Tax Code
Title 2. State Taxation
Subtitle E. Sales, Excise and Use Taxes
Chapter 151. Limited Sales, Excise and Use Tax
Sec. 151.318. Property Used In Manufacturing
Sec. 151.3181. Divergent Use of Property Used In Manufacturing
Sec. 151.318. PROPERTY — USED IN MANUFACTURING. (a) The following items are exempted from the taxes imposed by this chapter if sold, leased, or rented to, or stored, used, or consumed by a manufacturer:
(1) tangible personal property that will become an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale;
(2) tangible personal property directly used or consumed in or during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary or essential to the manufacturing, processing, or fabrication operation and directly makes or causes a chemical or physical change to:
(A) the product being manufactured, processed, or fabricated for ultimate sale; or
(B) any intermediate or preliminary product that will become an ingredient or component part of the product being manufactured, processed, or fabricated for ultimate sale;
(3) services performed directly on the product being manufactured prior to its distribution for sale and for the purpose of making the product more marketable;
(4) actuators, steam production equipment and its fuel, in-process flow through tanks, cooling towers, generators, heat exchangers, transformers and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are related to the transformers, electronic control room equipment, computerized control units, pumps, compressors, and hydraulic units, that are used to power, supply, support, or control equipment that qualifies for exemption under Subdivision (2) or (5) or to generate electricity, chilled water, or steam for ultimate sale; transformers located at an electric generating facility that increase the voltage of electricity generated for ultimate sale, the electrical cable that carries the electricity from the electric generating equipment to the step-up transformers, and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are related to the step-up transformers; and transformers that decrease the voltage of electricity generated for ultimate sale and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are related to the step-down transformers;
(5) tangible personal property used or consumed in the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to a pollution control process;
(6) lubricants, chemicals, chemical compounds, gases, or liquids that are used or consumed during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if their use or consumption is necessary and essential to prevent the decline, failure, lapse, or deterioration of equipment exempted by this section;
(7) gases used on the premises of a manufacturing plant to prevent contamination of raw material or product, or to prevent a fire, explosion, or other hazardous or environmentally damaging situation at any stage in the manufacturing process or in loading or storage of the product or raw material on premises;
(8) tangible personal property used or consumed during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to a quality control process that tests tangible personal property that is being manufactured, processed, or fabricated for ultimate sale;
(9) safety apparel or work clothing that is used during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if:
(A) the manufacturing process would not be possible without the use of the apparel or clothing; and
(B) the apparel or clothing is not resold to the employee;
(10) tangible personal property used or consumed in the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to comply with federal, state, or local laws or rules that establish requirements related to public health; and
(11) 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.
(b) The exemption includes:
(1) chemicals, catalysts, and other materials that are used during a manufacturing, processing, or fabrication operation to produce or induce a chemical or physical change, to remove impurities, or to make the product more marketable;
(2) semiconductor fabrication cleanrooms and equipment; and
(3) pharmaceutical biotechnology cleanrooms and equipment that are installed as part of the construction of a new facility on which construction began after July 1, 2003.
(c) The exemption does not include:
(1) intraplant transportation equipment, including intraplant transportation equipment used to move a product or raw material in connection with the manufacturing process and specifically including all piping and conveyor systems, provided that the following remain eligible for the exemption:
(A) piping or conveyor systems that are a component part of a single item of manufacturing equipment or pollution control equipment eligible for the exemption under Subsection (a)(2), (a)(4), or (a)(5);
(B) piping through which the product or an intermediate or preliminary product that will become an ingredient or component part of the product is recycled or circulated in a loop between the single item of manufacturing equipment and the ancillary equipment that supports only that single item of manufacturing equipment if the single item of manufacturing equipment and the ancillary equipment operate together to perform a specific step in the manufacturing process; and
(C) piping through which the product or an intermediate or preliminary product that will become an ingredient or component part of the product is recycled back to another single item of manufacturing equipment and its ancillary equipment in the same manufacturing process;
(2) hand tools;
(3) maintenance supplies not otherwise exempted under this section, maintenance equipment, janitorial supplies or equipment, office equipment or supplies, equipment or supplies used in sales or distribution activities, research or development of new products, or transportation activities;
(4) machinery and equipment or supplies to the extent not otherwise exempted under this section used to maintain or store tangible personal property; or
(5) tangible personal property used in the transmission or distribution of electricity, including transformers, cable, switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units not otherwise exempted under this section, and lines, conduit, towers, and poles.
(d) In this section, “manufacturing” includes each operation beginning with the first stage in the production of tangible personal property and ending with the completion of tangible personal property having the physical properties (including packaging, if any) that it has when transferred by the manufacturer to another.
(e) This section does not apply to any taxable item rented or leased for less than one year to a person engaged in manufacturing.
(f) For purposes of Subsection (c)(1), piping through which material is transported forward from one single item of manufacturing equipment and its ancillary support equipment to another single item of manufacturing equipment and its ancillary support equipment is not considered a component part of a single item of manufacturing equipment and is not exempt. 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 is not a single item of manufacturing equipment.
(g) Repealed by Acts 1999, 76th Leg., ch. 1467, Sec. 4.01(3), eff. June 19, 1999.
(h) to (m) Repealed by Acts 1997, 75th Leg., ch. 1390, Sec. 3, eff. Oct. 1, 1997.
(n) A person engaged in overhauling, retrofitting, or repairing jet turbine aircraft engines and their component parts is entitled to an exemption from the tax imposed by this chapter for the purchase of machinery, equipment, or replacement parts or accessories with a useful life in excess of six months, or supplies, including aluminum oxide, nitric acid, and sodium cyanide, used in electrochemical plating or a similar process that are used or consumed in the overhauling, retrofitting, or repairing.
(o) The production of a publication for the dissemination of news of a general character and of a general interest that is printed on newsprint and distributed to the general public free of charge at a daily, weekly, or other short interval is considered “manufacturing” for purposes of this section.
(p) For the purposes of this section, the manufacturing of computer software begins with the design and writing of the code or program for the software and includes the testing or demonstration of the software.
(q) For purposes of Subsection (b), “semiconductor fabrication cleanrooms and equipment” means all tangible personal property, without regard to whether the property is affixed to or incorporated into realty, used in connection with the manufacturing, processing, or fabrication in a cleanroom environment of a semiconductor product, without regard to whether the property is actually contained in the cleanroom environment. The term includes integrated systems, fixtures, and piping, all property necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity, or other environmental conditions or manufacturing tolerances, and production equipment and machinery. The term does not include the building or a permanent, nonremovable component of the building, that houses the cleanroom environment. The term includes moveable cleanroom partitions and cleanroom lighting. “Semiconductor fabrication cleanrooms and equipment” are not “intraplant transportation equipment” as that term is used in Subsection (c)(1).
(q-1) For purposes of Subsection (b), “pharmaceutical biotechnology cleanrooms and equipment” means all tangible personal property, without regard to whether the property is affixed to or incorporated into realty, used in connection with the manufacturing, processing, or fabrication in a cleanroom environment of a pharmaceutical biotechnology product, without regard to whether the property is actually contained in the cleanroom environment. The term includes integrated systems, fixtures, and piping, all property necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity, or other environmental conditions or manufacturing tolerances, and production equipment and machinery. The term does not include the building or a permanent, nonremovable component of the building that houses the cleanroom environment. The term includes moveable cleanroom partitions and cleanroom lighting. “Pharmaceutical biotechnology cleanrooms and equipment” are not “intraplant transportation equipment” as that term is used in Subsection (c)(1).
(r) A taxpayer claiming an exemption under this section has the burden of proof that the exemption is applicable and that no exclusion under Subsection (c) applies.
(s) The following do not apply to the semiconductor fabrication cleanrooms and equipment in Subsection (q) or the pharmaceutical biotechnology cleanrooms and equipment in Subsection (q-1):
(1) limitations in Subsection (a)(2) that refer to tangible personal property directly causing chemical and physical changes to the product being manufactured, processed, or fabricated for ultimate sale;
(2) Subsection (c)(1); and
(3) Subsection (c)(4).
(t) In addition to the other items exempted under this section, pre-press machinery, equipment, and supplies, including computers, cameras, photographic props, film, film developing chemicals, veloxes, plate-making machinery, plate metal, litho negatives, color separation negatives, proofs of color negatives, production art work, and typesetting or composition proofs, that are necessary and essential to and used in connection with the printing process are exempted from the tax imposed by this chapter if they are purchased by a person engaged in:
(1) printing or imprinting tangible personal property for sale; or
(2) producing a publication for the dissemination of news of a general character and of a general interest that is printed on newsprint and distributed to the general public free of charge at a daily, weekly, or other short interval.
Acts 1981, 67th Leg., p. 1564, ch. 389, Sec. 1, eff. Jan. 1, 1982. Amended by Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 7, Sec. 13, 19, eff. Oct. 2, 1984; Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 1, pt. 4, Sec. 26; Acts 1989, 71st Leg., ch. 154, Sec. 1, eff. Aug. 28, 1989; Acts 1991, 72nd Leg., ch. 705, Sec. 15, eff. Sept. 1, 1991; Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 14.081(a); Acts 1993, 73rd Leg., ch. 404, Sec. 1, eff. Oct. 1, 1993; Acts 1993, 73rd Leg., ch. 587, Sec. 14, eff. Oct. 1, 1993; Acts 1995, 74th Leg., ch. 1000, Sec. 17, eff. Oct. 1, 1995; Acts 1997, 75th Leg., ch. 1010, Sec. 4.40, eff. July 1, 1997; Acts 1997, 75th Leg., ch. 1040, Sec. 22, eff. Oct. 1, 1997; Acts 1997, 75th Leg., ch. 1390, Sec. 1 to 3, eff. Oct. 1, 1997; Acts 1999, 76th Leg., ch. 62, Sec. 19.01(91), eff. Sept. 1, 1999; Acts 1999, 76th Leg., ch. 1467, Sec. 2.19, eff. Oct. 1, 1999; Acts 1999, 76th Leg., ch. 1467, Sec. 4.01, eff. June 19, 1999; Acts 2001, 77th Leg., ch. 1263, Sec. 22, eff. Oct. 1, 2001; Acts 2001, 77th Leg., ch. 1420, Sec. 21.001(100), eff. Sept. 1, 2001; Acts 2003, 78th Leg., ch. 1310, Sec. 106, eff. June 20, 2003.
Amended by:
Acts 2007, 80th Leg., R.S., Ch. 1266 (H.B. 3319), Sec. 6(a), eff. July 1, 2007.
Sec. 151.3181. DIVERGENT — USE OF PROPERTY — USED IN MANUFACTURING. (a) In this section:
(1) “Divergent use” means the use of property in a manner or for a purpose other than the manner or purpose that qualified the sale, lease, rental, use, or other consumption of the property for exemption under Section 151.318.
(2) “Property” means tangible personal property regardless of whether the tangible personal property is permanently affixed to or incorporated into realty after its purchase.
(b) Divergent use of property exempted under Section 151.318 will not result in sales and use tax being due on the property if the divergent use occurs after the fourth anniversary of the date the property is purchased.
(c) Except as provided by Subsection (d), divergent use of property exempted under Section 151.318 that occurs during any month before the fourth anniversary of the date the property is purchased results in sales and use tax being due for that month. The amount of the sales and use tax due for a month is equal to 1/48 of the purchase price of the property multiplied by the percentage of divergent use during that month multiplied by the sales and use tax rate applicable at the time of purchase.
(d) Divergent use of property exempted under Section 151.318 that occurs during a month before the fourth anniversary of the date the property is purchased does not result in sales and use tax being due for that month if the percentage of divergent use during that month does not exceed five percent of the total use of the property that month.
(e) The amount of divergent use during a month is:
(1) the total time the property operates for a divergent use during a month, measured in hours; or
(2) the total output of the property during divergent use during a month, measured in a manner applicable to that property.
(f) The total use of property is:
(1) the total time the property operates during a month, measured in hours; or
(2) the total output of the property during a month, measured in a manner applicable to that property.
(g) The percentage of divergent use for a month is determined by:
(1) dividing the amount of divergent use determined under Subsection (e)(1) by the amount of total use of the property determined under Subsection (f)(1); or
(2) dividing the amount of divergent use determined under Subsection (e)(2) by the amount of total use of the property determined under Subsection (f)(2).
(h) The use of “pharmaceutical biotechnology cleanrooms and equipment,” as that term is defined by Section 151.318(q-1), to manufacture, process, or fabricate a pharmaceutical biotechnology product that is not sold is not a divergent use if the use occurs during the certification process by the United States Food and Drug Administration.
Added by Acts 2001, 77th Leg., ch. 1263, Sec. 23, eff. Oct. 1, 2001. Amended by Acts 2003, 78th Leg., ch. 1310, Sec. 107, eff. June 20, 2003.
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