Did equipment used to rebuild engines or straighten collision-damaged vehicles qualify for Texas manufacturing refund and phase-in benefits?

Plain-English summary

The requester sold machinery used by engine shops and collision-repair businesses and asked whether that equipment qualified for the manufacturers refund and phase-in exemption.

The Comptroller said repairing a customer's engine and returning that same engine to the customer was repair, not manufacturing. Rebuilding could be manufacturing when a customer traded in an engine for a different rebuilt engine or when the business stocked rebuilt engines in inventory for sale as automotive parts.

Equipment used directly in manufacturing engines could qualify. Mixed-use equipment qualified only if manufacturing was its predominant use, supported by business records. Collision-repair systems used to measure and straighten damaged vehicles did not qualify because they performed repair rather than manufacturing.

What this means for you

The same rebuilding machinery can receive different treatment depending on the transaction. Returning the customer's own repaired item was not manufacturing; producing a different rebuilt item for exchange or inventory was.

Common questions

Was rebuilding a customer's own engine manufacturing? No, when the same engine was returned to the same customer.

What if the customer traded in an engine for a different rebuilt engine? The rebuilt engine sold to the customer was treated as a manufactured item.

What about rebuilt engines held in inventory? Those were manufactured items when stocked for sale as rebuilt automotive parts.

Could mixed-use equipment qualify? Only if its predominant use was manufacturing and business records documented that use.

Did collision-frame equipment qualify? No. The letter treated straightening accident-damaged vehicles as repair.

Citations and references

The letter referred generally to hearings and court cases but did not provide specific citations.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1106C01

Original ruling text

April 25, 1991

Dear ***:

Thank you for your recent letter. You requested our opinion regarding
whether certain equipment sold by your company qualifies for the
manufacturers refund and phase-in exemption. I have restated your facts
below, verbatim, followed by answers:

Engine Repair and Rebuilding Equipment

This equipment is used primarily by engine repair and rebuilding shops
to repair and rebuild all aspects of automotive engines and associated
items. Examples of this equipment are cylinder reboring machines,
crankshaft grinders, valve grinders, flywheel grinders, cylinder head
rebuilding equipment, and transmission rebuilding equipment.

Answer: Repairing an engine and returning it to the same customer who
brought it in is not manufacturing. It is repair. Equipment used in
repair does not qualify for the refund or phase-in exemption.

Rebuilding an engine may be repair, or it may be manufacturing,
depending on the facts. In hearings and court cases, we have
developed the following guidelines:

1. Rebuilding a customer's engine and returning the same engine to
   the same customer is repair, not manufacturing.

2. If you accept a customer's engine as a full or partial trade-in
   on a different, rebuilt engine, then the rebuilt engine you sell to
   the customer is a manufactured item.

3. If you stock rebuilt engines in inventory, for sale as rebuilt
   automotive parts, then those engines are manufactured items.

Equipment used directly in manufacturing engines qualifies for the
refund or phase-in exemption. Equipment that is used in both repair
and manufacturing will qualify only if the predominant use is for
manufacturing. Business records should document the predominant use.

Collision Repair Equipment

This equipment is used primarily by body shops to repair automobiles,
trucks, and buses which have been involved in accidents. These repair
"systems" include a rack onto which the vehicle is driven or placed,
various devices to measure the amount of distance the frame or other
body parts must be pulled back into place, and the actual pulling
devices which are attached to the various parts of the vehicles to
effect straightening.

Answer: For the same reasons set out above, this equipment does not
qualify for the manufacturers refund or phase-in exemption. It is not
used in manufacturing; it is used in repair.

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. If you have further
questions, feel free to write or call 1-800-252-5555. My direct
extension is 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration