cooking and sale as food ready for immediate consumption) uses compressors t…
Does equipment that seals shipping cartons with glue, as the final packaging step before shipment, qualify for the Texas manufacturing exemption?
Yes. Manufacturing is defined as every operation from the first stage of production of tangible personal property through completion — and completion includes packaging, if any, since the product must…
Do substation equipment items (breakers, switches, transformers, capacitor banks, regulators, relays) used to step down high-voltage electricity for distribution qualify for the manufacturing exemption?
Yes. Breakers, switches, transformers, capacitor banks, regulators, and relays located in an electric utility's substation and used to step down high-voltage electricity (69kv/138kv/230kv) to distribu…
A semiconductor fabrication EQUIPMENT manufacturer uses various gases to test and clean its machines in a cleanroom, then packages the finished machines for shipping -- are the test/clean gases exempt, does the packaging materials exemption apply, and does the broader cleanroom exemption for semiconductor manufacturing cover this manufacturer's own cleanroom?
It splits by step. The gases used in steps 1 through 5 (vacuum leak testing, flow regulation testing, characterization testing, marathon reliability testing, and purge cleaning) -- all performed BEFOR…
Does a mold or die used to make wax patterns (which are then used to cast metal parts for resale) qualify for Texas's manufacturing exemption if it has a useful life longer than six months?
Yes, exempt -- and useful life is no longer the deciding factor for items purchased after January 1, 1995. Molds, dies, and patterns used by a manufacturer qualify for the manufacturing exemption rega…
A contractor building a new manufacturing plant under a lump-sum contract asked a comprehensive set of questions: who can issue manufacturing exemption certificates, how lump-sum vs. separated contracts are taxed differently, what a direct payment permit is, and what Texas's sales tax rate and permit procedures are -- what's the full picture?
This letter is a comprehensive contractor tax primer. (1) Only the MANUFACTURER itself -- never a contractor or subcontractor -- may issue an exemption certificate for qualifying manufacturing machine…
Does a coffee manufacturer's own grinding machine, placed in a grocery store for the store's customers to use on already-shipped coffee beans, qualify for the Texas manufacturing exemption?
No -- this letter corrects an earlier (January 10, 1997) ruling from the same office. A coffee storage/grinding machine that a coffee manufacturer places inside grocery stores, for the stores' own cus…
When used refinery equipment bought in Texas is dismantled, inspected, refurbished, and shipped out of the country over several months, does the export exemption still apply, and are the dismantling/inspection/refurbishing services themselves taxable?
The purchase of used refinery equipment for export is exempt from Texas sales tax, and local tax on the sale is refundable to the buyer once proof of export is provided under Rule 3.323. Rule 3.323(c)…
An electrical contractor's customer used a sales tax recovery firm to seek a refund of tax paid on several jobs, claiming a manufacturing exemption -- which of the contractor's charges (moving equipment, repairing manufacturing equipment, upgrading a building's electrical system, partial demolition) actually qualify?
It depends on the specific work, and the Comptroller broke it down by job type. (1) Simply moving equipment between plants, setting it in place, and hooking it up to the existing electrical system is …
Is a line drawing sold to a t-shirt manufacturer, for use in its manufacturing process, taxable as graphic artwork, or can the seller accept an exemption certificate instead?
Graphic artwork -- including a line drawing -- is generally taxable under Rule 3.312. But because this line drawing is being sold to a shirt manufacturer that will use it in its manufacturing process,…
Does a crane that lifts scrap metal from a metal-cutting shear to a bin for processing -- and can only be used for that one task -- qualify for the manufacturing exemption?
No. A crane (a 1993 Link-Belt Hydraulic Crawler Excavator) that's attached to a metal-cutting shear and uses a magnet to move scrap to a bin for processing does not qualify for the manufacturing exemp…
Does a 5,500-gallon storage tank plumbed directly into a chemical-blending manufacturer's mixing kettles qualify for the Texas manufacturing exemption?
No. A chemical-blending manufacturer's newly acquired 5,500-gallon storage tank -- plumbed directly into its mixing kettles so material can be fed into a batch-in-process by opening a valve -- does no…
When is a multimedia presentation on CD-ROM or diskette taxable as a computer program in Texas, versus a non-taxable production service?
It depends on whether the production contains "source code." This follow-up letter clarifies an earlier ruling: "source code" means any series of instructions -- whether originally written by the prog…
Do a TV broadcaster's transmitters, related repair labor/parts, and the electricity used to run them qualify for Texas's manufacturing sales tax exemption?
No. Transmitters, their associated repair labor and parts, and the electricity used to broadcast are NOT exempt from Texas sales tax, even though broadcasters can qualify as manufacturers for their pr…
Does equipment like routers, servers, and hubs used by an Internet service provider to deliver service qualify for Texas's manufacturing sales tax exemption?
No. Equipment such as routers, servers, and hubs used by an Internet service provider (ISP) to provide its service is taxable at the time of purchase. The Comptroller explained the equipment can't qua…
Do compressors used in oil and gas processing qualify for Texas's manufacturing exemption, and how does a company refund sales tax collected in error on exempt equipment?
It depends on what the compressor does. Effective January 1, 1995, a manufacturer or processor can claim exemption on machinery and equipment necessary and essential to manufacturing, processing, or f…
Do the foundations and support structures for rock-crushing-plant equipment (a crusher, screens, a logwasher) qualify for Texas's manufacturing exemption?
No. Support foundations for manufacturing equipment -- reinforced concrete slabs, sometimes with concrete piers and anchor bolts to fasten equipment in place -- are considered real property, not machi…
I sell to a Mexican retailer who wants to buy tax-free for resale in Mexico -- what documentation do I need beyond a standard Texas resale certificate, and does a blanket certificate expire over time?
Beyond a properly completed Texas (or Border States Uniform) resale certificate, Rule 3.285(d)(2) requires you to also keep a copy of the buyer's Mexican Registration Form showing their RFC (Mexican f…
I design store signage and trim on a computer using 3D drafting software, then fabricate and install it in new stores -- am I taxed as a contractor or as a manufacturer, and does my design equipment qualify for the manufacturing exemption?
You're taxed as a contractor, not a manufacturer, because you affix the signage and trim you fabricate to realty under a new construction contract. Tax is due on your cost of materials (lump-sum contr…
We sell a color Doppler weather radar system (antenna, computer, and enhanced software) to TV stations for live severe-weather coverage -- is it exempt from Texas sales/use tax?
Yes, exempt. The Comptroller ruled that a color weather radar system -- sold as a package consisting of an antenna, a computer, and enhanced software, with the computer used for no other purpose -- qu…
My predominant use utility study was rejected by the Comptroller -- what did it need to include, and why was mine found deficient?
The study was rejected as deficient. Rule 3.295(e)(1) requires a predominant use study to show all exempt and nonexempt uses of the utility, the times of usage, the energy used, twelve consecutive mon…
I bottle and resell water in returnable bottles that I get back from customers and refill -- can I buy those bottles tax-free as packaging/manufacturing supplies?
No -- the purchase is taxable. The Comptroller ruled that returnable water bottles do not qualify for the packaging-supplies exemption. Rule 3.314(b)(1) exempts items like boxes and pallets, but (b)(3…
I have an operating lease on a printing press that started before 10/1/95 -- can I cancel it and sign a new letter agreement so the equipment qualifies for the manufacturing exemption going forward?
Yes. The Comptroller confirmed that canceling the existing lease and replacing it with a new lease (via a letter agreement attached to the canceled lease, same terms, taking effect on the cancellation…
I bought subsurface pumps for my gas/oil wells to remove water so gas can flow to the surface -- do they qualify for the sales tax manufacturing exemption?
No -- the pumps are taxable. The Comptroller ruled that bringing oil or gas to the surface is "production," not "manufacturing, processing, or fabrication" under Tax Code 151.318. Even though the subs…
I'm a cotton ginner and I use gas and electricity to keep my warehouse or storage area cool and dry so cotton seed doesn't sprout, including during the off-season -- is that electricity exempt from Texas sales/use tax?
Mixed answer, split by predominant use. The electricity used to actively lower the temperature or humidity of stored cotton seed to a target level counts as exempt processing. But electricity used jus…
Is the wastewater treatment system my manufacturing company must install to meet TNRCC environmental requirements exempt from Texas sales and use tax?
Partially exempt. The pollution control equipment itself qualifies for the Texas manufacturing exemption because it's necessary and essential to the manufacturer's production process, and the company …
Is electricity and gas used in an electroplating and precision-grinding business exempt from Texas sales tax, or does it matter whether the work is processing new parts versus repairing/regrinding existing ones?
It depends on what the power is used for. Gas and electricity used to chrome and grind parts as a sub-processor for original part manufacturers is exempt as processing personal property for sale, and …
Is ISDN internet equipment and connectivity used to transfer prepress printing files exempt from Texas sales tax as manufacturing equipment?
Mostly no. The Comptroller ruled that computers or equipment that directly drive digital printing presses qualify for the manufacturing exemption, but the ISDN line, routers, and other equipment used …
Does a citrus de-greening unit that becomes part of a packing shed still qualify for Texas's manufacturing equipment sales tax exemption?
Yes, but it depends on the contract. If the de-greening unit stays tangible personal property, both the unit and installation are exempt. If it becomes an improvement to realty, the exemption survives…
Is equipment for a home recording studio exempt from Texas sales tax if it's used to produce master audio recordings for distribution to record labels?
Yes, with limits. The Comptroller ruled that producing audio recordings for sale, license, distribution, broadcast, or exhibition counts as "manufacturing," so a home-studio producer qualifies for the…
Can a custom flexible packaging manufacturer bill for artwork and printing plates without charging sales tax if the customer provides a manufacturer's exemption certificate?
Yes. The Comptroller confirmed that when a company bills customers for artwork and plates used in manufacturing custom flexible packaging, no state or local sales tax needs to be charged, as long as t…
How long does the statute of limitations run on the manufacturing phase-in exemption, and does it differ if the exemption was claimed at the time of purchase versus refunded later?
A four-year statute of limitations applies to purchases made during the last quarter of 1993, 1994, and later periods when the manufacturing phase-in exemption is claimed at the time of purchase (gove…
What counts as exempt 'machinery and equipment' for a Texas enterprise project, and how do the related sales tax refunds work?
The Comptroller ruled that 'machinery and equipment' for a Texas enterprise project under Section 151.429(a) covers essentially all depreciable property purchased for use in the zone -- production mac…
Can a Texas manufacturer buy external packaging supplies like corrugated void-filler and air bags tax free?
Yes. The Comptroller ruled that a manufacturer may give a vendor a properly completed exemption certificate to buy external packaging supplies -- including corrugated void-filler and air bags used to …
When restaurant/food-processing equipment like an ice machine is bought tax-free under the manufacturing exemption but later put to a different use, who owes the tax, and how much?
It depends on when the equipment was bought. A vendor who accepts an exemption certificate in good faith isn't liable for the tax -- the purchaser is. For an ice machine bought tax-free between Octobe…
Is overhauling a compressor used to lift oil and maintain well pressure a taxable service in Texas, or is it exempt as manufacturing equipment repair?
Taxable. The Comptroller ruled that a compressor used to lift oil from wells and maintain pressure for recovering additional oil is production equipment, not exempt manufacturing equipment, so the ser…
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These are official tax letter rulings and advisory opinions issued by Texas's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.