When a manufacturer bills a customer separately for the die (mold/tooling) used to make the customer's product, but keeps possession of the die itself, is that a taxable sale of the die?

Plain-English summary

A box manufacturer that uses printing plates (dies) to convert corrugated sheets into finished boxes asked whether purchasing those dies, and separately billing customers for them while keeping possession, creates taxable transactions. The Comptroller drew a bright line based on documentation:

• With a written agreement clearly making the customer the owner of the die, a separately charged die fee counts as a real sale to the customer. The manufacturer collects tax on the die charge — unless the customer is itself a manufacturer and issues an exemption certificate — and the manufacturer can buy the die tax-free from its own supplier using a resale certificate.
• Without a written ownership agreement, even if the manufacturer separates the die charge from the charge for the items it produces on invoices, no sale of the die is considered to occur. Instead, the die charge and the item charge combine into one selling price for the manufactured goods. That combined total is taxable or nontaxable based entirely on the taxability of the items produced — if the customer pays tax on the boxes, the whole charge (including the die line item) is taxable. In this scenario, the manufacturer can still buy the die tax-free, but via a manufacturing exemption certificate rather than a resale certificate.

What this means for you

Manufacturers who charge customers for tooling, dies, or molds while keeping the tooling in-house

Get a written agreement in place if you want the die charge treated as its own separate sale (letting you use a resale certificate on your own purchase and collect tax on the die line separately, or accept an exemption certificate from a manufacturer-customer). Without that writing, your die charge just folds into the price of the manufactured product for tax purposes — it doesn't become its own separate transaction no matter how you itemize your invoice.

Customers paying separately for dies/tooling used to make their products

Ask whether you're actually getting a written ownership agreement for the die — that's what determines whether you're really buying the tooling (and can potentially claim an exemption if you're a manufacturer) versus just paying a component of the price for the manufactured goods.

Accountants and tax professionals

The core rule: invoice itemization alone doesn't create a separate taxable sale of tooling — a written agreement establishing customer ownership is the deciding factor. Absent that writing, treat the die/tooling charge as embedded in the selling price of the manufactured product for taxability purposes, and note the manufacturer's own tax-free purchase mechanism shifts from resale certificate (with a writing) to manufacturing exemption certificate (without one).

Common questions

Q: If I bill my customer separately for a die used to make their product, is that automatically a taxable sale of the die?
A: Only if there's a written agreement clearly making the customer the owner of the die. Without that writing, no sale of the die is considered to occur, regardless of how you itemize the charge.

Q: How do I buy the die tax-free from my own supplier?
A: If there's a written ownership agreement (real sale to the customer), use a resale certificate. If there's no written agreement, use a manufacturing exemption certificate instead.

Q: What if my customer is a manufacturer too?
A: If you have a written ownership agreement and your customer is a manufacturer, they can issue an exemption certificate in lieu of paying tax on the die charge.

Q: Can I rely on this letter for my own tooling arrangements?
A: No. This opinion is based on the facts submitted and current law; other facts, though similar, may result in different answers.

Citations and references

No Texas Tax Code section or administrative rule is cited by number in the original letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200004233L

Original ruling text

April 28, 2000

Dear **:

Thank you for your recent letter concerning the taxability of printing plates
(dies) used in converting corrugated sheets into finished boxes for sale to
customers. Your questions are restated below followed by my response.

If COMPANY A purchases the dies for use in the manufacturing process, is that
purchase a taxable transaction?

If COMPANY A sells the dies to the customer, but maintains possession of them
for use in the manufacturing process, is the sale of the dies to the customer a
taxable transaction?

Response: The taxability of the dies is determined by the following:

Written agreement sale. A separate charge by the manufacturer for a die will be
considered a sale of the aid to the customer only if there is a written
agreement between parties clearly making the customer the owner of the aid. If
you sell the die in this manner, you will collect tax on the die charge unless
the customer is a manufacturer and issues an exemption certificate in lieu of
tax on the die. You would purchase the die from your supplier tax free using a
resale certificate.

No written agreement no sale. When there is no written agreement between the
manufacturer and the customer and the manufacturer separates the charge for the
aid from the charge for the items produced by means of the aid, a sale will not
be considered to have occurred. The combined charges constitute the selling
price of the manufactured item. (Charge for aid plus charge for items produced
equals selling price of items.) The total charge shall be taxable or nontaxable
depending on the taxability of the items produced. If you customer pays taxes
on the boxes, the entire charge including the die charge is taxable. You may
purchase your die tax fee by issuing an exemption certificate claiming an a
manufacturing exemption from your supplier.

The State Tax Automated Research (STAR) system, which provides viewing and
downloading of our rules, the Tax code, edited letter rulings, hearings,
Attorney General Opinions, etc., may be accessed on the Internet at:
http://www.window.state.tx.us/

This opinion is based on the facts you submitted and current law. Other facts
though similar, may result in different answers.

If you have any questions or need more information, I'll be glad to help you.
Please call me toll free at 1.800.531.5441, extension 5.0330. My direct line is
512.475.00330. My email address is .

Sincerely,

Bettie Peterson
Tax Policy Division