Does a crane that lifts scrap metal from a metal-cutting shear to a bin for processing -- and can only be used for that one task -- qualify for the manufacturing exemption?

Plain-English summary

A firm purchased a 1993 Link-Belt Hydraulic Crawler Excavator (a crane) that is attached to a shear that cuts metal, with a magnet that then moves the cut scrap to a bin for further processing. Because the crane can only be used for this one task -- operating the shear and moving material with the magnet -- the owner argued it shouldn't be treated as ordinary "interplant transportation" equipment and should instead qualify for the manufacturing exemption. The Comptroller disagreed. Rule 3.300(a)(9) defines manufacturing as beginning with the first stage of production, and the first production stage doesn't include acts done in preparation for production -- moving material to where it will be processed is preparatory, not manufacturing itself. Separately, Rule 3.300(c) states that equipment used in intraplant transportation is non-exempt, and moving scrap between the shear and the processing bin is intraplant transportation regardless of the crane's single dedicated use.

What this means for you

Manufacturers and scrap-processing operators buying material-handling equipment

Being unable to use a piece of equipment for anything except moving material within your plant doesn't convert it into exempt manufacturing equipment. The manufacturing exemption turns on whether the equipment performs an actual production step, not on how narrowly or exclusively it's used.

Accountants and tax professionals

This is a useful illustration that "single-purpose, plant-specific use" is not the manufacturing-exemption test -- the equipment still has to fall within the first production stage under Rule 3.300(a)(9), and intraplant material-moving equipment is expressly non-exempt under Rule 3.300(c) regardless of dedication to one task.

Common questions

Q: Does a crane used only to move scrap metal from a shear to a processing bin qualify for the manufacturing exemption?
A: No, per this letter -- it's non-exempt intraplant transportation equipment under Rule 3.300(c).

Q: Does it matter that the crane can't be used for anything else?
A: No, per this letter -- being dedicated to a single task doesn't change the equipment's classification as intraplant transportation.

Q: When does "manufacturing" begin for exemption purposes?
A: Per this letter's citation of Rule 3.300(a)(9), with the first stage of production -- not with preparatory acts like moving material to where it will be processed.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.300(a)(9) (manufacturing begins with the first stage of production)
• 34 Tex. Admin. Code Rule 3.300(c) (intraplant transportation equipment is non-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/9704455L

Original ruling text

April 11, 1997

Dear ***:

Thank you for your letter dated March 28, 1997, concerning the taxability of a
crane.

Your firm purchased a 1993 Link-Belt Hydraulic Crawler Excavator. You feel
this crane should qualify for the manufacturing exemption. The crane is
attached to a sheer which cuts metal and then the magnet moves the scrap to a
bin for processing. The crane can only be used to operate the sheer and the
magnet. Therefore, you feel it would not be considered interplant
transportation as we cannot use the crane for any other purpose.

Response. The crane does not qualify for the manufacturing exemption.
Enclosed Rule 3.300 (a)(9) states that manufacturing includes operations
commencing with the first stage of production. The first production stage does
not include acts in preparation for production. In addition, Subsection (c)
states that items used in intraplant transportation are non exempt
manufacturing items.

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