Ezel / Tax Rulings / TX
TX 200109445L Sales and/or Use Tax (State,Local,MTA) 2001-09-07

Is materials/labor for building or modifying a jet engine prototype exempt as manufacturing or resale, since the prototype itself won't be sold?

Short answer: As of this 2001 letter: fully taxable. A prototype is an original model or sample used as the pattern that other, later production items will copy -- it's generally not itself offered for sale, so materials used in building or modifying one don't qualify for the resale exemption, and (as the law stood in 2001) there was no manufacturing exemption for research-and-development items either. IMPORTANT CURRENCY NOTE: STAR's own alert on this letter shows the law changed twice since 2001 -- a research-and-development property exemption was added to Sec. 151.3182 by House Bill 800 in 2013 (potentially covering some prototype/R&D property depending on the facts), and that same exemption was then repealed by Senate Bill 2206 effective January 1, 2026. So this letter's 2001 bottom line (no R&D exemption exists) reflects both the law as it stood in 2001 AND, again, the law as it now stands after the 2026 repeal -- but was NOT accurate for the roughly 2013-2025 window when Sec. 151.3182 did provide a qualified-research exemption. Check current Rule 3.340 and Sec. 151.3182 for your specific facts and dates.

Apply this to your situation

This page answers the general question as of 2001. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 2001
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. STAR ITSELF FLAGS THIS LETTER'S CORE HOLDING AS LAW-CHANGE-SENSITIVE: a qualified-research property exemption was added to Tex. Tax Code Sec. 151.3182 by House Bill 800 (83rd Legislature, 2013, see Rule 3.340) AFTER this 2001 letter was written, and that same exemption was later repealed by Senate Bill 2206 (89th Legislature) effective January 1, 2026. This letter's flat 2001 statement that no R&D exemption exists was accurate in 2001 and is accurate again today post-repeal, but was NOT accurate during the intervening exemption's effective years: always check current Sec. 151.3182/Rule 3.340 status for your transaction date. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Read the currency alert below before relying on this letter's bottom line -- the underlying law has changed twice since 2001.

A machine shop was modifying (not producing from scratch) a jet engine prototype and asked whether Texas sales tax applied, since the prototype might never itself be resold. The Comptroller's 2001 answer: a prototype is an original model or sample used as the pattern that later production copies -- it's typically not offered for sale itself while being developed and tested, so materials used to build or modify a prototype don't qualify for the resale exemption. And, as Texas law stood in 2001, there was also no manufacturing exemption available for items used in research and development. The letter concluded the materials were "fully taxable."

STAR's own currency alert flags that this conclusion has NOT been continuously accurate since 2001. House Bill 800 (83rd Legislature, 2013) added a qualified-research property exemption to Tex. Tax Code § 151.3182 (see Rule 3.340) -- meaning for roughly a decade after this letter was written, some research-and-development property (potentially including some prototype-related purchases, depending on the facts) COULD have qualified for an exemption this letter says doesn't exist. Then Senate Bill 2206 (89th Legislature) repealed that same § 151.3182 exemption, effective January 1, 2026. So today, this letter's "fully taxable, no R&D exemption" conclusion is accurate again -- but anyone relying on this letter for a transaction that happened during the 2013-2025 window when the qualified-research exemption existed would have been misled by it.

What this means for you

Manufacturers or machine shops building prototypes today (post-2026)

As of the January 1, 2026 repeal of the qualified-research exemption, this letter's bottom line is once again accurate: prototype materials generally don't qualify for the resale exemption (since the prototype itself typically isn't sold), and there is currently no R&D-specific sales tax exemption under § 151.3182 to fall back on.

Anyone with an R&D property purchase from 2013-2025

Don't rely on this letter for transactions during that window -- the qualified-research exemption added by House Bill 800 in 2013 may have applied to your purchase, even though this 2001 letter (predating that law) says no such exemption exists.

Accountants and tax professionals

This is a clean, STAR-flagged example of a letter whose conclusion is "accidentally" correct again today only because an intervening exemption was added and then repealed -- always check the transaction date against the applicable law's effective-date window, not just whether an older letter's conclusion superficially matches current law.

Common questions

Q: Are prototype materials exempt from Texas sales tax because the prototype won't be resold?
A: No, per this letter's core reasoning -- a prototype is a pattern/model, not manufactured or purchased exclusively for sale, so it doesn't qualify for the resale exemption.

Q: Is there a research-and-development exemption for prototype-related purchases?
A: It depends on the date. There wasn't one in 2001 (when this letter was written), there was one from 2013 (House Bill 800) until it was repealed effective January 1, 2026 (Senate Bill 2206), and there currently isn't one again as of the repeal.

Q: Does this letter bind the Comptroller for my company's prototype work?
A: No -- it's an informal 2001 letter addressing one taxpayer's specific facts, not a modern Private Letter Ruling or General Information Letter, and its core R&D conclusion has been law-change-sensitive since it was written (see the currency alert above).

Citations and references

Statutes:

  • Former Tex. Tax Code § 151.3182, as it stood in 2001 (no R&D property exemption)
  • Tex. Tax Code § 151.3182, as added by H.B. 800, 83rd Legislature (2013) -- qualified-research property exemption, since repealed by S.B. 2206, 89th Legislature, effective January 1, 2026

Rules:

  • 34 Tex. Admin. Code Rule 3.340 (qualified research)

Source

Original ruling text

ALERT: Senate Bill 2206, 89th Legislative Session, repeals Tax Code Section 151.3182 relating to the exemption for certain property used in research and development activities. Effective 01/01/2026.

ALERT: An exemption for certain depreciable property used in "qualified research", as added to Section 151.3182 by the 83rd (2013) Legislative Session (H.B.800), may be available. See Rule 3.340 for additional details.

September 7, 2001

Dear **:

I am responding to your follow-up e-mail regarding tax on a jet engine

prototype. You state the machine shop does not produce the engine just

modifies it. You ask if tax should be charged. You believe the sales tax

exemption is not appropriate since the part may not be resold in the future.

Response: A prototype is an original model or sample (sometimes for testing)

for later manufacture. Because a prototype is used as the original pattern or

model of which other like items are representations or copies, it is not

purchased or manufactured exclusively for sale. Generally, a prototype is not

offered for sale while it is being demonstrated.

Materials used in a prototype do not qualify for the resale exemption. There is

also no manufacturing exemption for items used in research and development.

These items are fully taxable.

This opinion is rendered based on the facts presented. Other facts, though

similar, may yield different results.

You may access the sales tax rules online and a wealth of other information

through our Window on State Government web site at www.window.state.tx.us.

Click on Sales Tax under Quick Links for the rules and then scroll and click on

State Sales Tax under Current Tax Rules.

To view or download the Tax Code, please go to our web site address at:

http://www.capitol.state.tx.us/statutes/ta/ta015100toc.html and scroll to the

specific code section.

If you have any questions or require additional information, you may submit

inquiries to our tax help e-mail address at ,

call me at 1-800-531-5441, extension 6-5809 or write to Tax Policy Division,

Post Office Box 13528, Austin, Texas 78711-3528.

Sincerely,

Emilio S. Lerma

Tax Policy Division

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