Can a company leasing purifier/vaporizer/piping/storage-tank equipment to a semiconductor manufacturer buy it tax-free and lease it tax-free too?

Plain-English summary

A company was purchasing specialized equipment — a gas purifier (removes impurities from manufacturing gases), a vaporizer (evaporates gases), connecting piping, and a storage tank unique to the semiconductor industry — to install at a semiconductor manufacturing facility. The arrangement was a lease with an option to buy: the company would collect a monthly facility fee for five to seven years, retaining ownership and maintenance responsibility unless the manufacturer eventually exercised its purchase option.

The Comptroller answered two questions:

1. When buying the equipment from its own vendors, the company may issue its suppliers a resale certificate, since it's leasing (or potentially reselling) the equipment to its semiconductor manufacturing customer — no use tax needs to be remitted on that purchase.
2. When billing the customer the monthly facility fee, the company should require the customer to submit an exemption certificate rather than collecting sales tax, because Tex. Tax Code Sec. 151.318(b)(2) exempts semiconductor fabrication cleanrooms and equipment. A semiconductor manufacturer can issue an exemption certificate covering the lease or purchase of equipment — like this vaporizer, piping, purifier, and storage tank — that's used in or supports its cleanroom. Notably, leases of qualifying equipment entered on or after October 1, 1995 are exempt as long as the lease term is at least 12 months.

What this means for you

Equipment lessors serving the semiconductor industry

You can buy semiconductor cleanroom-support equipment tax-free with a resale certificate, and in turn accept an exemption certificate from your semiconductor-manufacturer customer instead of collecting sales tax on the lease/facility fee — as long as the lease term is at least 12 months (for leases from October 1995 onward) and the equipment is used in or supports a qualifying cleanroom.

Semiconductor manufacturers

Equipment supporting your fabrication cleanroom — even gear like purifiers, vaporizers, connecting piping, and storage tanks that aren't the "chip-making machine" itself — can qualify for the Sec. 151.318(b)(2) exemption, whether you buy it outright or lease it long-term.

Common questions

Q: Does the semiconductor cleanroom exemption cover supporting equipment like piping and storage tanks, or just the core fabrication machinery?
A: Per this letter, it covers supporting equipment too — the vaporizer, piping, purifier, and storage tank all qualified as equipment used in or to support the cleanroom.

Q: Does a short-term lease of this equipment qualify for the exemption?
A: No — per this letter, leases must be for at least 12 months (and entered on or after October 1, 1995) to qualify.

Q: Can the leasing company buy the equipment tax-free from its own suppliers?
A: Yes, per this letter, using a resale certificate, since the equipment is being leased/resold to the semiconductor manufacturing customer.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.318(b)(2) (semiconductor fabrication cleanroom and equipment exemption; 12-month minimum lease term for leases from Oct. 1, 1995 onward)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9805511L

Original ruling text

May 7, 1998

Dear **:

This is in response to your request for a ruling regarding equipment that you
are in the process of purchasing to install at a semiconductor manufacturing
facility. The manufacturer will remit to you a monthly facility fee for a
period of five to seven years with an option to purchase said equipment at the
end of the contract. Unless the manufacturer does purchase this equipment, you
will retain full ownership and maintain the equipment (lease with an option to
buy).

The equipment's purpose is to utilize new technology in the semiconductor
manufacturing process. The purifier will be used to remove impurities from the
gases needed to make the semiconductors, thus modifying the product. The
vaporizer will be used to evaporate gases. The piping will connect the storage
tank, purifier and vaporizer. The storage tank is used to store the gases
needed in the manufacturing process and is unique to the semi-conductor
industry.

1. You are asking for a determination for sales and use tax liabilities. First
   when you purchase the equipment from your vendors to install at the semi
   conductor facility, you are asking if you need to remit use tax or should you
   issue a resale certificate to your vendor?

Response: You may issue your suppliers a resale certificate for equipment that
you will lease or resell to your semiconductor manufacturing customer.

2. When you bill the customer for use of this equipment via a monthly facility
   fee, you are asking if you should collect sales tax from the customer or should
   you require that they submit an exemption certificate to you?

Response: As you may be aware, subsection (b)(2) of Tax Code 151.318 provides
an exemption for semiconductor fabrication cleanrooms and equipment. A semi
conductor manufacturer may issue your company an exemption certificate on the
lease or purchase of the vaporizer, piping, purifier and storage tank which are
used in, or to support, their semi- conductor cleanroom. Leases of qualifying
equipment entered into on or after October 1, 1995 are exempt from sales tax if
the lease term is for a period of at least 12 months.

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:

Sincerely,

Gilbert Zamora
Tax Policy Division