Which tubes, tips, equipment, racks, bottles, labels, and sample inputs used to make culture media were exempt?

Plain-English summary

The manufacturer sold culture media and generally had to collect sales tax unless a customer supplied a valid exemption certificate; hospitals and research facilities were not automatically exempt.

Single-use culture tubes, pipette tips, and aspirators were exempt because they were consumed in processing. Reusable racks were taxable because they were incidental rather than directly used in processing. Under the historical rule, the centrifuge qualified only if entirely consumed or valueless within six months.

Nonreturnable bottles and product labels used for products sold to customers were exempt sale-packaging inputs. Raw materials and containers used for free samples were taxable, including the small sample containers. Blood itself was nontaxable even when used in samples.

Common questions

Were single-use tubes and tips exempt? Yes.

Were reusable racks exempt? No.

Were bottles and labels for sold product exempt? Yes.

Were sample containers exempt? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8903L0932G02

Original ruling text

March 31, 1989

Dear ***:

Thank you for your inquiry regarding exemptions for items used in your
business.

You state that you manufacture biologics for diagnostic reagents and for media
culture research. I understand that you centrifuge blood, then place it in
culture tubes at various times to produce a solution or substance which is used
as a media. In our telephone conversation of March 30, you stated that:

1. The culture tubes, pipette tips, and aspirators (disposable tips) are used
   only once in processing your product.

2. Your product is placed in bottles for sale to your customers. However, you
   give samples of your product to prospective customers in smaller containers
   called "alloquat container".

3. The racks are used to hold culture tubes and are reusable.

Sales of tangible personal property such as culture media are taxable.
Accordingly, you must collect sales tax on the sales price of your product.
However, you may accept a valid, properly completed exemption certificate from
your customer in lieu of sales tax. You should note that entities such as
hospitals or research facilities aren't automatically exempt from tax.
Therefore, I have enclosed Comptroller's Rule 3.287 (Exemption Certificates)
which addresses the requirements for exemption certificates.

Under these circumstances, you qualify for certain exemptions because you are a
manufacturer for sales tax purposes as indicated in Comptroller's Rule 3.300
(Manufacturing; Custom Manufacturing; Fabricating; Processing) which I have
also enclosed. In particular, the items must qualify for exemption based on
their direct use in manufacturing. For example:

1. The culture tubes, aspirators, and pipette tips are exempt because they are
   consumed in processing (Rule 3.300(d)(3)).

2. The centrifuge wouldn't qualify for exemption unless it was entirely
   consumed or without value within six months from the date that you purchased it
   (Rule 3.300(d)(7)(A)).

3. The racks wouldn't qualify for exemption. These are merely incidental to
   the operation (Rule 3.300(c)(3)). That is, they aren't directly used in
   processing.

Furthermore, you may issue an exemption certificate in lieu of sales tax to
your suppliers on wrapping, packing, packaging supplies, and nonreturnable
containers used to further the sale of your products stated in Comptroller's
Rule 3.314 (Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags,
and Export Packers) which is also enclosed. For example, your purchases of
nonreturnable bottles which are used as a container for the products that you
sell and product labels that you place on those bottles are exempt.

On the other hand, you must pay tax on raw materials used in making samples
(Rule 3.300(b)(4)). In addition, you must pay tax on wrapping, packing,
packaging supplies, and containers used to make samples. For example, you
should pay tax to your supplier on your purchases of alloquat containers.

In any case, your purchases of blood aren't taxable even if it is used in
samples.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions, please contact Tax Correspondence. You may call
toll free 1-800-252-5555, or our regular number is 512/463-4600. My extension
is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence