Does equipment used to load a manufactured liquid product into barges, railroad tank cars, or truck tank trailers (loading arms, piping, instrumentation, pollution control equipment) qualify for the Texas manufacturing exemption or the wrapping/packaging exemption?

Subject

Equipment (Loading Arm, Piping) Used In Loading Manufactured Liquid Products Into Barges/Railroad Tank Cars/Tank Trailers — Not Wrapping Or Packaging Equipment

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9401L1287A09

Plain-English Summary

The taxpayer manufactures dry alum and uses equipment to package that dry product into bags. It asked the Comptroller whether similar reasoning should apply to equipment — loading arms, piping, instrumentation, pollution control equipment, and similar items — used to load a liquid product it manufactures into barges, railroad tank cars, and truck tank trailers. The taxpayer argued that this loading equipment was manufacturing equipment, just like the bag-loading equipment used for its dry alum. The Comptroller disagreed.

The ruling explains that tax exemptions are strictly construed against the taxpayer and must be expressly proven, not implied. Texas sales tax law does provide a phased-in exemption for manufacturing equipment, but it explicitly excludes "intraplant transportation equipment" from that exemption (Rule 3.300(c)(3), (d)(7)(A), (f)(4)).

Applying that exclusion here, the Comptroller found:

• The loading arm does not wrap, pack, or package the liquid, so it isn't wrapping/packing/packaging equipment. It is intraplant transportation equipment, and it isn't manufacturing equipment because it causes no physical or chemical change to the liquid.
• The piping is the same — no wrap/pack/package function, no physical or chemical change to the liquid, so it's also just intraplant transportation equipment.
• The barges, railroad tank cars, and truck tank trailers are not wrapping/packing/packaging supplies either. Barges are defined as vessels (Rule 3.297(b)(1)), railroad tank cars are defined as rolling stock (Rule 3.297(f)), and truck tank trailers are taxed as motor vehicles under the motor vehicle sales and use tax law, which are excluded from the manufacturer's sales tax exemptions (Rule 3.349(a)(1), Rule 3.88).

Because these more specific statutory provisions (defining wrapping/packing/packaging supplies and containers under Tex. Tax Code § 151.302(d) and the related rules) control over the taxpayer's general manufacturing-equipment argument, the Comptroller concluded none of this loading equipment qualifies for a manufacturing exemption.

What This Means For You

If your business loads a manufactured liquid product into barges, tank cars, or tank trailers: Don't assume that loading equipment (loading arms, piping, instrumentation, pollution control equipment) qualifies for the manufacturing exemption just because it's part of getting your finished product out the door. If the equipment doesn't cause a physical or chemical change to the product, the Comptroller treats it as intraplant transportation equipment, which is specifically excluded from manufacturing exemptions.

Don't conflate liquid loading with solid packaging. The taxpayer here tried to draw an analogy to its dry-alum bagging equipment, which packages the product. The Comptroller rejected that analogy because loading a liquid into a barge, tank car, or trailer doesn't wrap, pack, or package it the way bagging a solid product does.

Vessels, rolling stock, and motor vehicles used for transport are not "packaging" supplies. Barges, railroad tank cars, and truck tank trailers are defined and taxed under their own specific categories (vessels, rolling stock, motor vehicles), not as containers or packaging supplies — so the manufacturing exemption's wrapping/packaging carve-outs don't reach them either.

This ruling only binds the Comptroller as to the facts presented. The letter itself notes that if the facts are different, the outcome may change.

Q&A

Q: Is a loading arm used to load a manufactured liquid product into a barge or tank car considered manufacturing equipment?
A: No. The Comptroller ruled the loading arm is intraplant transportation equipment because it does not cause a physical or chemical change to the liquid, and intraplant transportation equipment is excluded from the manufacturing exemption.

Q: Does piping used to transfer a manufactured liquid to a barge, tank car, or tank trailer qualify as wrapping or packaging equipment?
A: No. The piping doesn't wrap, pack, or package the liquid — it merely transfers it from one place to another, which the Comptroller classified as intraplant transportation, not manufacturing or packaging.

Q: Are the barges, railroad tank cars, and truck tank trailers themselves eligible for a manufacturing exemption as packaging containers?
A: No. Barges are defined as vessels, railroad tank cars as rolling stock, and truck tank trailers as motor vehicles under Texas tax rules — none of which fall within the definition of wrapping, packing, or packaging supplies or containers.

Citations

• Tex. Tax Code § 151.302(d) (definition of wrapping, packing, and packaging supplies)
• 34 Tex. Admin. Code Rule 3.300(c)(3), (d)(7)(A), (f)(4) (manufacturing exemption; exclusion of intraplant transportation equipment)
• 34 Tex. Admin. Code Rule 3.314(a)(4) (definition of wrapping, packing, and packaging supplies)
• 34 Tex. Admin. Code Rule 3.314(a)(1) (definition of a container)
• 34 Tex. Admin. Code Rule 3.297(b)(1) (definition of barges as vessels)
• 34 Tex. Admin. Code Rule 3.297(f) (definition of railroad tank cars as rolling stock)
• 34 Tex. Admin. Code Rule 3.349(a)(1) (motor vehicle sales and use tax)
• 34 Tex. Admin. Code Rule 3.88 (moveable specialized equipment)

Original ruling text

January 11, 1994

Dear ****:

Thank you for your letter of December 30, 1993, concerning the taxability
of equipment used to load liquid products that your company manufactures
into barges, tank cars, and truck tank trailers.

In your letter of December 6, 1993, you stated that your company
manufactures dry alum and uses equipment to package the product. You go
on to assert that the equipment (loading arms, piping, instrumentation,
pollution control equipment, and similar items) used to load the liquid
is manufacturing equipment just as the equipment used to load the alum in
bags. We disagree.

The courts have repeatedly ruled that exemptions are to be strictly
construed and are not to be favored under the law. Exemptions create
inequity in tax laws because persons who are not entitled to claim
exemption share a greater tax burden. Persons who seek to claim an
exemption must clearly prove that they are entitled to the exemption.

The exemptions found in the sales tax law are expressed, not implied. Thus,
exemptions cannot be claimed by implication.

The sales tax law provides a number of exemptions for manufacturers,
including a phased-in exemption on manufacturing equipment. On the other
hand, the sales tax law explicitly excludes intraplant transportation
equipment from the definition of manufacturing equipment and from any
of the manufacturing exemptions. See Rule 3.300(c)(3), (d)(7)(A) and
(f)(4).

The courts have also ruled that when two or more statutory provisions
apply to a particular item or transaction, that the specific statutory
provision takes precedence over the general. The sales tax law defines
"wrapping," "packing" and "packaging supplies" as "wrapping paper,
wrapping twine, bags, cartons crates, crating material, tape . . .
excelsior, straw, cardboard fillers, separators, shredded paper . . ."
See Rule 3.314(a)(4) concerning wrapping, packing, and packaging supplies.

The sales tax law defines a "container" as "glass, plastic, or metal
bottles, cans, barrels, and cylinders, but does not include any item of a
type described in Section 151.302(d)." [Section 151.302(d) defines wrapping,
packing, and packaging supplies.] See Rule 3.314(a)(1) concerning containers.

The loading arm is not wrapping, packing, or packaging equipment in that it
does not wrap, pack, or package the liquid. The loading arm, if used to load
liquid-filled barrels, is intraplant transportation equipment. It is not
manufacturing equipment because the loading arm does not cause a physical or
chemical change to the liquid.

The piping is not wrapping, packing, or packaging equipment, nor does it wrap,
pack, or package the liquid. The piping is not manufacturing equipment because
it does not cause a physical or chemical change in the liquid. The piping is
used to transfer the liquid from one place to another and is intraplant
transportation equipment.

The barges, railroad tank cars, truck tank trailers are not wrapping, packing,
or packaging supplies. The sales tax law defines barges are vessels that are
used to transport supplies or cargo. See Rule 3.297(b)(1). The sales tax law
defines railroad tank cars as rolling stock. See Rule 3.297(f). The motor
vehicle sales and use tax law defines and taxes truck tank trailers as motor
vehicles that are exempt from sales tax. The sales tax exceptions for
manufacturers to not apply to motor vehicles. See Rule 3.349(a)(1) and 3.88
concerning moveable specialized equipment.

By the specific statutory provisions cited above, the equipment does not
qualify for any manufacturing exemption.

Please refer to Rule 3.297 that addresses the applicable sales tax exemptions
that apply to the barges (vessels) and railroad tank cars (rolling stock) and
Ms. Carson's letter of December 13, 1993.

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

You may call toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Eddie C. Washington
Tax Administration Division

NOTE: Previous Accession Number 9401068L