Does equipment that seals shipping cartons with glue, as the final packaging step before shipment, qualify for the Texas manufacturing exemption?

Plain-English summary

A company asked whether its purchase of a hot melt unit — which applies glue to seal shipping cartons before the product ships out — qualifies for the manufacturing exemption.

The Comptroller answered yes, explaining the underlying test: manufacturing covers every operation starting with the first stage of production of tangible personal property and ending with the product's completion. Completion means the article has all the physical properties — including packaging, if any — that it has when the manufacturer transfers it to someone else. Because the hot melt unit completes the packing process (sealing the shipping carton), it's equipment used to finish the manufactured product, so it qualifies for the manufacturing exemption from sales tax.

What this means for you

Manufacturers buying carton-sealing or final-packaging equipment

Equipment that performs the last step of packaging your product — like a carton-gluing/sealing unit — can qualify for the manufacturing exemption, because "completion" of manufacturing includes getting the product into the packaged form it has when you ship it out.

Common questions

Q: Does packaging equipment ever qualify for the manufacturing exemption?
A: Yes — if it completes the packaging that's part of the product's final form as transferred to a buyer, it's treated as part of the manufacturing process itself.

Q: Can another company rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9709732L

Original ruling text

September 22, 1997

Dear ***:

This is in response to your faxed request for a ruling on ABC's purchase of
a hot melt unit that applies glue to shipping cartons before shipping out your
product.

Response: Manufacturing is defined as every operation commencing with the
first stage of production of tangible personal property and ending with the
completion of tangible personal property. Completion of production means the
article has all the physical properties, including packaging, if any, which it
has when transferred by the manufacturer to another. Therefore, equipment used
by a manufacturer, such as a hot melt unit, to complete the packing process
will qualify for exemption from sales tax.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please
call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is
512/463-4502. You may also write to Tax Policy Division, Comptroller of Public
Accounts. You may also e-mail our tax help section at:
[email protected]

Sincerely,

Gilbert Zamora
Tax Policy Division