Texas State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Texas, with full citations and the original source on every page.
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Does Texas's sales tax exemption for equipment used to recycle fracturing wastewater cover a company's water-treatment plant that treats wastewater for resale — including water it eventually disposes of in a saltwater well?
No, not under the specific fracturing-wastewater-recycling exemption (§ 151.355(7)) — that exemption requires the treated water to actually be reused in fracturing work, and this company mainly treats…
Does Texas's manufacturing sales tax exemption cover a steel manufacturer's dedicated quality-control lab equipment — lathes, presses, ovens, and materials-testing machines — used to test finished plates before sale?
Yes. Equipment a manufacturer uses exclusively to prepare and test product samples for quality control — here, a lathe, mechanical press, ovens, and testing machines like a Charpy impact tester, tensi…
Does a restaurant owe Texas sales tax on the disposable collars it uses to temporarily extend soft-serve ice cream cups while blending toppings?
Yes, tax applies. The Comptroller ruled that disposable collars a restaurant uses to temporarily extend soft-serve cups during blending are taxable "hand tools" excluded from Texas's manufacturing exe…
Do solar farm racking, support posts, AC collection systems, cables, and inverter-transformers qualify for Texas's manufacturing sales tax exemption as equipment used to generate electricity for sale?
It's split by function. The solar panels/modules themselves are exempt manufacturing equipment, but the fixed racking, tracker racking, and support posts that merely hold and position multiple panels …
Is reactivating spent (used-up) industrial activated carbon by burning off its absorbed impurities "manufacturing" or "processing" for Texas sales tax purposes, or is it just a taxable repair service?
It's a repair service, not manufacturing or processing. A company that reactivates customers' spent activated carbon by dewatering it and burning off absorbed impurities is restoring someone else's de…
Which pieces of compression, cooling, and refrigeration equipment in a Texas LNG export facility qualify for the sales tax manufacturing exemption?
Yes, with one narrow carve-out. Compressors and coolers that pressurize or temperature-condition the gas stream to the specs required by an already-exempt piece of processing equipment (like the Acid …
If mined sand is unprocessed, can the mining company still claim a tax exemption on the electricity used to move it, even without the manufacturing-equipment exemption?
Yes for electricity used to transport the sand, no for equipment or natural gas. A sand mining company's washed, dried, sorted, and hydroclone-separated sand is unprocessed and exempt from sales tax; …
Does a battery system a wind farm installs to store generated electricity for grid-reliability service qualify for Texas's manufacturing sales tax exemption?
No. A battery system a wind farm installs to store electricity for a grid fast-response reliability program does not qualify for Texas's manufacturing sales tax exemption, because the exemption exclud…
Does a battery system a wind farm installs to store generated electricity for grid-reliability service qualify for Texas's manufacturing sales tax exemption?
No. A battery system a wind farm installs to store electricity for a grid fast-response reliability program does not qualify for Texas's manufacturing sales tax exemption, because the exemption exclud…
Can a lab that tests blood plasma samples for infectious diseases before its client manufactures medicine claim Texas's manufacturing exemption on its testing equipment and supplies?
No. A laboratory that tests source-plasma samples for infectious diseases on behalf of pharmaceutical manufacturers cannot claim Texas's manufacturing sales tax exemption on its testing equipment and …
Do refractory materials stacked in layers on kiln cars, which both protect the car and help distribute heat evenly to bricks being fired, qualify for the Texas manufacturing sales tax exemption?
It depends on the layer's function. Refractory materials stacked on kiln cars that serve EXCLUSIVELY to distribute heat evenly during brick firing qualify for the manufacturing exemption -- but the bo…
Is electricity used to power refrigeration equipment that merely stores already-exempt food products (with no processing) exempt from Texas sales tax?
Taxable. The Comptroller ruled that electricity used to power refrigeration equipment that only stores food products (even food that is itself exempt from sales tax) is taxable, because Texas's electr…
Does a Texas cotton gin need its own individual utility (predominant-use) study to claim the sales tax exemption on the electricity it uses to run the gin?
No individual study is needed. The Comptroller ruled that a cotton gin may claim the sales and use tax exemption on 100% of the electricity it purchases through a dedicated meter to power the gin, rel…
Does converting customer-owned natural gas into liquefied natural gas (LNG) under a tolling arrangement -- where the processor never owns the gas -- still qualify as exempt 'processing' for Texas's manufacturing exemption?
Yes. The Comptroller ruled that liquefying natural gas into LNG for export is 'processing' that qualifies for the Texas manufacturing exemption whether the company sells the LNG itself (an F.O.B. arra…
Is converting natural gas into liquefied natural gas (LNG) for overseas shipment 'processing' eligible for Texas's manufacturing exemption, or is it just a taxable transportation-related activity?
Processing, not transportation. The Comptroller ruled that converting natural gas into liquefied natural gas (LNG) -- by changing its chemical composition and compressing/cooling it into a liquid -- i…
Can a petroleum terminal operator claim the sales tax exemption on the natural gas it uses to heat customer-owned fuel oils, on the theory that the heating is part of processing (blending) or part of transporting a material extracted from the earth?
Denied, for lack of proof. The Comptroller declined to rule that a petroleum terminal operator's natural gas -- used to heat and keep warm stored fuel oils awaiting transport -- qualifies for either t…
Amended Texas Private Letter Ruling: Is converting pipeline-quality natural gas into liquefied natural gas (LNG) at a new Texas LNG plant exempt manufacturing 'processing,' or is it all just excluded 'transportation' activity because the gas is being prepared for overseas shipment?
AMENDED RULING (corrects typographical errors in a December 19, 2014 original). At least some of the activities that convert pipeline-quality natural gas into liquefied natural gas (LNG) at a planned …
When a company installs a custom VIP interior into a 'green' (interior-less) aircraft that a customer already bought from the manufacturer, is that manufacturing (with its sales-tax exemption) or taxable remodeling -- and does it matter that the FAA issues a new Standard Airworthiness Certificate only after the interior goes in?
Remodeling, not manufacturing -- and an FAA airworthiness certificate or pilot's license proves nothing about Texas tax status. The Comptroller ruled that a company hired to design and install a custo…
Can a manufacturer claim a 100%-exempt sales tax refund on steam purchases by citing the "predominant use" test that applies to natural gas and electricity?
No -- wrong exemption theory, though a narrower one may still apply. The "predominant use" test in Rule 3.295/Sec. 151.317(e), which lets a taxpayer claim 100% exemption on natural gas or electricity …
Can a sole-proprietor furniture manufacturer occasionally install pieces that get permanently attached to real property, without losing manufacturing tax exemptions on the equipment used to make them?
It depends on the structure. A manufacturer can form a genuinely separate legal entity (a partnership or corporation -- not just another DBA under the same sole proprietorship) to sell to and install …
If manufacturing software qualifies for Texas's manufacturing exemption, does that exemption also cover the software's installation, training, and maintenance/technical-support charges?
Mostly favorable, with one nuance on why training isn't taxed. Software used directly and exclusively by a manufacturer to produce or test tangible personal property for sale qualifies for the manufac…
Is materials/labor for building or modifying a jet engine prototype exempt as manufacturing or resale, since the prototype itself won't be sold?
As of this 2001 letter: fully taxable. A prototype is an original model or sample used as the pattern that other, later production items will copy -- it's generally not itself offered for sale, so mat…
A contractor paid tax in full on a lump-sum new-construction contract to install a manufacturing process line -- can it now claim a manufacturing exemption refund on the qualifying equipment, even though the contract was lump sum?
No refund available for new construction, but repair/remodel work is different. The manufacturing exemption is categorically NOT available for equipment installed under a lump-sum contract for NEW con…
Is electricity used to treat wastewater from a residential community exempt from Texas sales tax, and does it matter whether a third-party treatment company or the landlord itself buys the electricity?
It depends on who buys the electricity. Treating wastewater is a nontaxable service, so the manufacturing exemption under Tax Code § 151.318 doesn't apply to the electricity used to power that treatme…
Which manufacturing-adjacent equipment qualifies for Texas's manufacturing sales tax exemption — hand tools, quality-control gauges, mold-design equipment — and which doesn't?
Mostly no exemption. Disposable epoxy applicator bottles and hand-operated calipers (digital or not) are hand tools and do NOT qualify for the manufacturing exemption, regardless of whether the readou…
Is electricity an agricultural cooperative uses to process its members' farm products exempt from Texas sales tax under the agricultural exemption, or some other exemption?
Exempt, but for a different reason than the cooperative may have assumed. The agricultural exemptions in Tax Code §§ 151.316(a)(7)-(8) and 151.317(a)(5) are limited to farms/ranches and to an 'origina…
What are the requirements for a predominant use study that lets a print shop claim the manufacturing exemption on its natural gas and electricity?
A print shop's electricity/gas can be exempt under the manufacturing exemption if it powers equipment directly used and necessary/essential to manufacturing (§ 151.318(a)(2)), equipment that powers/su…
Is a restaurant's scale/dispenser that portions out a fixed weight of uncooked french fries before frying exempt from Texas sales tax as manufacturing equipment?
Taxable, but only since a rule change. A restaurant scale/dispenser that measures out a fixed weight (e.g., one or one-and-a-half pounds) of uncooked french fries into a frying basket was EXEMPT befor…
Can a meat processing plant buy aprons/frocks, refuse receptacles, and liquid soap/disinfectants tax-free under the public-health-compliance manufacturing exemption?
Mixed result across three items. LIQUID SOAP AND DISINFECTANTS for hand/equipment cleaning ARE exempt under Section 151.318(a)(10), because 9 C.F.R. Section 307.2(f) affirmatively requires them for sa…
Does incinerating waste into ash for disposal count as tax-exempt 'processing' or 'manufacturing' of tangible personal property, or is it a nontaxable waste-disposal service instead?
Not processing/manufacturing, as structured in this case. A limited partnership that incinerates waste into ash, where the operation's purpose is waste disposal (not creating a marketable product) and…
Can an auto body shop claim the Texas manufacturing exemption for equipment like a fire suppression system in its paint spray booth?
No. An automobile body shop that repairs or remodels customers' vehicles is not a "manufacturer" under Tax Code § 151.318, so it cannot claim the manufacturing exemption for equipment like an automati…
Can a semiconductor manufacturer use dedicated electrical submeters, instead of a full predominant-use study of every piece of equipment, to claim the Texas manufacturing electricity exemption?
Yes, but with conditions. A semiconductor manufacturer can qualify for the Texas sales tax exemption on electricity based on predominant use measured by dedicated submeters — without listing the kilow…
Does incinerating waste into ash for disposal count as tax-exempt manufacturing/processing under Texas law?
No. Incinerating waste material into ash purely for disposal purposes is not tax-exempt "processing" under Texas Tax Code § 151.318, so a related-party limited partnership performing the incineration …
Can a caterer claim the manufacturing exemption on the gas and electricity its stoves and ovens use to prepare meals for events?
No. Gas and electricity used by a caterer to prepare or store food for immediate consumption do not qualify for the sales tax exemption under Tax Code § 151.317(a)(3), because a caterer that prepares …
Can a joint venture that tolls (processes) a gas stream owned by the federal government — extracting and cleaning a specific gas molecule — claim the manufacturing exemption on its processing equipment, even though it never owns or sells the gas itself?
Yes. A joint venture that operates a tolling facility — extracting, separating, and cleaning a specific gas molecule (helium) from a gas stream owned by the federal government, and returning the extra…
Can someone who buys manufacturing equipment avoid sales tax on the purchase by leasing it out, if the equipment lease is bundled together with a building lease?
No. When an individual buys manufacturing equipment and then leases it together with land and a building to a related company in a single bundled real estate lease — with no separate sales tax charged…
Does Texas's semiconductor-manufacturing exemption cover cleanroom printer supplies, laundering exempt cleanroom gowns, a failure-analysis lab that supports the fab, and cleanroom partition repairs?
Texas's semiconductor fabrication cleanroom exemption (Tax Code § 151.318(b)(2), (q)) reaches well beyond the cleanroom's core machinery: printer toner and special cleanroom paper used for lot-trackin…
Can an out-of-state buyer of used Texas manufacturing equipment issue a Texas manufacturing exemption certificate, even though the equipment will be shipped out of state and used at a California plant instead of in Texas?
Yes. There is no requirement in the Tax Code or administrative rules that manufacturing equipment purchased under the Section 151.318(a) exemption actually be used in Texas — so a California corporati…
Can a Texas manufacturer buy wrapping and packaging equipment (and its repairs) tax-free, and does that exemption survive if the wrapping/packaging step is subcontracted out to another company?
Yes. A Texas manufacturer may buy stretch wrappers, strappers, and shrink wrappers — plus their repair parts and repair labor — tax-free under Tax Code § 151.318(a)(2), because packaging the finished …
Does software that links a manufacturer's computer to its production machines qualify for the Texas manufacturing exemption, even when the same software also tracks orders and calculates scrap?
Partly. Software that downloads pattern data directly into production machines and has a direct effect on the product being manufactured qualifies as exempt manufacturing equipment. But the same syste…
If a janitorial vendor bills separately for general building cleaning and for special decontamination cleaning inside a semiconductor cleanroom, is the cleanroom-specific charge exempt from Texas sales tax?
Yes, when separately billed. General building janitorial services are a taxable service under 34 TAC § 3.356(a)(7), but the separate line-item charge for daily decontamination cleaning performed speci…
Is wax paper a restaurant buys to microwave-heat sandwiches on exempt as a manufacturing item, or taxable because it's really used to store or separate food?
It depends entirely on how the wax paper is actually used, and the taxpayer bears the burden of proof either way. If the restaurant can show the wax paper is used in preparing, warming, or reheating f…
Can a manufacturing customer use a single manufacturing exemption certificate to buy everything tax-free — including hand tools, brooms, and sports drinks — and just self-assess use tax later on its own return?
No. A manufacturer may only buy tax-free, under a manufacturing exemption certificate, items that will be incorporated into a product for sale or that otherwise qualify for exemption under Tax Code § …
Can a door manufacturer buy tax-free, as exempt wrapping/packaging supplies, the advertising brochures it includes with each manufactured door?
No. A door manufacturer's advertising brochures — describing additional options like screen doors or other door types — are taxable whether they're included with the manufactured product or placed in …
Can a water/sewer materials supplier split a nonprofit Water Supply Corporation's account into taxable "water" purchases and exempt "sewer" purchases, since the sewer items are used in the wastewater treatment (manufacturing) process?
Not a clean split. Nonprofit water supply corporations are not exempt from sales tax generally — some of their purchases can qualify for a manufacturing exemption because processing water (or treated …
Are component parts a manufacturer buys to build demonstration machines exempt from sales tax under the manufacturing exemption?
It depends on whether the demonstration machine is ever going to be sold. A manufacturer eligible for manufacturing exemptions may buy a 'display item' — one identical in size and function to items he…
Does the sale tax manufacturing exemption cover a coin-operated coffee vending machine, the exemption certificate needed to buy it tax-free, and its repair parts?
Yes, on all three points confirmed. A coin-operated coffee machine that causes a physical or chemical change in the coffee product being processed for sale qualifies for the manufacturing exemption un…
If two commonly-owned S corporations merge into one, does that eliminate the sales tax that used to apply when they sold lumber products to each other, and does merging change the manufacturing exemption on the equipment involved?
Merging eliminates the sales tax on the internal transfers, but does not fix the manufacturing exemption problem. Two commonly-owned S corporations — S1 (which cuts raw lumber into pickets and fence p…
Does metal detection equipment used for food-safety quality control during spice and seasoning processing qualify for Texas's manufacturing exemption?
Yes. A food processor that blends and packages spices, herbs, and seasonings purchased metal detection equipment to screen out physical contaminants like metal fragments as part of its food-safety pro…
How does a highway contractor that blasts and crushes rock from a leased quarry compute its taxable cost of rock used in lump-sum construction contracts, versus rock it sells at retail?
This is a detailed auditor's-confirmation letter covering several linked points for a highway contractor that blasts rock from a leased pit, crushes it, and both uses it on lump-sum contracts and sell…
For a manufacturer: are safety apparel, hand tools, and dies/molds used to make products exempt from Texas sales tax, and how does a written agreement affect whether a die charge to a customer is a taxable sale?
Four separate manufacturing-exemption points, confirmed together. (1) Safety apparel and work clothing used during actual manufacturing/processing of goods for ultimate sale is exempt under Tax Code §…
Does the manufacturing exemption cover an excavator with grapples used to gather raw material before an organic mulch manufacturing process begins, versus the wood grinder that actually processes it?
It depends on which stage of the operation the equipment is used in. A manufacturer may exempt equipment directly used in the actual manufacturing, processing, or fabrication of goods for ultimate sal…
Is a wastewater treatment facility's flat monthly sewer-connection charge to customers taxable, and does a nonprofit water supply corporation owe tax on the chemicals and equipment it buys to run the facility?
The customer-facing charge is not taxable, but the facility's own purchases usually are. There is no sales tax due on flat rate monthly charges billed to customers who connect their sewer lines to a w…
Is an Eagle Sand Classifier — a machine that washes and sizes sand — exempt manufacturing/processing equipment under Texas sales tax law?
No. Simply sizing, screening, sorting, washing, or drying sand does not count as "processing" under Rule 3.300, because it doesn't modify or change the characteristics of the sand. So a sand classifie…
Does a pagination system — the computer hardware and software a newspaper publisher uses to design and lay out pages before printing — qualify for Texas's manufacturing exemption from sales and use tax?
Yes. A pagination system — the combined computer hardware and software used to design, edit, and assemble newspaper page layouts before the negatives and plates are made — qualifies as exempt manufact…
A clothing manufacturer uses spreading tables with an attached cutting blade to spread and cut fabric. Does the whole table qualify for the manufacturing exemption because the blade is attached to it, or does only the blade itself qualify?
Only the blade qualifies, not the table. The spreading table itself does not qualify for the manufacturing exemption because it doesn't directly cause a chemical or physical change to the product. The…
Does a pagination system — computer hardware and software used to design, edit, and assemble page layouts for commercial printing and newspaper production — qualify for Texas's manufacturing exemption from sales and use tax?
Yes. A pagination system — a combination of computer hardware and software that lets a printer/publisher design, edit, and assemble page layouts before the files are sent to pre-press to make negative…
Is natural gas and electricity used to perform failure-analysis testing on metals, plastics, coatings, and other materials exempt as utilities used in manufacturing or processing?
No. The sales tax law exempts utilities (gas and electricity) used in manufacturing or processing tangible personal property FOR SALE as tangible personal property — but a failure-analysis testing ser…
Does a company that collects and processes human blood plasma for sale to out-of-state pharmaceutical manufacturers qualify for Texas's manufacturing exemption on its equipment, packaging, and utilities purchases?
Yes. A company that processes human blood plasma for sale to pharmaceutical manufacturers qualifies for Texas's manufacturing exemption (Tax Code § 151.318) on machinery and equipment that physically …
Are anti-static grounding wristbands and anti-static floor mats/carpeting, used by circuit board manufacturing workers to prevent static electricity damage, exempt from Texas sales tax as manufacturing safety apparel?
Split answer. Grounded anti-static wristbands qualify for the safety apparel/work clothing exemption under Tex. Tax Code § 151.318(a)(9) because the circuit board manufacturing process couldn't happen…
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These are official tax letter rulings and advisory opinions issued by Texas's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.