Does a clean room used to make the protective garments worn in semiconductor fabrication qualify for Texas's semiconductor fabrication clean room sales tax exemption?

Plain-English summary

A taxpayer asked the Comptroller's Tax Policy Division whether a clean room used to manufacture garments — the protective suits worn by workers in semiconductor manufacturing — could qualify for the "semiconductor fabrication clean room" sales tax exemption.

The Comptroller said no. Senate Bill 640, passed in the prior legislative session, created a sales tax exemption specifically for "semiconductor fabrication clean rooms" used in the manufacture of a semiconductor product. Because the clean room at issue was used to produce garments (not semiconductors themselves), it fell outside that exemption. The letter did note that machinery and equipment used in the garment manufacturing process could still qualify for the state's general manufacturing exemption under Rule 3.300, even though the clean room itself did not qualify for the narrower semiconductor clean room exemption.

What this means for you

Semiconductor and garment manufacturers

If your clean room is used to make something other than the semiconductor product itself — such as the protective garments, gloves, or other gear worn by semiconductor fabrication workers — don't assume the "semiconductor fabrication clean room" exemption covers it. The Comptroller reads that exemption narrowly, limited to clean rooms actually used in manufacturing the semiconductor product.

Businesses evaluating manufacturing equipment purchases

Even where a clean room itself doesn't qualify for the semiconductor-specific exemption, the machinery and equipment used within it may still separately qualify for Texas's general manufacturing exemption under Rule 3.300. It's worth evaluating clean room equipment purchases under that broader exemption even when the specialized clean room exemption doesn't apply.

Common questions

Q: Does every clean room connected to semiconductor manufacturing qualify for the semiconductor fabrication clean room exemption?
A: No. The exemption created by Senate Bill 640 applies to clean rooms used in the manufacture of a semiconductor product itself, not to clean rooms used for other purposes (like making the garments worn by fabrication workers).

Q: If the clean room doesn't qualify, is all the equipment inside it taxable?
A: Not necessarily. The letter states that machinery and equipment used in the manufacturing process would qualify for the general manufacturing exemption under Rule 3.300, separate from whether the clean room itself qualifies for the semiconductor-specific exemption.

Q: Can another taxpayer rely on this letter?
A: No. STAR letters can generally be the basis of a detrimental reliance claim only for the taxpayer to whom they were issued, and this opinion is expressly based on the facts presented — different facts could change the outcome.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.300 (Manufacturing Exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9512905L

Original ruling text

December 18, 1995

Dear *****:

In your letter of December 15, 1995, you asked if a clean room used to
manufacture garments used in the manufacture of semiconductors qualifies for
the "clean room" manufacturing exemption.

Senate Bill 640 passed in the last legislative session provides an exemption
from sales tax for "semiconductor fabrication clean rooms" used in the
manufacture of a semiconductor product. The clean room used to produce
garments does not qualify for this exemption. Machinery and equipment used in
the manufacturing process would qualify for the manufacturing exemption [Rule
3.300].

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

You may call me toll free at 1-800-531-5441 extension 5-0892. The direct line
is 512/475-0892. You may also write to Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

John J. Fitzgibbons, CPA
Tax Policy