Are conveyors, piping, and water-treatment equipment in a rock-crushing plant exempt from Texas sales tax as manufacturing equipment?

Plain-English summary

A company that blasts rock from a quarry and crushes it into sand or rock product asked whether its processing equipment -- shakers, log washers, sand screws, a high-pressure water system, and the conveyors/piping connecting them -- qualified for Texas's manufacturing sales tax exemption.

The Comptroller split the answer. The shakers, log washers, sand screws, and water pressure machine qualify for exemption because each one directly makes a chemical or physical change in the product (separating rock from clay, sizing the material). But the conveyors that move material between machines and the piping that carries water to a holding pit are taxable, even though they're part of the same integrated operation -- because Texas judges the manufacturing exemption item-by-item, not by treating a whole process or system as a single exempt unit. A conveyor or pipe is only exempt if it's a component part of a qualifying piece of equipment, not merely because it operates alongside exempt machines.

The letter also notes a separate, narrower exemption in Tax Code § 151.318(a)(11) for equipment specifically installed to reduce, reuse/recycle, or treat wastewater in a manufacturing operation -- but found the taxpayer hadn't provided enough facts to determine whether any of the water-filtering equipment qualified under that provision.

What this means for you

Manufacturers evaluating equipment for the exemption

Don't assume that because your production line or process is exempt overall, every piece of connecting equipment is too. Texas requires an item-by-item analysis: ask whether this specific machine directly causes a chemical or physical change in the product. Transportation and connecting equipment (conveyors, piping, chutes) is presumptively taxable unless it's built into a qualifying machine.

Companies with wastewater treatment/recycling equipment

If your water system reduces water use, recycles wastewater, or treats water for reuse in your manufacturing process, look at Tax Code § 151.318(a)(11) separately -- it's a distinct exemption from the general manufacturing exemption and may cover equipment the general rule wouldn't.

Accountants and tax professionals

This is a clean illustration of the "each piece of equipment is judged on its own merits" doctrine -- avoid grouping machines into a "system" or "process" when evaluating exemption eligibility, since that framing itself was rejected here.

Common questions

Q: If my manufacturing process as a whole is exempt, are the conveyors connecting the machines also exempt?
A: Not automatically. Texas looks at each piece of equipment individually; a conveyor is taxable unless it's a component part of a specific qualifying machine, even if it operates within an otherwise-exempt process.

Q: What equipment did qualify for exemption in this ruling?
A: The shakers, log washers, sand screws, and high-pressure water pressure machine -- each one directly makes a chemical or physical change (separating rock from clay) in the product.

Q: Is there a separate exemption for wastewater equipment?
A: Yes -- Tax Code § 151.318(a)(11) exempts equipment specifically installed to reduce water use, recycle wastewater, or treat water for reuse in a manufacturing operation, but the taxpayer here hadn't given enough facts to confirm it applied.

Citations and references

Statutes:

• Tex. Tax Code § 151.318(a)(11) (wastewater reduction/recycling/treatment equipment exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9912917L

Original ruling text

December 1, 1999

Subject: Quality Control Equipment for a Rock Crusher

Thank you for your recent e-mail.

You are representing a company who operates a "manufactured sand and rock"
operation. That is, they blast rock out of a quarry and crush this rock to a
fine sand or rock product. The rock which is blasted out of the quarry is
about 60% limestone rock and 40% hardened clay.

Once the rock has been blasted out and transferred to the "Primary Rock
Crusher", it is crushed, shaken through a series of "Shaker Screens", and
further separated and crushed on several repeat operations by similar shakers
and crushers and "Log Washers" until the final product is both clean and
appropriately sized. Throughout the entire operation, high pressure water is
being forced over and through the rock/clay mixture to separate the two
components and to remove the clay altogether.

Once the rock has been initially crushed, it immediately falls into a "shaker".
The purpose of this shaker is threefold. First, and primarily, to begin the
separation process of the rock/clay mixture. In the shaker, the mixture is
exposed to a high pressure water flow in order to soften the clay. Second, the
mixture is being shaken to loosen the clay from the rock. Third, it is sized
through a screening process that determines to which crusher the rock will next
be moved. As the rock/clay is moved along a conveyor to the next crusher and
shaker, it is continuously exposed to high pressure water in order to further
soften and loosen the clay.

It will repeat this crushing and shaking process several times until the
appropriate size rock or sand has been achieved. All the while, the clay,
which will eventually become a fine sediment, is being removed and, through the
water system, returned to a holding pit where it will settle out of the water.
In several of the shakers, the rock mixture (after it has been entirely
separated from the clay) will be run back through in order to mix the various
rock sizes into a predetermined mixture for resale.

The purpose of the "log washer" is the same as the "shaker" with one exception.
It will grind the rocks upon themselves to cause them to loosen the remaining
clay from them as they are prepared for the final crushing. At the end of the
process, the remaining clay sediment is filtered out through a "sand screw" and
the water mixture will be pumped into the holding pit.

You contend that:

1) The shakers are performing both a manufacturing function (as they are
separating rock from clay) and a quality control function (by making the
product - in this case the rock) into a purer form;

2) The log washers and sand screws are performing quality controls functions
by separating the clay from the rocks as well;

3) The entire high pressure water system is performing a quality control
function by aiding directly in the removal of the clay from the rock; and,

4) The water system is also acting as a waste removal system since it is
transporting the waste by-product (the clay) back to a holding pit where it
will eventually settle out of the water into a lake bed.

You are asking for an exemption on all of the above mentioned items.

Response. The shakers, log washers, sand screws, and water pressure machine
appear to make a chemical or physical change in the product for sale and
qualify for exemption.

You refer to water equipment as a "water system" or "waste removal system."
For the manufacturing exemptions, we look to each single item of manufacturing
equipment and not a system or process approach. Each piece of equipment is
judged on its own merits. There is no exemption for piping or conveyors that
are part of an integrated group of manufacturing and processing machines and
ancillary equipment that operate together to create or produce the product or
an intermediate or preliminary product that will become an ingredient or
component part of the product. As a result, the conveyor discussed above would
be taxable unless it was a component part of a qualifying piece of equipment.
Piping to transport water to the holding pit would also be taxable.

There is an exemption in Texas Tax Code 151.318 (a)(11) for tangible personal
property specifically installed to:

(A) reduce water use and wastewater flow volumes from the manufacturing,
processing, fabrication, or repair operation;

(B) reuse and recycle wastewater streams generated within the manufacturing,
processing, fabrication, or repair operation; or

(C) treat wastewater from another industrial or municipal source for the
purpose of replacing existing freshwater sources in the manufacturing,
processing, fabrication, or repair operation.

However, you have not provided enough information to determine if this
exemption applies to any of your water filtering equipment.

Several publications and other items of interest (including the Texas Tax Code)
are also available on our web page .

Sales tax rules are available at
.

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, extension 5-0613.
You may also write to Tax Policy Division, Comptroller of Public Accounts, Post
Office Box 13528, Austin, Texas 78711.

Kevin Koller
[email protected]