Is a tuxedo-rental business that cleans the tuxedos it rents out entitled to Texas's manufacturing/processing exemption on its laundry equipment and supplies?

Plain-English summary

A tuxedo-rental company wrote in to update its list of supplies used in the laundry where it cleans the tuxedos it rents out. The Comptroller confirmed that, for tax purposes, a business that cleans the tuxedos it rents is a "processor," and processors are entitled to Texas's manufacturing exemptions.

Effective January 1, 1995, manufacturing machinery and equipment used in the manufacturing or processing operation that is necessary and essential to the operation qualifies for exemption — along with accessories to that equipment, replacement parts, and labor to repair qualifying machinery and equipment. Washers, dryers, presses, and sewing machines are exempt equipment; ironing board covers and sewing-machine bobbins and needles are exempt replacement parts; a press buck can be an exempt accessory if it attaches to a press (Rule 3.300(f)). Hand tools — specifically including needles, scissors, and lint brushes — are excluded from the exemption (Rule 3.300(c)(4)).

Materials directly used or consumed in the actual cleaning/processing operation are also exempt if necessary and essential to it, such as detergents, bleaches, starches, spot removers, dust control compounds, and softeners. Items that become a physical component of the tuxedo — buttons, thread, zippers, pocket and cuff replacements, dyes, mending tape and patches — are exempt (Rule 3.300(d)(2)), as are materials necessary or essential to operating the qualifying machinery itself, like boiler/steam-system treatment chemicals and water-softener salt (Rule 3.300(d)(3)). Wrapping, packaging, and packaging supplies used to wrap the rented tuxedos (hangers, shirt shells, plastic wrapping) are exempt too.

On the other side of the line, certain items are specifically taxable: wash nets and pens, basket covers and liners, aprons, cloth sacks for transporting dirty laundry, marking pens and tape, extractor slings, and shop cleaning compounds.

What this means for you

Tuxedo, uniform, and linen rental companies that do their own cleaning

If you rent out clothing or linens and launder or dry-clean them yourself, you're treated as a processor and can claim the manufacturing exemption on qualifying cleaning equipment, its accessories/replacement parts/repair labor, and consumable materials that are necessary and essential to the cleaning operation. But don't assume everything in the laundry room is exempt — hand tools and several everyday supply items are carved out and remain taxable.

Dry cleaners and commercial laundries generally

The same processor/manufacturing-exemption framework applies beyond tuxedo rental to any laundry or dry-cleaning operation: equipment like washers, dryers, presses, and sewing machines, plus the chemicals and components consumed or incorporated in the cleaning process, can qualify. Keep a clear list of which supplies fall on the exempt side (detergents, spot removers, components that become part of the garment) versus the taxable side (aprons, cloth sacks, marking pens/tape, shop cleaning compounds).

Accountants and tax professionals

This letter is a useful checklist for classifying laundry/dry-cleaning supplies under the manufacturing exemption in Rule 3.300, distinguishing exempt equipment/accessories/replacement parts (subsection (f)), excluded hand tools (subsection (c)(4)), exempt component materials (subsection (d)(2)), and exempt machinery-operation materials (subsection (d)(3)) from specifically taxable supply items that don't fit any of those categories.

Common questions

Q: Is a business that launders the tuxedos it rents out considered a manufacturer for Texas tax purposes?
A: It's considered a "processor," and processors are entitled to the same manufacturing exemptions as manufacturers.

Q: Which laundry equipment qualifies for the exemption?
A: Washers, dryers, presses, and sewing machines are given as examples of exempt equipment, along with their accessories (such as a press buck attached to a press) and replacement parts (such as ironing board covers, bobbins, and needles for the sewing machine).

Q: Are hand tools like scissors and lint brushes exempt?
A: No. Hand tools are specifically excluded from the exemption, and the letter names needles, scissors, and lint brushes as examples of hand tools.

Q: What cleaning chemicals and materials are exempt?
A: Detergents, bleaches, starches, spot removers, dust control compounds, and softeners are listed as exempt materials directly used or consumed in the cleaning process. Materials that become part of the tuxedo (buttons, thread, zippers, pocket/cuff replacements, dyes, mending tape and patches) are also exempt, as are materials needed to run the machinery itself, like boiler/steam-system chemicals and water-softener salt.

Q: What supplies are still taxable?
A: Wash nets and pens, basket covers and liners, aprons, cloth sacks for transporting dirty laundry, marking pens and tape, extractor slings, and shop cleaning compounds are specifically taxable.

Q: Can this business rely on this letter if its facts change?
A: No. The opinion is based on the facts presented, and if there are any additional or different facts, the opinion may change.

Citations and references

• Rule 3.300(f) (accessories, replacement parts, and repair labor for qualifying manufacturing/processing equipment)
• Rule 3.300(c)(4) (hand tools excluded from the manufacturing exemption)
• Rule 3.300(d)(2) (exempt materials that become a component of the manufactured/processed item)
• Rule 3.300(d)(3) (exempt materials necessary or essential to operation of qualifying machinery/equipment)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9606L1414C03

Original ruling text

June 26, 1996

Dear *****:

Thank you for your letter of June 17, 1996. You asked that we update a list
of supplies used in your laundry to clean the tuxedos you rent.

For tax purposes, you are considered a processor when you clean the tuxedos
you rent to others. As a processor, you are entitled to the manufacturing
exemptions.

Effective January 1, 1995, manufacturing machinery and equipment used in the
manufacturing or processing operation that is necessary and essential to the
operation qualifies for exemption. Also, accessories to qualifying
equipment, replacement parts and labor to repair qualifying machinery and
equipment are exempt. Washers, dryers, presses, and sewing machines are
examples of exempt equipment. Ironing board covers, and bobbins and needles
for the sewing machine are examples of replacement parts. A press buck may
be an example of an accessory if the press buck is an attachment to a press.
See Section (f) of Rule 3.300. Hand tools are specifically excluded from the
exemption. Hand tools includes items such as needles, scissors, and lint
brushes. See Section (c)(4) of rule 3.300.

In addition, all materials that are directly used or consumed in any phase of
the actual manufacturing or processing operation are exempt if they are
necessary and essential to the operation. Detergents, bleaches, starches,
spot removers, dust control compounds, softeners, etc. are examples of exempt
materials.

Components that become part of the tuxedo are exempt. Examples include
buttons, thread, zippers, pocket and cuff replacements, dyes, and mending
tape and patches. See Subsection (d)(2) of Rule 3.300.

Materials that are necessary or essential to the operation of machinery or
equipment used in the actual manufacturing process are exempt. This would
include chemicals for treating boilers and steam systems and salt for water
softeners. See Subsection (d)(3) of Rule 3.300.

Wrapping, packaging and packaging supplies to wrap the tuxedos you rent are
also exempt. These items include hangers, shirt shells, plastic wrapping, etc.

Certain items are specifically taxable. These items include wash net and
pens, basket covers and liners, aprons, cloth sacks for transporting dirty
laundry, marking pens and tape, extractor slings, and shop cleaning compounds.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller
of Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division

NOTE: Previous Accession NUMBER 9606304l