Is a mandrel used to wind fiberglass filament and resin into pipe and tanks exempt from Texas sales and use tax, and what about the disposable rollers used to apply resin?

Subject

Mandrels — Used In Manufacturing Fiberglass Pipe And Tanks

Plain-English summary

A manufacturer of fiberglass pipe and tanks asked the Comptroller how the mandrel and disposable rollers used in its manufacturing process are taxed. In this process, fiberglass filament and resin are wound around a mandrel to form the finished pipe or tank.

The Comptroller's answer had two parts:

• Mandrels are exempt. Mandrels purchased after January 1, 1995, are totally exempt from Texas state and local sales and use tax. The buyer may give an exemption certificate to its suppliers instead of paying tax on the mandrels.
• The disposable rollers appear to be taxable. The taxpayer described the rollers as similar to a paint roller, used to apply liquid resin and catalyst to woven fiberglass cloth. The resin hardens on the roller until it can no longer be cleaned, at which point the roller is thrown away. The Comptroller said it appears these rollers are "hand tools" under Rule 3.300(a)(6), and hand tools and their related component parts (such as these disposable rollers) are taxable under Rule 3.300(c)(4) -- regardless of how short their useful life is. The letter asked the taxpayer to provide more information if the rollers are not, in fact, hand tools.

As with other letters of this kind, the Comptroller notes the opinion is based on the facts presented and may change if the facts are different.

What this means for you

Fiberglass pipe and tank manufacturers

If you buy mandrels to wind fiberglass filament and resin into pipe or tanks, mandrels purchased after January 1, 1995, are exempt from state and local sales and use tax. You can issue an exemption certificate to your suppliers instead of paying tax up front.

Buyers of resin-application tools and consumables

If you use disposable rollers or similar hand tools to apply resin, catalyst, or other coatings during manufacturing, don't assume they qualify for the same exemption as your production machinery. This letter treats such rollers as taxable hand tools (and their component parts) under Rule 3.300, even though they wear out quickly and are thrown away after a single use.

Accountants and tax professionals

This letter illustrates the distinction Rule 3.300 draws between exempt manufacturing equipment (like the mandrel, which becomes part of the production process itself) and taxable hand tools and their component parts (like the disposable rollers), even when the hand tool has a very short useful life. If a client's tool doesn't clearly fit the "hand tool" description, more facts may be needed, as the Comptroller notes here.

Common questions

Q: Are mandrels used to manufacture fiberglass pipe and tanks exempt from Texas sales and use tax?
A: Yes, if purchased after January 1, 1995. They are totally exempt from state and local tax, and the buyer may issue an exemption certificate to suppliers instead of paying tax.

Q: Are the disposable rollers used to apply resin to fiberglass cloth taxable?
A: The Comptroller said it appears they are, because they look like hand tools under Rule 3.300(a)(6), and hand tools and their related component parts are taxable under Rule 3.300(c)(4), regardless of useful life.

Q: Does it matter that the rollers wear out and get thrown away quickly?
A: No. The letter specifically says the taxable treatment of hand tools "is true regardless of the useful life of the roller."

Q: What if the rollers aren't actually hand tools?
A: The Comptroller asked the taxpayer to provide additional information on how the rollers are used in the manufacturing operation if they are not hand tools, since the conclusion could change with different facts.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.300(a)(6) (definition/description of hand tools)
• 34 Tex. Admin. Code § 3.300(c)(4) (taxability of hand tools and related component parts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608631L

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

August 15, 1996

Dear **:

Thank you for your letter of August 8, 1996. You asked
that we address the taxability of a mandrel and disposable rollers used in your
manufacturing operation.

As I understand it, you manufacture fiberglass pipe and
tanks. The fiberglass filament and resin are wound around the mandrel to form
the finished product.

Mandrels purchased after January 1, 1995, are totally
exempt from state and local taxes. You may issue an exemption certificate to
your suppliers in lieu of paying tax on the mandrels.

You stated the rollers are similar to a paint brush
roller and are used to apply liquid resin and catalyst to woven fiberglass
cloth. The resin hardens on the roller and cannot be cleaned. The rollers are
disposed of when this occurs.

It appears these rollers are hand tools. Please refer
to Subsection (a)(6) of Rule 3.300. If this is the case, hand tools and their
related component parts, such as the disposable rollers you described, are
taxable. Please refer to Subsection (c)(4) of Rule 3.300. This is true
regardless of the useful life of the roller. If the rollers are not hand
tools, please provide me with additional information on how the rollers are
used in manufacturing operation.

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