Did cutting bulk wire and cable to customer-requested lengths make a Texas seller a manufacturer entitled to tax-free packaging materials?

Plain-English summary

The company bought electrical and electronic wire and cable in bulk, cut it to each customer's requested length, put it on a reel, and covered the reel with shrink-wrap for transportation.

The Comptroller said this was not manufacturing: the product was wire when received and wire when sold. The company was a repacker and had to pay sales tax on the reels and shrink-wrap.

What this means for you

Changing only the length of an existing product did not create a manufactured product for this packaging-material claim. The physical processing described in the request was not enough to make the seller a manufacturer.

Common questions

Did cutting wire to a customer's specified length count as manufacturing? No.

How did the Comptroller classify the company? As a repacker.

Could it buy the reels and shrink-wrap tax free? No. It was told to pay sales tax on both.

Citations and references

• House Bill 11 (1991), referenced in the taxpayer's attached request

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9203L1161D01

Original ruling text

March 26, 1992

Dear **:

Thank you for your recent letter asking about the wrapping and packaging
exemption as it applies to your business.

You stated: COMPANY purchases electrical and electronic wire and cable in bulk
lengths and quantities received on large reels from the original manufacturers.
Upon receipt of a purchase order from one of our customers, who are electrical
distributors, we then process the wire and cable as follows.

The specific type of bulk wire or cable ordered is pulled to our processing
area. In this area, the product is cut to the customer's desired length put
over the reel for protection during transportation. In our business, the two
primary items of wrapping, packaging, and packing are the reel and the
shrink-wrap.

Your question: Since we change the physical state of the inventory we process,
are we classified as manufacturing a product so that our packaging material may
be purchased tax free?

Response: Cutting a product into specified lengths is not manufacturing. The
product was wire when you received it and it was wire when you sold it. You are
classified as a "repacker." You should be paying sales tax on your reel and
shrink-wrap.

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

If you have any additional questions or need more information, you may call me
toll free at 1-800-252-5555, extension 3-4633. The regular number is
512/4634633. You may also write to the Tax Administration Division.

Sincerely,

Wanda Hutchinson
Tax Administration Division

March 17, 1992

Capital Station
Austin, TX 78774

Attention: Tax Correspondents

Dear Sir/Madam:

In order to ensure that ** (COMPANY) complies with Texas State
Sales and Use Tax regulations, I am writing to gain clarification on the newly
enacted House Bill 11 signed by the Governor on August 22,1991. I ask that you
review and consider our operations discussed herein. Please provide us with an
opinion as to our tax status as it pertains to the wrapping, packaging, and
packing supplies used in these operations.

COMPANY purchases electrical and electronic wire and cable in bulk lengths and
quantities received on large reels from the original manufacturers. Upon
receipt of a purchase order from one of our customers, who are electrical
distributors, we then process the wire and cable as follows.

The specific type of bulk wire or cable ordered is pulled to our processing
area. In this area, the product is cut to the customer's desired length and
then spooled on a reel to match the product length. Shrink-wrap is then put
over the reel for protection during transportation. In our business, the two
primary items of wrapping, packaging, and packing are the reel and the
shrink-wrap.

It appears to be the opinion of the Comptroller, per the enclosed
interpretation, that manufacturers are excluded from the provisions of House
Bill 11. Therefore, we feel that, as we change the physical state of the
inventory we process, we are then manufacturing a product to distribute to our
customers. Our packaging materials then become that used by a manufacturer and
, therefore, are exempt from Use Tax.

We thank you for reviewing this matter and providing us with an opinion as to
whether we are considered a manufacturer and,. thus, exempt from Use Tax under
these provisions.

If you need further clarification or have any other questions, please feel free
to call me at (**) **.

Sincerely,

Senior Accountant

cc: **