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 ripper and the bulldozer that powers it exempt from Texas sales and use tax as manufacturing equipment when they are used to break limestone and shale out of the earth as the first step in making cement?
Yes, with a condition. The Comptroller ruled the ripper qualifies as manufacturing equipment and is exempt from sales and use tax because it is the first stage in producing cement, breaking limestone …
Does the Texas Comptroller agree that the industry-published 'Sales Tax Guide for Texas Printers' (June 1995 edition) — covering when printers charge sales tax, what equipment/energy purchases qualify for the manufacturing exemption, and how to claim refunds — reflects current Comptroller policy?
Yes, with the corrections shown in this letter. The Comptroller's Tax Administration Division (Gilbert Zamora) reviewed the trade associations' 'Sales Tax Guide for Texas Printers' line-by-line, marke…
When Company A sells a mold to Company B under a written agreement, is the sale of the mold taxable, and does it matter whether Company B itself manufactures the end product?
It depends on whether Company B is manufacturing tangible personal property for sale and on whether a written agreement transfers title to the mold. If B uses the mold (directly or through a component…
Is electricity used to recool ferns after they arrive in Texas from Mexico, and again after further processing, exempt from Texas sales tax as an exempt use in processing?
Yes, in this case. The Comptroller held that because a processing step (removing bacteria and deepening the ferns' color) occurred before each recooling, the recooling was itself part of processing, s…
Is a scrap metal processing service — cutting, chopping, and separating aluminum and copper conductors for electric utilities and co-ops — taxable, and does the machinery used qualify for the Texas manufacturing exemption?
The processing service itself is taxable, but the utility company can give the processor a resale or exemption certificate stating the service is purchased to further processing of property that will …
Do cotton gins in Texas need to have a utility study performed before they can buy gas and electricity tax-exempt for processing?
No. The Comptroller reviewed utility studies of large and small cotton gins showing that gas usage was 98 percent exempt (processing) and electricity usage was over 91 percent exempt, even counting of…
Are the poles that an electric utility uses to support step-down transformers (and the transmission lines running along them) exempt from Texas sales and use tax as equipment necessary to the manufacturing of electricity?
No. The Comptroller concluded the poles are not exempt. Even though step-down transformers themselves are treated as part of the manufacturing process, the poles supporting them also carry transmissio…
Is the electricity a company uses to chrome-plate aircraft engine parts exempt as 'processing,' or taxable because it's really 'repair and remodeling' of the engines back to their original specifications?
Taxable, on these facts. Even assuming some of the chrome-plating applications reprocessed the engines (by adding new specification options not originally on the parts), the Comptroller's Assistant Di…
When a bakery sells some food for immediate consumption (taxable) and some food not for immediate consumption (exempt), how does the Texas Comptroller decide whether a utility (electricity) exemption certificate based on a utility study can be accepted?
An exemption certificate based on a utility study can be accepted if it comes with a statement showing the quantity of goods sold for immediate consumption versus not sold for immediate consumption, a…
Is the film used to create a template for burning circuit boards exempt from Texas sales tax, and are fees paid to programmers for custom software taxable?
Both are tax-favorable for the taxpayer: the film qualifies for the manufacturing exemption under Tax Code Section 151.318 because it is used by a third-party custom manufacturer to produce circuit bo…
Is proof coil chain used to lower and dip raw materials into cleansing and galvanizing vats exempt from Texas sales/use tax as manufacturing equipment, or is it taxable intraplant transportation equipment?
It is taxable. The Comptroller ruled that proof coil chain used to lower and dip raw material into chemical cleansing and galvanizing vats is excluded from the manufacturing exemption as intraplant tr…
Does a cottonseed delinting operation qualify for the Texas manufacturing exemption, and can it accept resale/exemption certificates for the bags, fungicide, and insecticide it charges producers for?
Yes. The Comptroller ruled that machinery and equipment used directly in processing (delinting) the cottonseed qualifies for the Texas manufacturing exemption, and the delinter may accept a resale or …
Is a deionized-water treatment system installed for a semiconductor (clean-room) manufacturer taxable as an improvement to real property, or exempt as manufacturing equipment?
It depends on installation and use. If the system becomes an improvement to real property (loses its identity as equipment and can't be removed without substantial damage), labor is exempt when instal…
Does the manufacturing exemption apply to light bulbs used in a machine that sorts rice kernels before they are ground into flour?
No. The Comptroller ruled that light bulbs used to illuminate a sorting machine that separates and selects broken rice kernels before grinding do not qualify for the manufacturing exemption, because s…
Does a company that rebuilds customers' ink rollers for the printing industry owe Texas sales tax on materials and equipment, or can it claim a manufacturing exemption?
The company may buy rebuilding materials tax-free with a resale certificate, but must charge its customers tax on the full charge to rebuild each roller. Equipment used solely to rebuild customers' ro…
Does the Texas manufacturing exemption apply to equipment, materials, and services purchased by a television broadcaster?
Partially. Because broadcasters produce programs for consideration, they qualify for the Section 151.318 manufacturing exemption on materials and equipment used directly in production (with a phase-in…
Are knives used by meat processors exempt from Texas sales and use tax as manufacturing equipment?
No. Hand-operated knives used by meat processing members are "hand tools," and hand tools are specifically excluded from the Texas manufacturing exemption by Tex. Tax Code Sec. 151.318(c), so they rem…
Does a company that sorts, processes, and mails customer mail (rather than manufacturing a product) qualify for Texas's manufacturing exemption on its equipment and supplies?
No. The Comptroller ruled that a mailing services company performing mail sorting, metering, and bar-code labeling is providing a nontaxable mail-handling service, not manufacturing, processing, or fa…
Can a landlord who buys gas and electricity, sub-meters it, and bills each tenant claim a manufacturing/processing exemption because most tenants are manufacturers who use the utilities predominantly in processing?
No. The Texas Comptroller ruled that a landlord who purchases gas and electricity for an industrial park and bills tenants for their sub-metered usage is making its own taxable commercial use of those…
Is electricity used to cool natural gas, run compressors, and pump water (including salt water) at an underground natural gas storage facility exempt from Texas sales tax?
It depends on what the electricity is used for. Electricity used to run compressors that change gas pressure for transportation is taxable, not exempt as processing. Electricity used to transport natu…
Is the charge for 'notching' sample pipe to calibrate quality-control equipment taxable under Texas sales and use tax?
Yes. The Comptroller ruled that 'notching' sample pipe to calibrate a lab's quality-control equipment is taxable as remodeling. The manufacturing exemption does not apply because the notching is not q…
Does vibration-monitoring equipment bought by petroleum processors or electricity generators to protect manufacturing machinery from damage qualify for the Texas manufacturing sales tax exemption?
No. The Comptroller ruled that vibration-monitoring equipment used to detect excessive vibration and trigger safety shutdowns does not qualify for the Texas manufacturing exemption. It is not an 'acce…
Do clean-room air handling systems and floor panels qualify for Texas's manufacturing exemption in semiconductor fabrication?
Yes — the Comptroller confirmed that air handling equipment, ceiling vents, and waffle floor panels used in semiconductor (microchip) fabrication clean rooms qualify as equipment used in manufacturing…
Does processing a neighbor's agricultural products alongside my own destroy my Texas manufacturing-exemption for my processing equipment?
Not entirely, under the policy this letter recommends. The Comptroller's task force proposed replacing the old all-or-nothing rule (which required that 100% of the products processed, packed, or marke…
Texas Letter Ruling 9406L1306D01: Foundations — Real Property — Cannot Qualify For Manufacturing Exemption
No — the Comptroller ruled that foundations for manufacturing equipment are real property, not machinery or equipment, so they do not qualify for the partial manufacturing sales tax exemption or refun…
Can a manufacturer located in a Texas enterprise project claim the phase-in sales tax exemption on manufacturing machinery and equipment in addition to the tax refunds available under the enterprise project program?
Yes. A manufacturer located in an enterprise project may claim the phase-in exemption on qualifying manufacturing machinery and equipment in addition to the tax refunds available under the enterprise …
Are hand-operated measuring and inspection gages (like micrometers and thread gages) exempt from Texas sales tax as manufacturing equipment?
No. The Comptroller ruled that manually operated inspection instruments -- snap gages, thread gages, plug gages, dial gages, micrometers, and similar tools used to check product dimensions during manu…
Does Texas sales tax apply to a company's service of picking up hazardous chemical waste, processing it to meet state disposal requirements, and hauling it to a disposal site?
No — the Comptroller ruled that the company's service of picking up hazardous chemical waste, processing it to meet state requirements, and transporting it to a disposal site is not a taxable service.…
For a new manufacturing plant, are dust-control enclosures built around conveyors exempt from Texas sales tax as pollution control equipment, and how does a separated vs. lump-sum construction contract affect tax on materials?
Yes. The Comptroller held that enclosures built around conveyors solely to keep wood dust from discharging into the atmosphere qualify as exempt pollution control equipment used in manufacturing. By c…
Is electricity used to run cooling equipment and circulating fans that keep bananas cold and slow their ripening during transit exempt from Texas sales/use tax as manufacturing/processing?
No. The Comptroller held that cooling bananas and running circulating fans to deter or delay ripening during shipment is considered storage, not processing, so the electricity used for that cooling an…
Does a wholesaler/merchandiser owe Texas sales tax on boxes, dry ice, and other packaging materials used to ship products to customers, including offshore customers?
Yes. Under 34 Tex. Admin. Code § 3.314(c), a wholesaler or retailer (as opposed to a manufacturer or processor) must pay sales tax on wrapping and packaging supplies like boxes and dry ice used to shi…
Can a cable television company claim the manufacturing exemption on the electricity it uses to produce and deliver its cable signal?
No. The Comptroller ruled that CATV providers cannot claim the Tax Code § 151.317 manufacturing exemption on electricity used to produce their signal, because cable television service is specifically …
Does the manufacturing phase-in exemption cover a power shear and the mobile power unit that runs it at a metal recycling yard?
Yes, the shear itself qualifies for the manufacturing phase-in exemption, and the mobile power unit that powers it qualifies too, but only if the power unit is used predominantly to power the shear du…
Does the Texas pollution control or manufacturing exemption apply to air quality monitoring systems (instruments, analyzers, computers, software) sold to manufacturers?
No. The Comptroller ruled that air quality monitoring systems sold to manufacturers — including the hardware, replacement parts, repair labor, and software programming and modifications — do not quali…
Does vibration monitoring equipment used by petroleum manufacturers and electric utilities qualify for the Texas manufacturing exemption?
No. The Comptroller ruled that vibration monitoring equipment used by manufacturers of petroleum products and by electric utilities using fossil fuel turbines does not qualify for the manufacturing ex…
Can a manufacturer buy raw materials tax-free in Texas if the processed goods are sold to a foreign buyer rather than resold domestically?
Yes. The Comptroller ruled that a manufacturer buying raw materials (here, horse pericardia) to be processed and resold can use the Tax Code Section 151.318(a)(1) manufacturing exemption even though t…
Are fenders used by a lightering workboat to protect tankers during a lightering operation exempt from Texas sales tax as a component part of the vessel, even though the fenders are not physically attached to the boat?
Yes. The Comptroller ruled that the fenders (Yokohama Fenders) are an integral part of the lightering workboat and will be considered a component part of the vessel even though not physically attached…
Is natural gas used to fuel boilers at a towel rental (industrial laundry) business exempt from Texas sales and use tax as gas used in processing?
No. The Comptroller ruled the natural gas used to fuel the boilers at a towel rental company was not exempt, because the boilers themselves are not equipment directly used in processing the rental tow…
Are multi-part 'bill of lading' shipping forms, sold to a manufacturer's client, exempt from Texas sales/use tax as packaging supplies?
Corrected answer (April 12, 1993): a manufacturer-client may issue an exemption certificate for the bill-of-lading forms, but must then self-assess use tax on the cost of any part(s) of the form that …
Is the gas a rental-equipment company uses for heating its repair area and for steam-cleaning returned machinery exempt from Texas sales tax as a processing/manufacturing use?
Partly. Gas used to heat the specific area where repairs on rental equipment are performed can be exempt as processing, but only for the time that area is actually used for repairs, and it must be all…
Can a bakery that sells some food for immediate consumption and some for later consumption still give a gas/utility exemption certificate based on a utility study?
Yes, if the combination of the two uses still shows an overall exempt use. Multiply the percentage of gas used for production by the percentage of goods NOT sold for immediate consumption; if that res…
Does a company that manufactures aluminum tank domes and sometimes installs them keep its manufacturing sales-tax exemption on electricity, and is installing the dome an improvement to real property?
Installing the dome is an improvement to real property (remodeling, not new construction, on existing tanks). Electricity used to manufacture domes sold with no installation stays exempt as manufactur…
If a Texas manufacturing plant is sold to a new owner, can the new owner keep using the seller's predominant use utility study to claim a sales tax exemption on utilities?
No. Even if the manufacturing operations at the plant don't change, a change of ownership means the buyer must get its own predominant use engineering study done and secure its own utility exemption c…
Can a grocery store chain that prints its own newspaper inserts in its own print shop get a refund of the sales tax it paid on the newsprint and ink?
No. The Comptroller ruled that a grocery store chain printing its own newspaper inserts in its own print shop is not entitled to a refund of sales tax paid on the newsprint and ink. The Sec. 151.319(c…
In this January 1993 Texas ruling, an Arkansas printer bought manufacturing equipment in Louisiana tax-free and later brought it into Texas — did Texas use tax apply?
It depends on how long the equipment was used outside Texas first. If the equipment was used in Arkansas for one year or more before being moved to Texas, no Texas use tax is due. If it was used outsi…
Is the electricity my sand-mining client uses to dredge, wash, sort, and convey sand exempt from Texas sales tax?
It depends on what the electricity powers. Electricity used to convey or pump sand to, through, and away from the plant is exempt as transporting a material extracted from the earth, regardless of whe…
Is infrared inspection of industrial furnace linings taxable, and is refractory brick sold to repair a kiln exempt from Texas sales tax?
The Comptroller ruled that infrared inspection service to check the condition of refractory (heat-resistant) linings inside boilers, furnaces, and kilns is a nontaxable service. Separately, refractory…
Texas Letter Ruling 9211869L: Lowering Of Temperature/Flash Freezing Product During Processing Vs. Keeping Product At Targeted Temperature — Electricity Used
Exempt. Texas Comptroller Letter Ruling 9211869L holds that electricity used to lower the temperature of food products (like chilling avocados, chickens, and meat, or flash-freezing vegetables) down t…
Texas Letter Ruling 9211590L: Utility Study — New Study Required If Change Of Ownership
Yes. When a manufacturing business changes ownership, the new owner must have its own predominant use study performed and kept on file to claim the sales tax exemption on electricity purchases, even i…
Texas Letter Ruling 9210L1200F03: Recycling Plant — Manufacturing Process Begins With Shredding — Also Machinery/Equipment Used
Yes. The Texas Comptroller ruled that a company shredding old tires into three-inch squares for eventual processing into rubber crumb (to be resold in products like mats and mud-flaps) is engaged in m…
Texas Letter Ruling 9209L1192G09: Heating Manufacturing/Processing Areas — Gas/Electricity Used
When a shop area is used partly for taxable repair work and partly for exempt re-manufacturing, the natural gas used to heat and cool that area must be allocated. First separate production/repair area…
Is the natural gas used by a tortilla factory (tortilleria) exempt from Texas sales tax as gas used in manufacturing, or is it taxable commercial/residential use?
Taxable. The Comptroller ruled that gas used by a tortilleria to make tortillas (and other items like barbacoa) that are packaged warm and sold for immediate consumption through a drive-up window, wit…
Is natural gas used to fuel a boiler that makes steam, which then powers chemical-processing equipment, exempt from Texas sales tax, or is it too 'one step removed' from manufacturing to qualify?
No, the natural gas is not too far removed from manufacturing to qualify. The Comptroller ruled that natural gas used to fuel a boiler that heats water into steam, where the steam powers equipment use…
A company duplicates (dubs) master audio or video tapes into copies. Does dubbing count as manufacturing or processing, and can the company get a refund or reduction of sales/use tax on its dubbing equipment?
Yes — the Comptroller confirmed that making duplicates of master tapes is processing or manufacturing, so dubbing machinery and equipment can qualify for a phased-in sales/use tax refund or reduction:…
A blood/plasma products company asked which supplies used to collect blood and process it into blood products — collection bags, pooling bags/bottles, saline, separation-device disposable sets, reagents, and related machinery — are taxable versus exempt for Texas sales and use tax purposes.
Supplies used before processing begins to collect blood — Y-sets and 500 ML/600 ML collection bags — are taxable. Pooling bags and pooling bottles are exempt as containers under Rule 3.314 only when t…
A company repairs and restores motor vehicles/trucks that it owns and holds for rental, using gas and electricity in the process. Is that gas and electricity exempt from tax the way it would be for a manufacturer, or is it taxable because it's being used on the company's own rental property rather than in manufacturing property for sale?
Yes, with a line drawn at what counts as "repair." A company that owns property it holds for rental can claim the manufacturing-type exemption for gas and electricity used directly in repairing or res…
Can a business use measured kilowatt (KW) demand — the peak-usage figure a utility uses for billing — as the determining factor for the predominant-use sales tax exemption on electricity, instead of the method set out in the Comptroller's rules?
No. Kilowatt demand only measures the electricity used during peak billing periods, not total usage, and is merely a utility billing cost factor. It is not a determining factor for predominant use und…
What Texas sales, use, hotel occupancy, and fuel taxes apply to (and can be exempted or refunded for) a motion picture production company filming in Texas?
A film producer is treated as a manufacturer for Texas sales tax purposes, so goods and short-lived equipment (useful life under six months) used directly in producing a film -- props, costumes, set m…
Did taxable data processing qualify for Texas manufacturing exemptions because it produced printed reports or other physical results?
No. Data processing was a taxable service, not manufacturing or processing tangible personal property for sale. The service provider collected tax on the service price but could not claim manufacturin…
Did cogeneration equipment qualify for Texas's manufacturing-equipment phase-in exemption when the company sold more than half of its electricity?
Yes. The Comptroller applied a more-than-half-for-sale test: equipment qualified when over half of the electricity produced was sold, and the exemption was not lost merely because the same equipment a…
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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.