Does a 5,500-gallon storage tank plumbed directly into a chemical-blending manufacturer's mixing kettles qualify for the Texas manufacturing exemption?

Plain-English summary

A chemical-blending manufacturer that produces roughly 100 different polyurethane foam formulations (used in door/panel insulation and sprayfoam roofing) was expanding its plant and asked about the tax status of a newly acquired 5,500-gallon storage tank. The tank is plumbed directly into the plant's mixing kettles, so operators can add the prescribed amount of material into a batch-in-process just by opening a valve. The Comptroller ruled the tank does not qualify for the manufacturing exemption. Even though it's physically connected to the production equipment and makes material handling more convenient, the tank's primary function is STORING materials used in manufacturing -- not performing the manufacturing process itself -- so it remains taxable.

What this means for you

Manufacturers buying bulk storage tanks or silos

Don't assume that plumbing a storage tank directly into your production line automatically qualifies it for the manufacturing exemption. The Comptroller looks at the equipment's PRIMARY function -- if that's storage of raw materials or finished product, it's taxable even when it's integrated into your production setup for convenience.

Accountants and tax professionals

This is a useful data point on where the manufacturing exemption line falls for storage equipment: physical integration/plumbing into production machinery doesn't outweigh a storage-focused primary use when applying the exemption test.

Common questions

Q: Does a storage tank plumbed into a manufacturer's mixing kettles qualify for the manufacturing exemption?
A: No, per this letter -- its primary use is storage of materials used in manufacturing, not manufacturing itself.

Q: Does it matter that the tank makes handling more convenient by connecting directly to production equipment?
A: No, per this letter -- the exemption analysis turns on the equipment's primary function, which here is storage.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9704347L

Original ruling text

April 11, 1997

Dear ***:

Thank you for your letter dated April 8, 1997, concerning the taxability of
equipment by a chemical-blending manufacturer.

Scenario. COMPANY ABC's CITY T plant is a chemical-blending manufacturer. We
are in the process of a plant expansion and are asking for rulings on the tax
status of certain equipment being purchased. About 100 different polyurethane
foams (used commercially for door & panel
insulation and sprayfoam roofing) are produced, each yielding product features
specifically suited to the customer's use.

A 5,500-gallon storage tank was just acquired; it is plumbed directly into the
mixing
kettles and makes handling as simple as opening a valve and blowing the
prescribed
amount of material into the batch-in-process.

Please advise on the sales tax exemption status of this tank.

Response. The above equipment does not qualify for the manufacturing
exemption. The primary use appears to be storage of materials used in the
manufacturing process.

This opinion is based on the facts presented. Different facts though similar,
may result in different answers.

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, ext. 5-0613. The direct line is 512/475-0613. You may also
write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,
Kevin Koller
Tax Policy Division