Did the manufacturing exemption apply to janitorial work at a meat-packing plant when collected scraps and fat later entered the rendering process?

Plain-English summary

A meat-packing plant hired a janitorial contractor to collect meat scraps, fat, and bones and wash scraps and fat into a recovery system. The recovered material entered the rendering process and was sold as tallow.

Tax Code § 151.318(3) exempted services performed directly on a product being manufactured before distribution for sale and for the purpose of making that product more marketable.

The janitorial contractor cleaned the facility's walls and floors, not the meat product. Collecting scraps was part of janitorial service just as picking recyclable paper off carpet remained part of vacuuming. Later recycling did not convert facility cleaning into an exempt manufacturing service.

The letter contrasted that result with polishing forged tools to remove burrs and rough edges, which was performed directly on the manufactured product and qualified for the exemption.

The plant's exemption certificate for the janitorial work was invalid, and sales tax was due.

Common questions

Did rendering the collected scraps make the janitorial work exempt? No.

Why not? The contractor worked on the facility, not directly on the manufactured product.

What example did the letter give of an exempt service? Polishing forged tools to remove burrs and smooth their edges.

Citations and references

• Tex. Tax Code § 151.318(3)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8909L0959D03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN 78774

September 26, 1989

Dear **:

Thank you for your letter of September 14, 1989, concerning the
taxability of real property services (janitorial services) pur-
chased by **** at its meat packing plants.

** purchased janitorial services from **.
** requires ** to pick up meat scraps, fat,
bones and wash meat scraps and fat "to the sewer and into the Infillco
system where the fat and meat are skimmed from the top. These products
are then added to the rendering process and sold as tallow."

SEC. 151.318(3) of the Texas Tax Code exempts "services performed
directly on the product being manufactured prior to its distribu-
tion for sale and for the purpose of making the product more
marketable." The cleaning service is performed on the facility
(e.g. walls and floors), not the meat scraps, bones, and fat. the
picking up of these materials is a part of janitorial services
just as picking up paper from carpets before vacuuming. The fact
that the paper that was physically removed from the carpet may be
recycled by the business purchasing the janitorial service does
not make the janitorial service exempt.

The following is an example where the exemption under SEC. 151.318 (3)
would apply:

A business manufactures polished forged tools. The forging
process produces tools with burrs and rough edges. The busi-
ness employs a company to polish the tool to remove the
burrs and smooth the rough edges.

The polishing service is performed directly on the products being
manufactured, the tools, thus SEC. 151.318 (3) applies.

SEC. 151.318 (3) clearly does not apply to **'s purchases
of janitorial services. the exemption certificate issued by *
is invalid and *** owes sales tax on the janitorial
services.

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

If you have any questions or need more information, you may call
toll-free 1-800-252-5555, extension 3-4683. The regular number is 512/
463-4600. you may also write to Tax Correspondence, Comptroller of
Public Accounts.

Sincerely,
Eddie Washington
Tax Correspondence