Does the equipment that loads scrap metal into a shredder qualify for Texas's manufacturing exemption, or is it excluded as intraplant transportation equipment?

Plain-English summary

A scrap metal recycler asked whether a caterpillar material handler used to load scrap metal into a shredder — which reduces the metal in size — qualifies for Texas's manufacturing exemption. The Comptroller's answer is short and direct: no. Tex. Tax Code § 151.318(c) specifically excludes intraplant transportation equipment from the manufacturing exemption, and equipment used to move a product or raw material in connection with the manufacturing process — as opposed to equipment that itself directly causes the physical or chemical change to the product — falls into that excluded category. Loading scrap into the shredder is a material-handling/transportation step, not the manufacturing step itself.

What this means for you

Scrap metal recyclers and similar processing operations

Equipment that moves raw material to the machine that actually processes it (like loading a shredder, conveyor systems, forklifts moving stock between stations) is generally taxable intraplant transportation equipment, not exempt manufacturing equipment — even though it's an essential step in getting material through your production process.

Manufacturers evaluating equipment purchases for the manufacturing exemption

Ask specifically: does this equipment itself directly cause the chemical or physical change to the product (potentially exempt), or does it just move the product/raw material between steps in the process (excluded intraplant transportation equipment, taxable)? This letter is a clean example of equipment failing the exemption because it performs the latter function.

Accountants and tax professionals

This is a compact illustration of the § 151.318(c) intraplant transportation carve-out — useful as a quick-reference example distinguishing "equipment that processes the product" from "equipment that moves the product to the equipment that processes it," which is the core line the manufacturing exemption draws.

Common questions

Q: Does equipment used to load material into a manufacturing machine qualify for the manufacturing exemption?
A: Not if it's functioning as intraplant transportation equipment — moving product or raw material in connection with the manufacturing process rather than itself directly changing the product. Tex. Tax Code § 151.318(c) excludes that category from the exemption.

Q: Why doesn't a material handler that loads a shredder qualify, if the shredder itself is exempt?
A: Because the exemption analysis is equipment-by-equipment: the shredder may directly cause the physical change to the scrap metal (potentially exempt), but the material handler is only moving the scrap to the shredder, which is the excluded intraplant transportation function.

Q: Can I rely on this letter for my own equipment purchase?
A: No. This opinion is rendered based on the facts presented; other facts, though similar, may yield different results.

Citations and references

Statutes:

• Tex. Tax Code § 151.318(c) (manufacturing exemption excludes intraplant transportation equipment)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200004235L

Original ruling text

Date: April 28, 2000

April 28, 2000

To:

Dear Sir or Madam:

Thank you for your recent e-mail regarding the sales tax exemption of a
caterpillar material handler.

Your customer may not claim the manufacturing exemption on the purchase of a
caterpillar material handler used to put scrap metal in a shredder that will
reduce the metal in size. Texas Tax Code Section 151.318(c) states that the
manufacturing exemption does not include intraplant transportation equipment,
including equipment used to move a product or raw material in connection with
the manufacturing process.

This opinion is rendered based on the facts presented. Other facts though
similar, may yield different results.

If you have any questions or require additional information, you may call
1-800-531-5441, extension 6-5809. You may write to Tax Policy Division, P. O.
Box 13825, Austin, Texas 78711-3825. You may also submit inquiries to our tax
help Internet address at .

Sincerely

Emilio S. Lerma
Tax Policy Division