Is a ripper and the bulldozer that powers it exempt from Texas sales and use tax as manufacturing equipment when they are used to break limestone and shale out of the earth as the first step in making cement?

Plain-English summary

A cement producer wrote to the Texas Comptroller's Tax Policy Division asking whether a ripper — a piece of equipment attached to a bulldozer that breaks apart the ground and shatters underlying limestone and shale into pieces small enough to feed into a crusher — qualifies as exempt manufacturing equipment. Because the ripper cannot work without the bulldozer, and the bulldozer in this operation is used only to power the ripper, the taxpayer also asked whether the bulldozer itself is exempt.

Texas Comptroller Rule 3.300 exempts equipment used in the manufacturing process, defining manufacturing as every operation beginning with the first stage of production and ending with the completion of tangible personal property, where the first production stage is the first act of production (not preparatory acts). The taxpayer analogized the ripper and bulldozer to Comptroller Decision No. 25,551, where dynamite used to blast rock out of the earth and begin reducing boulders into gravel was found exempt as part of the manufacturing process (following Comptroller Decision No. 23,055).

The Comptroller agreed with the analogy and answered three questions:

1. Is the ripper the first stage in manufacturing cement? Yes — "the ripper qualifies as manufacturing equipment."
2. Is the ripper exempt from sales and use tax? Yes.
3. Is the bulldozer, which only powers the ripper, also exempt? Conditionally yes — "the bulldozer would be exempt if used exclusively to power the ripper and was not used to transport or stockpile material."

The letter closes by noting the response is based on the facts submitted and that other, even similar, facts could yield a different result.

What this means for you

Cement, gravel, and other quarrying/aggregate producers

Equipment that physically breaks rock, limestone, shale, or similar raw material out of the earth — and simultaneously begins reducing it to a size usable in the next production step (like a crusher) — can qualify as exempt manufacturing equipment under Rule 3.300, treated as the first stage of production rather than a preparatory activity.

Businesses using a bulldozer paired with attachments like a ripper

The exemption for a power unit (here, the bulldozer) is not automatic just because it's mechanically necessary for exempt equipment to function. The Comptroller conditioned the bulldozer's exemption specifically on it being used exclusively to power the ripper — if that same bulldozer is also used to transport material or build/move stockpiles, that mixed use takes it outside the exemption as described in this letter.

Accountants and tax professionals

This letter illustrates how the Comptroller extends manufacturing-exemption reasoning from an earlier decision involving dynamite (Comptroller Decision No. 25,551, itself relying on Comptroller Decision No. 23,055) to mechanical earth-moving equipment performing the same functional role — initial extraction plus initial size reduction of raw material. When evaluating similar equipment, consider whether it performs a genuine production function (extraction + first size reduction) versus a purely preparatory or multi-purpose function (e.g., general transport or stockpiling), since the latter can disqualify equipment from the exemption even if it is closely tied to exempt equipment.

Common questions

Q: Does the ripper qualify as manufacturing equipment exempt from Texas sales and use tax?
A: Yes. The Comptroller found the ripper is the first stage in the production of cement because it breaks limestone and shale out of the earth while simultaneously beginning to reduce it to pieces small enough for the crusher, and confirmed it is exempt.

Q: Is the bulldozer that powers the ripper also exempt?
A: Only conditionally. The bulldozer is exempt "if used exclusively to power the ripper and was not used to transport or stockpile material." If the bulldozer has other uses, such as hauling or stockpiling, this letter's exemption doesn't extend to it.

Q: What prior decisions did the Comptroller rely on?
A: The letter cites Comptroller Decision No. 25,551, which held that dynamite used to blast rock and start reducing boulders into gravel was exempt manufacturing equipment, and which in turn relied on Comptroller Decision No. 23,055 for the principle that explosives used to make gravel for sale (or resale) qualify as part of the manufacturing process.

Q: What is the legal standard for "first stage of production" under Rule 3.300?
A: Manufacturing is defined as every operation commencing with the first stage of production of tangible personal property and ending with completion of that property. The first production stage is the first act of production and does not include acts merely in preparation for production.

Q: Can this taxpayer rely on this letter if their facts change?
A: No. The letter explicitly states it is "rendered based on the facts you submitted" and that "other facts, though similar, may yield different results."

Citations and references

Regulations:

• 34 Tex. Admin. Code Rule 3.300 (manufacturing exemption)

Comptroller decisions:

• Comptroller Decision No. 25,551 (dynamite used in manufacture of gravel found exempt)
• Comptroller Decision No. 23,055 (dynamite purchased and used to blast rock out of the earth, simultaneously reducing boulders into gravel for sale, found exempt)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9506L1351F01

Original ruling text

June 12, 1995

Dear **:

Thank you for your recent letter which is restated in part with
responses below.

We respectfully request your response to a question concerning
the taxability of a ripper and bulldozer. A ripper is a piece of
equipment attached to a bulldozer which is used to break apart
the ground and shatter the underlying limestone and shale into
pieces small enough to be loaded into a crusher to be further
processed into cement. The bulldozer's only purpose is to work
simultaneously with the ripper. The ripper cannot be used
without the support of the bulldozer and the bulldozer would not
be needed if the ripper was not used. This process causes a
physical change to the product being manufactured. Thus, the
bulldozer and ripper is considered the first stage in the
production of cement.

Texas Comptroller Rule 3.300 provides an exemption from sales
and use tax for equipment used in the manufacturing process.
Manufacturing is defined as:

Every operation commencing with the first stage of production
of tangible personal property and ending with the completion
of tangible personal property. The first production stage
means the first act of production and it shall not include those
acts in preparation for production.

In Comptroller Decision No. 25,551, dynamite used in the
manufacture of gravel was found to be part of the
manufacturing process, thus exempt from tax. The bulldozer and ripper's
function in the manufacture of cement is identical to the function of
dynamite used in the manufacture of gravel, the only difference is
the tool. In Comptroller Decision No. 25,551, Petitioner operated a
gravel manufacturing company which crushed rock into various
types of gravel. Petitioner used dynamite in manufacturing the
gravel.

Petitioner contended that the explosives used were exempt from
tax, based on Comptroller Decision No. 23,055. In that decision, the
Tax Division found that dynamite purchased and used to blast
rock out of the earth, and at the same time start the reduction in
size of large boulders into gravel for ultimate sale was exempt.
The Division noted that in order for the dynamite to be exempt it
must be used in the manufacturing process, i.e., used to make
gravel for sale or for resale.

In the instant case, the bulldozer and ripper equipment is used in
the same manner as the dynamite. The ripper breaks the
limestone and shale out of the earth, and at the same time
startsthe reduction in size of large boulders into smaller pieces
forultimate sale. As such, the bulldozer and ripper should be
considered the first stage in the production of cement.

Based on the above discussion, we respectfully request a
taxability response to the following questions:

1. Is the ripper considered the first stage in the manufacturing ofcement?

Response 1: As described, the ripper qualifies as manufacturingequipment.

2. If so, is the ripper exempt from sales and use tax?

Response : Yes.

3. Since the ripper cannot operate without the bulldozer, and the
   bulldozer is only used with the ripper, is the bulldozer exempt
   from sales and use tax ?

Response 3: The bulldozer would be exempt if used exclusively to
power the ripper and was not used to transport or stockpile material.

This opinion is rendered 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. 3-4680. The
direct line is 512/463-4680. You may also write to Tax
Administration, Comptroller of Public Accounts.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9506181L