Is the radioactive wafer used in nondestructive X-ray testing a taxable purchase of tangible personal property, even though what the tester actually wants is the radioactivity it emits?

Plain-English summary

A firm's client performs nondestructive testing (X-rays) of items such as aircraft engines, highway bridge weld joints, and commercial building walls and floors. The X-ray equipment uses a radioactive substance called radium 192 (described as similar to, but less powerful and shorter-lived than, Cobalt 60). The substance is bought from an out-of-state company — one of only three or four in the country licensed to dispense it — and is shipped as a small wafer encased in a shielded container. Only licensed radiographers may buy and use it, and at the end of its useful life it must be returned to the seller under federal hazardous waste rules.

The taxpayer's argument was that a radioactive substance does not fit the definition of tangible personal property (something that can be seen, weighed, measured, felt, touched, or is otherwise perceptible to the senses), because what is really being purchased is not the wafer itself but the radioactivity it emits — and radioactivity cannot itself be seen, weighed, measured, felt, or touched (only the radiation it emits can be measured).

The Comptroller's office disagreed with that framing of the transaction. It ruled that the wafer that emits the radioactive substance is the sale of tangible personal property, so sales or use tax is owed on the purchase of the wafer, even though the wafer is used to perform a test (the X-ray testing itself) that is nontaxable. The letter draws an analogy to a flashlight battery, which is also bought for the energy it produces rather than for its packaging, and to a clock or watch, which is taxable even though the purchaser really just wants to know the time (not itself tangible personal property).

What this means for you

Buyers of specialized testing or measurement materials

If you buy a physical item (like a wafer, cartridge, battery, or similar object) because of an intangible effect it produces — energy, radiation, a reading, a service outcome — the purchase of that physical item is still generally treated as a taxable sale of tangible personal property. The fact that your real interest is in the effect rather than the object itself does not remove the transaction from tax.

Businesses performing nondestructive testing or similar technical services

The letter distinguishes between the taxability of the wafer (taxable tangible personal property) and the taxability of the test performed with it (here, described as nontaxable). Tax can apply to inputs used in a nontaxable service even when the service itself is not taxed.

Common questions

Q: Why did the Comptroller treat the wafer as taxable if the buyer really wants the radioactivity, not the wafer?
A: The letter reasons that the wafer itself is tangible personal property being sold, regardless of the buyer's reason for wanting it — similar to how a flashlight battery is bought for the energy it produces, or a clock is bought so the owner can know the time, yet both are still taxable sales of tangible personal property.

Q: Does the fact that the X-ray testing itself is nontaxable change the answer?
A: No. The ruling states the taxpayer owes sales or use tax on the purchase of the wafer even though the wafer is used to perform a test described as nontaxable.

Q: Can other taxpayers rely on this letter?
A: The letter itself states that the opinion is based on the facts submitted and that other facts, though similar, may yield different results. STAR letters generally may be relied on as the basis of a detrimental reliance claim only by the taxpayer to whom they were issued.

Citations and references

No specific statutes or administrative rules are cited in the text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9503L1343D01

Original ruling text

March 10, 1995

Dear**:

Thank you for your letter dated February 22, 1995, concerning sales tax
as it applies to a radioactive substance (radium 192).

FACTS: A client of your firm, *****, performs nondestructive
testing (X-rays) of various items including aircraft engines, highway
bridge weld joints, and commercial building walls and floors. The X-ray
equipment used to perform the X-rays uses a radioactive substance called
Radium 192 (similar to Cobalt 60, but less powerful & a much shorter half
life). The substance is purchased from an out-of-state company that is
one of three or four in the United States licensed to dispense the
radioactive substance. The substance itself is shipped in the form of a
small wafer encased in a shielded container. It can be purchased and used
only by licensed radiographers and at the end of its useful life, must be
returned to the seller in accordance with federal hazardous waste rules.

A radioactive substance does not appear to fit into the definition of
tangible personal property (something that can be seen, weighed,
measured, felt, touched or that is otherwise perceptible to the senses).
What is being purchased is not the wafer, but rather the radioactivity
emitted. This can not be seen, weighed, measured, felt, touched, or is
in any other way perceptible to the senses. The power of radioactive
material can be measured in terms of radiation emitted, but cannot
itself be measured.

RESPONSE: The wafer that emits a radioactive substance is the sale of
tangible personal property. You would owe sales or use tax on your
purchase of the wafer for use in performing a nontaxable test (as
described above).

In comparison, one of the first things that comes to mind is a
flashlight battery which is also bought for the energy it produces
rather than the packaging that contains the energy. There is no doubt
that tangible personal property is being sold. Likewise, the sale of a
clock or watch is taxable even though all the purchaser may want is to
know the time and time is not tangible personal property.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 50330. The direct
line is 512/475-0330. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9503035L