Did paving machines qualify for Texas's 25% sales-tax refund for manufacturing equipment when customers used them on roads and parking lots?

Plain-English summary

The Comptroller denied the 25% sales-tax refund for manufacturing equipment on paving machines used in the manner described. Customers used the machines while paving new roads or parking lots, or while repairing or remodeling real property.

The mixed materials were applied to the road surface and became an improvement to realty under Rule 3.300(b)(2). The customers therefore acted as contractors or real-property repair and remodeling service providers, not as manufacturers for this equipment. Rules 3.291(b)(1) and 3.357(b)(4) required those persons to pay sales tax on equipment used to perform the work.

What this means for you

Equipment that mixes materials does not necessarily qualify as manufacturing equipment. This ruling focused on what the purchaser did with the output: applying it to roads and parking lots as an improvement to real property made the purchaser a contractor or repair/remodeling provider.

Common questions

Did the paving machines qualify for the 25% refund? No.

Why were they not manufacturing equipment? The customers used them to apply mixed materials to roads or parking lots as improvements to realty.

Who had to pay tax on the equipment? The contractors and real-property repair or remodeling providers using it.

Did the letter decide every possible use of the machines? No. Its answer was based on the described use and facts.

Citations and references

• 34 Tex. Admin. Code § 3.300(b)(2) (manufacturing)
• 34 Tex. Admin. Code § 3.291(b)(1) (contractors)
• 34 Tex. Admin. Code § 3.357(b)(4) (real property repair and remodeling)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9102L1079D09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller February 20, 1991

Dear ** :

Thank you for your letter of January 30, 1991, concerning the
application of the 25% sales tax refund for manufacturing equip-
ment to the manufacturing paving machines produced by your client.

These machines are not manufacturing equipment when purchased by
customers for use in the manner described in your letter. The
machines used in this manner are not eligible for the 25% sales
tax refund.

These customers are either contractors when paving new roads or
parking lots or providers of real property repair or remodeling
services. The materials mixed in the machines are applied to the
road surface and become an improvement to realty as outlined in
section (b)(2) of Rule 3.300 concerning manufacturing.

Persons performing new construction (improving real property) or
making repairs to or remodeling real property are required to pay
sales tax on all equipment used in performing the service. See
section (b)(1) of Rule 3.291 - Contractors and section (b)(4) of
Rule 3.357 - Real Property Repair and Remodeling.

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

You may call toll free 1-800-252-5555 if you have any questions or
need more information. You may write to Tax Administration Divi-
sion, Comptroller of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Administration Division