Are hand-operated measuring and inspection gages (like micrometers and thread gages) exempt from Texas sales tax as manufacturing equipment?

Plain-English summary

A manufacturer of industrial pumps and valves asked the Comptroller whether various pieces of equipment it used to make precise measurements of its products — needed to comply with customer specifications and industry standards like API and ISO 9000 — qualified for the sales tax exemption available to manufacturing equipment. The equipment at issue included snap gages, go/no-go thread gages, plug gages, dial gages, micrometers, an IntraMic (a micrometer for inside bore inspection), and a supermicrometer (used to calibrate the other micrometers).

The Comptroller held that all of these instruments are "hand tools" and therefore do not qualify for the exemption. Under 34 Tex. Admin. Code § 3.300(a)(6), a hand tool is defined as an "instrument of manual operation" — one that is used, managed, and powered by the hand, giving examples like a paintbrush, trowel, hammer, screwdriver, or files. By contrast, equipment that is hand-controlled but powered by electricity, gas, or steam (such as an electric drill, chain saw, or jack hammer) is not a hand tool. Because the taxpayer's gages and micrometers are operated entirely by hand with no external power source, they fall squarely within the hand tool definition. Rule 3.300(c)(4) specifically lists hand tools as nonexempt manufacturing items, so the ruling concluded these measuring instruments are taxable even though they are integral to the manufacturing quality-inspection process.

What this means for you

Manufacturers buying inspection and measuring equipment

If your quality control process relies on manually operated gages, micrometers, or similar hand-powered measuring instruments, expect to pay sales tax on them — being used in the manufacturing process is not enough to make equipment exempt. What matters is whether the tool is powered and operated by hand.

Accountants and tax professionals classifying manufacturing equipment

When evaluating equipment for the manufacturing exemption, apply the power-source test from Rule 3.300(a)(6): if an instrument is powered and operated purely by hand (no electricity, gas, or steam), it is a nonexempt hand tool under Rule 3.300(c)(4), regardless of its role in production or inspection. Powered versions of similar equipment (e.g., an electronic or motorized measuring device) may be analyzed differently.

Equipment vendors selling to manufacturers

Sales of manually operated measuring and inspection tools like the ones listed in this ruling (snap gages, thread gages, plug gages, dial gages, micrometers) should generally be treated as taxable sales, since these items do not meet the manufacturing exemption's requirements as applied here.

Common questions

Q: Are micrometers and gages used to inspect manufactured products exempt as manufacturing equipment?
A: No. The Comptroller ruled these are hand tools under Rule 3.300(a)(6) because they are used, managed, and powered by hand, and hand tools are specifically nonexempt under Rule 3.300(c)(4).

Q: Does it matter that the equipment is essential to meeting customer specifications like API or ISO 9000?
A: No. The ruling notes the equipment is used to ensure compliance with customer requirements and legal regulations, but that role in the manufacturing process does not override the hand tool classification.

Q: What would make similar equipment exempt instead of a nonexempt hand tool?
A: Under the rule's definition, equipment that is controlled or operated by hand but is actually moved or powered by electricity, gas, steam, or similar power sources is not a hand tool (the ruling cites an electric drill, chain saw, and jack hammer as examples of powered equipment that is not a hand tool).

Q: Is this ruling limited to the taxpayer's specific facts?
A: Yes. The letter states the opinion is based on the facts presented, and other facts, though similar, may produce a different result.

Citations and references

• 34 Tex. Admin. Code § 3.300(a)(6) — Manufacturing; Custom Manufacturing; Fabricating; Processing (defines "hand tool" as an instrument of manual operation used, managed, and powered by the hand)
• 34 Tex. Admin. Code § 3.300(c)(4) — Manufacturing; Custom Manufacturing; Fabricating; Processing (lists hand tools as nonexempt manufacturing items)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9406L1304G06

Original ruling text

June 6, 1994

Dear ****:

Your letter concerning the taxability of various pieces of equipment
that you use to make precise measurements of products has been assigned
to me for response.

Your company manufactures industrial pumps and valves for several
different industries (e.g., petroleum, agricultural, waste water, nuclear
power plants, commercial, et al). All of your products require precise
measurements in compliance with specifications (e.g., API, 1SO9000). At
different stages of the manufacturing process, before the product is
completed, inspections are made to insure you are complying with your
customer's requirements and all legal regulations.

To carry out these inspections, you utilize various pieces of equipment
many of which are specific for each order. Some of these are:

1. Snap Gage
2. Go & No Go Thread Gage
3. Plug Gage
4. Dial are Gage
5. Micrometer (shaft diameter inspection)
6. IntraMic (micrometer for inside bore inspection)
7. Supermicrometer (calibrate IntraMic and Micrometer)

Response: The above noted tools are considered to be hand tools.
Section (a)(6) of the enclosed copy of Rule 3.300 - Manufacturing; Custom
Manufacturing; Fabricating; Processing defines a hand tool to be an
"instrument of manual operation, that is, an instrument to be used, managed,
and powered by the hand, e.g., paint brush, trowel, hammer, screwdriver,
files. Equipment which is being controlled or operated by the hand but is
moved or powered by electricity, gas, steam, etc., is not a hand tool, e.g.,
electric drill, chain saw, jack hammer". Section (c)(4) of this rule,
specifically lists hand tools as nonexempt manufacturing items. See also the
definitions for machinery, equipment and processing in subsection (a).

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

If you have other questions or need more information, you may call me at
1-800-531-5441, extension 3-4502. The regular number is 512/463-4502. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 9406394L