Did cogeneration equipment qualify for Texas's manufacturing-equipment phase-in exemption when the company sold more than half of its electricity?

Plain-English summary

The Comptroller said cogeneration equipment qualified for the manufacturing-equipment phase-in exemption when the company sold more than half of the electricity it produced.

The letter described a broader administrative decision that equipment qualified when over half of the product it produced or repaired was for sale. It compared that approach to the predominant-use rule for gas and electricity.

The exemption was not lost merely because the same equipment also produced electricity for the company's own use.

What this means for you

The historical phase-in exemption used a predominant-output test in this letter. Both the share sold and the equipment's mixed sale/internal-use output needed to be documented.

Common questions

What sale percentage qualified? More than half. Did internal electricity use destroy the exemption? No. What exemption did the letter discuss? The historical manufacturing-equipment phase-in exemption.

Citations and references

• The letter does not identify a numbered statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9111165L

Original ruling text

November 15, 1991

Dear **:

Last week, you asked if our office exempted cogeneration equipment if more than
half of the electricity was sold. The answer is "yes."

This issue has arisen as a result of the manufacturing equipment phase-in
exemption. Up until the exemption was passed, there was never a question
concerning generation equipment because it had a useful life in excess of six
months.

While exemptions are exclusively construed, last year a decision was made that
if over half of a product produced or repaired by the equipment was for sale,
the equipment would qualify for the phase-in exemption. This is very similar to
our predominant use rule for gas and electricity.

This has been applied to cogeneration equipment where the company producing the
electricity sells over half of it. We have not held that the exemption is lost
because the equipment produces electricity for use by the company and not for
sale.

I hope this satisfactorily answers your question.

Sincerely,

Wade Anderson
Assistant Director of Tax Administration

cc: John Sharp