Is a manufacturer's waste-removal bill exempt as 'industrial solid waste' under Texas Rule 3.356?

Plain-English summary

A manufacturer of indoor pine doors and shutters (referred to as Company A) asked the Comptroller whether the fee it was being charged for waste removal at its plant was exempt from tax as "industrial solid waste" under Rule 3.356. The Comptroller ruled the charge was taxable.

The plant had very little "paper" waste because most administrative functions happened at the company's separate corporate headquarters, and what paper waste it did generate was recycled. Metal strapping used to ship lumber to the plant was also recycled, and waste lumber from production was sold to a maker of fire-starter logs. What was left in the plant's waste stream was mostly empty containers from the paint, glue, and varnish used to make the doors.

The Comptroller explained that "industrial solid waste" under Rule 3.356 means waste that actually results from the manufacturing process itself — things like sawdust from a lumber mill, slag from steel manufacturing, or (in this case) waste lumber. It does not mean empty paint cans or the shipping refuse that raw materials arrived in. The ruling also pointed to the Texas Solid Waste Disposal Act's definition of "industrial solid waste" as waste resulting from or incidental to a process of industry, manufacturing, mining, or agriculture, and to the Act's stated purpose (Health and Safety Code Sec. 361.002) of regulating potentially harmful waste like hazardous and industrial solid waste. Shipping refuse and empty paint, glue, and varnish containers are not the kind of waste that Act regulates. Because the plant's waste was mostly containers and shipping refuse rather than true manufacturing byproducts, the waste-removal charge was taxable.

What this means for you

Manufacturers with waste-removal contracts

Simply being a manufacturer doesn't make your waste-hauling bill exempt. The exemption under Rule 3.356 turns on what's actually in the waste stream: byproducts of the manufacturing process itself (like sawdust or scrap material) can qualify, but packaging, empty containers from supplies used in production (paint, glue, varnish, etc.), and shipping refuse from incoming raw materials do not. If your waste is mostly the latter, expect the removal charge to be fully taxable even if you recycle or resell the true manufacturing byproducts separately.

Accountants and tax professionals

This letter is useful for spotting the line the Comptroller draws under Rule 3.356: "resulting from the actual manufacturing process" versus incidental waste like containers and shipping materials. It also shows the Comptroller cross-referencing the Texas Solid Waste Disposal Act's definition of industrial solid waste and its stated policy purpose (Health and Safety Code Sec. 361.002) to support a narrower, process-specific reading of the term for sales tax purposes.

Common questions

Q: Does recycling or reselling some of our waste help us qualify for the exemption?
A: This letter doesn't say recycling by itself creates an exemption problem — the plant recycled paper and metal strapping and sold waste lumber. The taxability issue here was that the remaining waste being billed for removal (paint/glue/varnish containers and shipping refuse) wasn't manufacturing-process waste in the first place.

Q: What counts as exempt "industrial solid waste" under Rule 3.356 based on this ruling?
A: Waste that results from the actual manufacturing process — the letter gives sawdust from lumber mills, slag from steel manufacturing, and waste lumber as examples.

Q: What does NOT count?
A: Empty containers (like paint, glue, and varnish cans) and shipping refuse from the packaging that raw materials arrived in.

Q: Can I rely on this letter for my own company's waste-removal charges?
A: Under Texas rules, a STAR letter can only be relied on for a detrimental-reliance claim by the taxpayer it was issued to, and it may not reflect current policy. Consult a Texas tax professional about your specific situation.

Citations and references

• 34 Tex. Admin. Code Rule 3.356 — defines "industrial solid waste" as waste resulting from the actual manufacturing process
• Tex. Health & Safety Code § 361.002 — the Solid Waste Disposal Act's statement of policy and purpose, cited to support a narrower, process-specific reading of "industrial solid waste"

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1193F12

Original ruling text

September 25, 1992

Dear ****:

Thank you for your recent letter asking about the taxability of waste removal
for your client ****.

FACTS: COMPANY A is a manufacturer of indoor pine doors and shutters at its
manufacturing site located in CITA A, Texas and corporate offices in CITA B,
Texas. The CITA A plant has very few administrative functions because most of
the corporate functions are located in the CITA B headquarters. Consequently, a
minimal amount of "paper" waste is generated, and what paper waste is produced
is recycled as part of the plant's recycling program. The metal strapping which
is used in shipping lumber to the Wing plant is also recycled. Any waste lumber
from the production process is sold to a nearby producer of "pine logs" - easy
to start fire logs sold in grocery and convenience stores. As a result of such
activities, the waste which is found at the plant relates almost exclusively to
the manufacturing activities at Wing. The waste includes such things as empty
containers from the paint, glue and varnish used in production of the doors.

Question: The plant is being taxed on the full amount of waste disposal
charges, which we believe qualifies as exempt industrial solid waste under 34
TAC 3.356.

Response: The fee being charged COMPANY A for waste removal is taxable.

Industrial solid waste, as that term is used in Rule 3.356, means waste
products resulting from the actual manufacturing process, such as sawdust from
lumber mills, slag from a steel manufacturing process, or the waste lumber in
this example. "Industrial solid waste" does not mean empty paint cans or the
discarded shipping refuse in which raw materials were received. Manufacturers
can have much more taxable waste to remove than just the paper generated by the
administrative staff.

As you are probably aware, the Texas Solid Waste Disposal Act provides:

"Industrial solid waste" means solid waste resulting from or incidental to a
process of industry or manufacturing, or mining or agricultural operation.

The statement of policy and purpose behind the Solid Waste Disposal Act
regarding the type of waste the Act regulates states:

It is the policy and the purpose of this chapter to safeguard the health,
welfare, and physical property of the people and to protect the environment by
controlling the management of solid waste, including accounting for hazardous
waste that is generated.

Health and Safety Code Sec. 361.002.

The Solid Waste Disposal Act exists to regulate the disposal of the potentially
harmful waste products, including hazardous waste and industrial solid waste,
that result from actual manufacturing and processing activities. The Texas
Water Commission, the Texas Department of Health, and other state and federal
agencies closely monitor the disposal of these types of waste products.
Shipping refuse, empty paint, glue, and varnish containers are not regulated
under this chapter.

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 me toll free
at 1-800-252-5555, extension 3-4633. The regular number is 512/463-4633. You
may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division