Do refractory materials stacked in layers on kiln cars, which both protect the car and help distribute heat evenly to bricks being fired, qualify for the Texas manufacturing sales tax exemption?

Plain-English summary

The Texas Comptroller split the tax treatment of refractory (fireproof) materials stacked in layers on a brick manufacturer's kiln cars, based purely on which function each layer serves: layers that exist solely to distribute heat evenly during firing qualify for the manufacturing exemption, but the bottom layer — which also protects the kiln car itself as it rolls through the kiln — is taxable.

Brick makers load unfired bricks onto steel-framed "kiln cars" that travel through a tunnel dryer and then a roughly 2,000°F kiln. To keep the bricks from cooking unevenly (which would scorch the product), the manufacturer stacks four or five tiers of refractory material — made of the same substance that lines the kiln's own walls and ceiling — on top of the car's steel chassis before loading bricks. Texas exempts manufacturing equipment that's directly used in production and directly causes a physical/chemical change to the product, but specifically EXCLUDES intraplant transportation equipment (items that move product through the manufacturing process) even when that equipment also incidentally does some manufacturing work along the way. The Comptroller drew the line by layer: the bottom layer of refractory material sits directly on the steel kiln-car frame and serves double duty — protecting the car from heat damage as it's transported through the kiln — making it taxable intraplant transportation equipment despite ALSO contributing to heat distribution. The additional layers stacked above that bottom layer, which serve EXCLUSIVELY to distribute heat evenly to the bricks (with no car-protection function), qualify for the manufacturing exemption.

What this means for you

Brick, ceramics, and other kiln-based manufacturers

If your production process uses movable transport equipment (kiln cars, conveyor systems) with manufacturing materials layered on top, expect the Comptroller to exclude from the manufacturing exemption any layer or component that ALSO protects or supports the transport equipment itself — even if that same layer contributes to the manufacturing process. Only components serving an exclusively manufacturing function (no transportation/protection role) qualify.

Manufacturers using refractory or protective materials in multi-purpose roles

Document the specific function of each material/component in your process. A material doing double duty (protecting equipment AND aiding manufacturing) will likely be classified by its transportation/equipment-protection function, not its manufacturing contribution, under the intraplant-transportation exclusion.

Accountants and tax professionals

The controlling framework is Section 151.318(a)(2) (four-part manufacturing-exemption test) read against the Section 151.318(c) and 34 Tex. Admin. Code § 3.300(c)(5) intraplant-transportation exclusion — which the rule explicitly says applies "even if manufacturing or processing activities...occur during the transportation," meaning dual-function equipment is disqualified regardless of its manufacturing contribution.

Common questions

Q: If a material helps both protect transport equipment AND distribute heat during manufacturing, is it exempt?
A: No. Texas's intraplant-transportation exclusion disqualifies equipment/materials that serve a transportation-support function, even when they also contribute to the manufacturing process itself.

Q: Are all layers of refractory material on a kiln car treated the same way?
A: No, per this ruling — the bottom layer resting on the car frame (which protects the car) is taxable, while additional layers above it that serve only a heat-distribution function are exempt.

Q: Can another brick or ceramics manufacturer rely on this ruling?
A: No. It's binding on the Comptroller only for the requesting taxpayer and facts presented, and cannot be relied on by any other taxpayer — the function of your specific materials needs independent review.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.318(a)(2) (Property Used in Manufacturing — four-part exemption test)
• Tex. Tax Code § 151.318(c) (intraplant transportation exclusion)
• 34 Tex. Admin. Code § 3.300(c)(5) (Manufacturing; Custom Manufacturing; Fabricating; Processing — intraplant transportation taxable even with incidental manufacturing function)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201712016L

Original ruling text

December 22, 2017

RE: Private Letter Ruling No. 20171113113229

Dear **:

We issue this amended private letter ruling to correct a typographical error in our previous ruling dated December 14, 2017.

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated November 10, 2017. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of refractory materials that ** (Taxpayer) purchases for use at its Texas brick manufacturing plants.

Facts Presented

Taxpayer manufactures brick at multiple brick manufacturing plants.

Taxpayer places bricks on kiln cars, which then move through a tunnel dryer and a kiln. The kiln cars are designed to withstand the varying changes within the dryer and kiln heating process. A kiln car is constructed with a steel frame chassis and refractory materials are stacked on the chassis to form deck bars.

The refractory materials are not permanently attached to the kiln cars. Taxpayer purchases the refractory materials separately and depreciates the costs over several years on the company’s books and records.

Photographic images that Taxpayer supplied by email on November 17, 2017 show the different layers of materials on the kiln car. One image shows an empty kiln car. Another image shows a layer of refractory brick sitting on top of I-beams, which in turn rest on a bottom layer of refractory materials on top of the kiln car. A third image shows a kiln car loaded with bricks for production.

The refractory materials act as heating and cooling transfer agents, which aid in maintaining an even heating process and allow the bricks to cook evenly. Without the refractory materials, the bricks would cook unevenly and result in the heat scorching the product. Based on heating needs, Taxpayer may stack four or five tiers of refractory materials onto the kiln cars.

The refractory materials are the same refractory materials that line the walls and ceiling of the kiln. Because of the tracks for the kiln cars, no refractory materials line the bottom of the kiln. The refractory materials that line the kiln protect the kiln, which otherwise could not withstand the approximately 2000 degree Fahrenheit temperature inside. Similarly, the refractory materials on the kiln car provide some protection to the kiln itself and may prevent the kiln cars from heat damage.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question:

Do all or some of the refractory materials used on the kiln cars qualify for exemption from sales and use tax under Section 151.318 (Property Used in Manufacturing)?

Ruling:

Refractory materials that Taxpayer uses exclusively to provide heat distribution during the heating and cooling of the bricks qualify for exemption. Refractory materials that provide protection to the kiln car as it moves through the kiln do not qualify for exemption, even if they also serve a heat distribution purpose.

Analysis:

Section 151.318(a)(2) exempts tangible personal property that: (1) is sold, leased, or rented to, or stored, used, or consumed by a manufacturer; (2) is directly used or consumed in or during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale; (3) is necessary or essential to the manufacturing, processing, or fabrication operation; and (4) directly makes or causes a chemical or physical change to the product being manufactured, processed or fabricated for sale, or to any intermediate or preliminary product that will become an ingredient or component part of the product being manufactured for ultimate sale.

The exemption does not include items that are intraplant transportation equipment used to move a product or raw material in connection with the manufacturing process. See Section 151.318(c) and Rule 3.300(c)(5) (Manufacturing; Custom Manufacturing; Fabricating; Processing). Intraplant transportation is taxable even if manufacturing or processing activities (such as cooling, mixing, or pollution containment) occur during the transportation of product or component parts of the product. See Rule 3.300(c)(5).

Based on the information provided, the first layer of refractory materials that rest on the kiln car are taxable as intraplant transportation because they help protect the kiln car as it moves through the kiln. Additional layers of refractory materials that serve only to directly allow proper heat distribution are exempt under Section 151.318(a)(2).

The Texas Tax Code and Texas Administrative Code are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20171113113229.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.