Is a restaurant's fryer filter machine — which cleans and recirculates shortening/oil so it can keep frying food — exempt from Texas sales tax as manufacturing equipment?

Plain-English summary

This letter is a correction to an earlier Comptroller ruling (October 2, 1997) about a restaurant's fryer filter machine. The machine pulls used grease out of a fryer, filters out substances that would otherwise degrade the food's consistency, and pumps the cleaned grease back into the fryer so it can be reused — as many as 32 times a day. The shortening itself becomes part of the fried product's taste and texture.

The original response said the filter machine, its parts and accessories, and the labor to maintain and repair it all qualified as exempt manufacturing equipment under Rule 3.300, because the shortening it processed ends up in the product being sold. That answer remained correct for periods before October 1, 1997.

But House Bill 1855, effective October 1, 1997, narrowed the manufacturing exemption, and under the new rule the filter machine itself — along with the labor to maintain and repair it — became taxable starting that date. Only the shortening/grease itself stays exempt, because it's still an ingredient of the food product; the equipment that cleans and recirculates it no longer qualifies.

What this means for you

Restaurants and food-service equipment buyers

Equipment that processes or recycles an ingredient (like a fryer filter machine reusing shortening) is not automatically exempt just because the ingredient ends up in the food you sell. Since October 1, 1997, House Bill 1855 requires equipment itself to meet a stricter test to qualify for the manufacturing exemption — check whether your specific equipment (not just the ingredient it handles) independently qualifies.

Businesses relying on pre-1997 manufacturing-exemption rulings

If you have an older ruling or informal guidance about equipment being exempt because it processes an ingredient of your finished product, verify it still holds after House Bill 1855 — the law changed how equipment (as opposed to ingredients) is analyzed effective October 1, 1997.

Accountants and tax professionals

This is a clean before/after example of House Bill 1855's effect: the same equipment, same facts, same shortening — exempt before October 1, 1997, taxable (for the equipment and its repair labor) after, even though the ingredient itself never lost its exemption.

Common questions

Q: Is a restaurant fryer filter machine exempt from Texas sales tax?
A: Not since October 1, 1997. Before that date it was exempt as manufacturing equipment; House Bill 1855 made the machine (and labor to maintain/repair it) taxable starting that date.

Q: Is the shortening or oil itself still exempt?
A: Yes — the shortening remains exempt because it becomes an ingredient of the fried product being sold. Only the filtering equipment's own taxability changed.

Q: Why did the Comptroller issue a correction rather than a fresh ruling?
A: The original October 2, 1997 response was accurate for the law in effect at the time; House Bill 1855 changed the law shortly afterward, so the Comptroller corrected the answer going forward rather than reversing the earlier guidance.

Q: Can I rely on this letter for my own restaurant equipment?
A: No. It's based on the specific facts presented, and different but similar facts may produce a different answer; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• 34 Tex. Admin. Code Rule 3.300 (manufacturing exemption)
• House Bill 1855 (eff. October 1, 1997) (narrowed the manufacturing equipment exemption)

Subject

Filter Machine — Connected To Fryer To Filter And Reuse Shortening/Oil/Grease That Will Be Used In Frying Products

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9712134L

Original ruling text

December 31, 1997

Dear***:

This letter concerns my response of October 2, 1997, concerning the taxability
of a fryer filter machine used by a restaurant.

Facts. Your client, a restaurant, has a filter machine that is connected to a
fryer. the function of the machine is to pull the grease from the fryer and
change the content in such a way as to eliminate build up of unwanted
substances that would inhibit the consistency of the product. After the
process takes place, the grease is than pumped back into the fry vat and the
grease is brought back as close as possible to its original state. Of course
the composition of the grease will always be different. The raw product is
then placed into the vat and fried. The grease (shortening) is an important
component of the taste and texture of the final product. This process can take
place as many as 32 times in a single day.

At the current time, does the filter machine, its parts, accessories and the
labor to maintain and repair it qualify as exempt manufacturing equipment under
T.A.C. 3.300?

Original Response. Machinery and equipment and materials that are necessary or
essential to the operation of machinery or equipment that in turn directly
causes a chemical or physical change during the actual manufacturing,
processing, fabricating operation, or repair of tangible personal property held
for sale, or intermediate products that will become an ingredient or component
part of the item being manufactured or processed for sale, are exempt. The
shortening becomes part of the fried product and qualifies for exemption.

Correction. My original response was correct for periods prior to October 1,
1997. Due to statutory changes made by House Bill 1855 (effective October 1,
1997), the filter machine that cleans the shortening, which in turn is used in
the actual manufacturing process, is taxable. The labor to maintain and repair
it is also taxable effective October 1, 1997.

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