Does the Texas manufacturing exemption cover disinfectants and cleaning chemicals used by a food/meat processor?

Subject

Food/Meat Processors/Manufacturers — Disinfectants/Chemicals/Cleaners Used To Sanitize/Clean Processing Areas

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1296A11

Plain-English Summary

A food/meat manufacturer's production process involved preparing raw ingredients, mixing, cooking, bottling, cooling, and packaging, with a piping system connecting the cooking and bottling stages. The company used various cleaning solutions and disinfectants throughout the facility: on production equipment, on the piping system, on tools and employees' hands, and on floors, walls, and other parts of the plant. The company asked whether these cleaning solutions still qualified for the manufacturing exemption when used to disinfect surfaces or items that come into contact with the food product.

The Comptroller drew a line based on what the chemicals actually clean:

• Exempt: Disinfectants used to sanitize product-contact surfaces of processing equipment qualify for the manufacturing exemption. The letter states this has been "consistently applied as chemicals that are necessary and essential to the processing operation," and the taxpayer must keep accurate records of the amount and identity of chemicals used for this exempt purpose.
• Taxable: The piping system that moves the product between production stages is classified as interplant transportation equipment, which the sales tax law explicitly excludes from the manufacturing exemption. So disinfectants used to clean or sanitize that piping are taxable, even though the piping carries the food product itself.

The letter also references two prior Comptroller decisions — TR #0874 and Hearing #21,295 — as being in agreement on exempt versus non-exempt use of disinfectants in manufacturing, and distinguishes Hearing #27,971 as involving items "one step removed" from the actual manufacturing process.

What This Means For You

If you manufacture food, beverages, or similar products in Texas: Disinfectants and cleaning chemicals applied directly to product-contact surfaces of your processing equipment (mixers, cookers, bottling equipment, etc.) can be purchased tax-free under the manufacturing exemption. Keep accurate records showing the amount and identity of chemicals used for that exempt purpose, since the exemption is tied to actual use.

Watch out for interplant transportation equipment: If your facility uses piping, conveyors, or similar systems to move product between separate stages of production, cleaning chemicals used on that equipment are taxable — even though the equipment touches the same food product. The manufacturing exemption does not follow the product; it follows whether the item being cleaned is processing equipment or transportation equipment.

General facility cleaning is a separate question: The letter describes chemicals also being used on tools, employees' hands, floors, and walls, but the response addresses only the specific contrast between processing equipment (exempt) and interplant transportation equipment (taxable) — it does not separately confirm exempt treatment for general facility, floor, or hand-cleaning use.

Check current law before relying on this letter: As the ALERT on this document explains, Tax Code § 151.318 was amended effective 10/01/1997 to tighten the manufacturing exemption standard (requiring a chemical or physical change to the manufactured item), and was amended again effective 10/01/1999 to add back an exemption for property necessary to comply with public-health laws or rules. This 1994 letter predates both changes, so confirm current treatment before relying on it for purchases today.

Q&A

Q: Are disinfectants used to clean food-processing equipment exempt from Texas sales tax?
A: Yes, according to this letter — disinfectants used to sanitize product-contact surfaces of processing equipment qualify for the manufacturing exemption because they are necessary and essential to the processing operation.

Q: Are the same disinfectants exempt when used on the piping that moves product between production stages?
A: No. The letter treats that piping as interplant transportation equipment, which the sales tax law explicitly excludes from the manufacturing exemption, so disinfectants used to clean or sanitize it are taxable.

Q: Does this letter still reflect current Texas law?
A: Not fully. An ALERT attached to the document notes that Tax Code § 151.318 was amended effective 10/01/1997 to require items to cause a chemical or physical change to the manufactured product, and was amended again effective 10/01/1999 to reinstate an exemption for items necessary to comply with public-health laws. Consult a tax professional for current treatment.

Citations

• Tex. Tax Code § 151.318 (Property Used in Manufacturing) — referenced in the ALERT describing subsequent 1997 and 1999 amendments to the manufacturing exemption

Original ruling text

ALERT: Effective 10/01/1997 Tax Code Section 151.318 was amended (HB 1855, 75th Leg. Session (1997)) to limit the exemption to tangible personal property directly used in the manufacturing process, and that in addition to being necessary and essential, must now cause a chemical or physical change to the manufactured item. The available exemption discussed in this document was superseded by this change. Then, effective 10/01/1999 Tax Code Section 151.318 was amended (HB 3211. 76th Leg. Session (1999) to retroactively reinstate some provisions that had been dropped by the 1997 legislative change. In this case, 151.318 was amended to include subsection (a)(10) which exempted property consumed in the actual manufacturing operation that was necessary and essential to comply with federal, state, or local laws or rules that establish requirements related to public health.

March 22, 1994

Dear **:

Thank you for your letter dated March 15, 1994, requesting

an opinion on the taxability of certain cleaning and

disinfectant supplies purchased for use in the manufacturing

process by food processors/manufacturers.

FACTS: A company manufacturers food products. The

manufacturing process consists of numerous stages including:

preparation of the raw ingredients (sorting, washing,

chopping), mixing of the ingredients in the correct

proportions, cooking the product, bottling the product,

cooling the product prior to sealing the container, and

packaging the product. An integral part of the manufacturing

process involves moving the product between various stages

of production. This is accomplished via a piping system that

connects the cooking processes with the bottling process.

The manufacturer uses various solutions and disinfectants to

clean and sanitize the production equipment used in the

manufacturing process. The piping system that transports the

product between several production stages is also cleaned

and sanitized with these chemicals. These same chemicals are

used to clean and sanitize tools, employee's hands and other

items that come in contact with the food or food preparation

areas. Finally, some of these chemicals are used to wash and

sanitize the floors, walls, and other parts of the

manufacturing facility.

QUESTION: Do these solutions still qualify for the

manufacturing exemption if used to disinfect surfaces or

items that come in contact with the food product?

RESPONSE: Disinfectants used to sanitize product contact

surfaces of processing equipment qualify for exemption. This

has been consistently applied as chemicals that are

necessary and essential to the processing operation.

Accurate records must be maintained to reflect the amount

and identity of chemicals used for this exempt purpose.

The piping system used to move the product from one area of

production to another is interplant transportation

equipment. The sales tax law explicitly excludes

transportation equipment from the manufacturing exemption.

Disinfectants used to clean or sanitize interplant

transportation equipment (piping in this case) are taxable.

TR #0874 and Hearing #21,295 are in agreement regarding

exempt and non exempt use of disinfectants used in the

manufacturing process. Hearing #27,971 pertains to items

that are one step removed from the actual manufacturing

process. I fail to see the contradiction of Comptroller

policy you reference regarding these documents.

This opinion is based on the facts presented. Different

facts, though similar, might lead to different answers. if

you have any questions or need more information, please

write or call me toll free at 1-800-531-5441, extension

5-0330, or 512-475-0330.

Sincerely,

Bettie Peterson

Tax Administration Division

NOTE: Previous Accession Number 9403266L