For a manufacturer: are safety apparel, hand tools, and dies/molds used to make products exempt from Texas sales tax, and how does a written agreement affect whether a die charge to a customer is a taxable sale?

Plain-English summary

A manufacturer e-mailed the Comptroller with several manufacturing-exemption questions, and the response addresses four distinct points.

First, on safety apparel: Tax Code § 151.318(a)(9) exempts safety apparel and work clothing used during actual manufacturing or processing of goods for ultimate sale, but only if the manufacturing process wouldn't be possible without it and the apparel isn't resold to the employee. The letter notes that the old six-month useful-life test was dropped effective January 1995 and no longer applies. Safety apparel for personnel who aren't doing the actual processing work is NOT exempt. Second, hand tools are flatly excluded from the manufacturing exemption altogether, under Rule 3.300(a)(6) and (c)(4) — no test applies; they're simply not covered.

Third, and most detailed, is the taxability of dies charged separately to a customer, which turns entirely on whether there's a written ownership agreement. With a written agreement clearly making the customer the owner of the die, a separate die charge IS a sale — the manufacturer must collect tax on that die charge, unless the customer is itself a manufacturer that issues an exemption certificate for it, and the manufacturer may buy the die tax-free from its own supplier using a resale certificate. Without a written agreement, even if the manufacturer separately states the die charge from the charge for the items the die produces, no sale of the die has occurred — instead, the two charges combine into a single selling price for the manufactured items (die charge plus item charge equals the item's total selling price). Whether that combined charge is taxable then depends entirely on whether the manufactured items themselves are taxable: if the customer pays tax on the produced items, the ENTIRE combined charge — die included — is taxable. In this no-agreement scenario, the manufacturer can still buy the die tax-free from its supplier, but using a manufacturing-exemption certificate rather than a resale certificate (since no separate "sale" of the die to the customer occurred). Fourth, replacement parts for and labor to repair already-exempt manufacturing machinery or equipment also qualify for exemption.

What this means for you

Manufacturers billing customers separately for tooling, dies, molds, or patterns

Get a written agreement in place if you intend a die/mold/tooling charge to be treated as an actual sale of that item to your customer — without one, the die charge legally merges into the selling price of whatever it produces, and its taxability rides on the taxability of the finished product, not on how you itemize your invoice.

Manufacturers purchasing safety apparel or hand tools

Safety apparel for actual processing personnel is exempt (no more six-month useful-life test since 1995), but apparel for non-processing staff is taxable, and hand tools are excluded from the manufacturing exemption entirely regardless of who uses them or how.

Accountants and tax professionals

The written-agreement distinction for dies/tooling is the key structural point here — it determines not just whether the die itself is separately taxable, but which type of exemption certificate (resale vs. manufacturing) the manufacturer should use when purchasing the die tax-free from its own supplier.

Common questions

Q: Is safety apparel used in manufacturing exempt from sales tax?
A: Yes, if used by processing personnel and the manufacturing process wouldn't be possible without it, and the apparel isn't resold to the employee; the old six-month useful-life test no longer applies since January 1995.

Q: Are hand tools exempt as manufacturing equipment?
A: No — hand tools are specifically excluded from the manufacturing exemption under Rule 3.300(a)(6) and (c)(4).

Q: When is a separately charged die considered a taxable sale to the customer?
A: Only when there's a written agreement clearly making the customer the owner of the die. Without one, the die charge merges into the selling price of the manufactured items.

Q: If there's no written agreement and the manufactured items are taxable, is the die charge taxable too?
A: Yes — the entire combined charge (die plus item) is taxable if the customer pays tax on the produced items.

Q: Are replacement parts and repair labor for exempt manufacturing machinery also exempt?
A: Yes.

Q: Can other manufacturers rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.318(a)(9) (manufacturing exemption; safety apparel and work clothing)
• 34 Tex. Admin. Code § 3.300(a)(6), (c)(4) (Manufacturing; hand tools excluded)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200008619L

Original ruling text

August 23, 2000

From: Bettie Peterson
To: "**"
Subject: Sales & Use Tax Question

Thank you for your recent email concerning manufacturing.

1. Texas Tax Code Section 151.318 (a)(9) provides an exemption for safety
   apparel and work clothing used during the actual manufacturing or processing of
   tangible personal property for ultimate sale if the manufacturing process would
   not be possible without its use and the apparel is not resold to the employee.
   Effective January 1995, the six month useful life test is no longer applicable.
   Safety apparel and work clothing for non-processing personnel are not exempted.

2. Hand tools are specifically excluded from the exemption for manufacturing.
   Rule 3.300(a)(6) and (c)(4).

3. The taxability of dies is determined by the following:

Written agreement sale. A separate charge by the manufacturer for a die will be
considered a sale of the aid to the customer only if there is a written
agreement between clearly making the customer the owner of the aid. If you sell
the die in this manner, you will collect tax on the die charge unless the
customer is a manufacturer and issues an exemption certificate in lieu of tax
on the die. You may issue a resale certificate to your supplier in lieu of tax.

No written agreement no sale. When there is no written agreement between the
manufacturer and the customer and the manufacturer separates the charge for the
aid from the charge for the items produced by means of the aid, a sale has not
occurred. The combined charges constitute the selling price of the manufactured
item. (Charge for aid plus charge for items produced equals selling price of
items.) The total charge will be taxable or nontaxable depending on the
taxability of the items produced. If your customer pays taxes on the item
produced, the entire charge including the die charge is taxable. In this
situation, you may purchase the die tax fee by issuing an exemption certificate
to the supplier claiming a manufacturing exemption.

4. Replacement parts for and labor to repair exempt manufacturing machinery or
   equipment qualify for exemption.

Referenced rules are available at
.

The State Tax Automated Research system, that provides viewing and downloading
of rules, edited letter rulings, hearings, AG Opinions, etc., may be accessed
on the Internet at .

This opinion is based on the facts you submitted and current law. Other facts,
though similar, may result in different answers.

If you have questions or need more information, I will be glad to help you.
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extension 5-0330.