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?

Plain-English summary

A semiconductor manufacturer with three cleanrooms ("Fab 1, 2, and 3") asked the Comptroller to sort four separate questions about the reach of Texas's semiconductor fabrication cleanroom exemption (Tax Code § 151.318(b)(2), (q)) — a statute that exempts essentially all tangible personal property used in connection with manufacturing a semiconductor product in a cleanroom environment, whether or not the property is physically inside the cleanroom, but not the building itself.

1. Printer toner and special cleanroom paper: Fab operators print lot-tracking "runcards" near their work area. Because the printers support processing of the semiconductor product in the cleanroom environment, the toner and special cleanroom paper they consume both qualify for the exemption.
2. Laundering exempt cleanroom gowns: Disposable-style gowns and gloves worn once per the cleanroom's strict contamination rules are already exempt as protective apparel under 34 TAC § 3.300. Because Tax Code § 151.3111(a) exempts a service performed on property that would itself be exempt due to its nature or use, sending those gowns to an outside laundry is a nontaxable service.
3. Failure-analysis lab equipment: The company's Failure Analysis Lab does not examine only finished, failed products — the lab supporting this Texas facility mainly keeps the manufacturing line itself running (monitoring reactors and furnaces, cross-sectioning and SEM analysis of in-line inspection failures, contamination and yield-loss investigation). Because § 151.318(q) reaches equipment used to monitor and control in-line fabrication equipment regardless of whether it physically sits inside the cleanroom, this lab's equipment qualifies to the extent it's used for that in-line monitoring/control function.
4. Cleanroom partition glass repair: Glass broken in a door that is part of a movable partition wall between two cleanrooms was not taxable to repair.

What this means for you

Semiconductor manufacturers

The cleanroom exemption is read broadly and functionally — it follows the item's use (monitoring, controlling, or supporting the fabrication process), not whether the item is physically located inside cleanroom walls. Consumables like toner and paper, laundering of exempt protective gear, off-cleanroom-floor support labs, and cleanroom partition repairs can all ride on the same exemption if tied to the fab process.

Accountants and procurement teams at chip fabs

Document the functional link between a purchase and the cleanroom fabrication process — e.g., that a failure-analysis function primarily supports keeping the manufacturing line operating, not just post-failure product analysis — since that link, not physical location, drives the exemption analysis under § 151.318(q).

Facilities and maintenance contractors serving fabs

Repairs to movable cleanroom partitions (as opposed to the building itself, which is excluded from the exemption) can be nontaxable; the distinction in the statute is between the permanent building structure and the cleanroom equipment/partitions inside it.

Common questions

Q: Does the exemption require the item to be physically inside the cleanroom?
A: No. Section 151.318(q) expressly covers qualifying property "without regard to whether the property is actually contained in the cleanroom environment," as long as it's used in connection with cleanroom semiconductor manufacturing.

Q: Are laundering services for cleanroom gowns taxable?
A: Not if the gowns themselves are exempt (here, as protective apparel under 34 TAC § 3.300) — Tax Code § 151.3111(a) exempts services performed on property that would itself be exempt because of its nature or use.

Q: Does a failure-analysis lab automatically qualify for the exemption?
A: Only to the extent its equipment monitors or controls in-line fabrication equipment used in the cleanroom. A lab that mainly analyzes already-failed finished products, rather than supporting the live manufacturing line, may not qualify on these facts.

Q: Can I rely on this letter for my own fab's failure-analysis lab or repair costs?
A: Not directly — this is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10), and it turns on facts specific to this company's labs and cleanroom layout.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.318(b)(2), (q) (semiconductor fabrication cleanrooms and equipment)
• Tex. Tax Code § 151.3111(a) (exemption for services on exempt property)
• 34 Tex. Admin. Code § 3.300 (protective apparel 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/200012964L

Original ruling text

December 20, 2000

From: Lindey Osborne

To: **

Subject: Tax Ruling Request

Dear **:

Thank you for your recent email. You asked that we address the taxability of
the following items based on the facts presented.

FACT #1

We use printers in the fab so the fab operators can print production lot
information close to their work area. A lot is a group of wafers that are
processed together and identified by a unique lot number and runcard. A
runcard is paperwork that accompanies the lot from process to process.
Important lot data is entered on the runcard, and the fab operator upon
completion signs process steps.

QUESTION

Printers use toner and special cleanroom paper. What is the taxability of the
toner and special cleanroom paper?

Response: The exemption for cleanroom equipment is found in Section
151.318(b)(2) and (q) which states:

(b) The exemption includes:
(2) semiconductor fabrication cleanrooms and equipment.

(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).

Therefore, printer toner and computer paper used in connection with the
processing of a semiconductor product in a cleanroom environment qualifies for
the exemption.

FACT #2

Cleanroom apparel, for example, e. gowns, gloves, is exempt under Section
3.300. The apparel is worn only one time because of the strict requirements of
the clean room environment. An outside laundry company cleans the gowns.

QUESTION

Are the services for cleaning of the cleanroom gowns taxable?

Response: Texas Tax Code Section 151.3111(a) provides and exemption for: "[a]
service that is performed on tangible personal property that, if sold, lease,
or rented, at the time of the service, would be exempted under this chapter
because of the nature of the property, its use, or a combination of its nature
or use."

Because the gowns qualify for exemption, the cleaning of the gowns is also
exempt.

FACT #3

CORPORATION has a Failure Analysis Lab. in CITY A, TX. Failure analysis is the
process of determining why a product or process no longer functions as
designed. When most people think of failure analysis, they think of analyzing
a finished product that has failed during operation.

The various Failure Analysis Labs within CORPORATION provide different types of
support to the corporation. The responsibilities vary greatly from lab to lab
(other labs not located in Texas) depending on what they primarily support.
Some labs focus primarily on finished product failures while other labs focus
primarily on keeping the manufacturing lines operating. The lab in CITY A, TX
falls into the latter group. The work performed by the lab is required to fix
a manufacturing problem or re-qualify a manufacturing tool before returning it
to production.

There are many different functions that the Failure Analysis Services Group in
CITY A, TX provides in support to the manufacturing operation. The following
is a list of the primary functions along with a description of what type of
work that is done.

1. Periodic monitors of the Epi Reactors (reactor is a chamber used for the
   deposition or removal of layer material used in semiconductor processing).
   This is done to ensure proper operation. Measurements are also required after
   the epi chamber has been cleaned before it can be released to production. This
   is done with the SRP (Spreading Resistance Probe). If the epi grown and doped
   in the epi reactor is bad, the product fabricated on the wafers will fail.

2. Verification of proper operation of the diffusion furnaces (after the
   wafers are cleaned, they are baked in furnaces). This is done with SRP

3. Analysis of failures found during in-line inspections and monitors. These
   typically require cross-sectioning, chemical etching and SEM (scanning electron
   microscope) examination. With the analysis, the process causing discrepant
   material can be identified and fixed. Without these analyses, it would be
   almost impossible to property fix the fab process that is causing the failures.

4. Identification of contamination in a fab process. This is done with the
   EDX (energy dispersive x-ray analysis system). This type of problem is
   typically found in the fab through a visual inspection, KLA/Tencor inspection,
   or electrical measurements.

5. Analysis of unusually low yielding wafers to identify the fab process that
   caused the low yield. This could require almost any analytical technique
   available in the lab.

6. Electrical analysis is required when an in-line electrical measurement
   finds a failure due to leakage current or excess current flow through junction.
   The analysis typically includes micro probing, photoemission microscopy on the
   laser-scanning microscope. Also required is physical analysis such as
   cross-sectioning, chemical etching and SEM inspection.

7. The preceding list accounts for approximately 75% of the work submitted to
   the Failure Analysis Service Lab in CITY A. The remaining 25% provides support
   for the following:

*Yield management projects at the site may require analytical support using
some of the same equipment used for direct fab support.

*Analysis of product when transferring a process from a CORPORATION location
outside of CITY A.

*Analysis of new process development requires some level of analytical support.

*Analysis of product that failed due to a fabrication defect.

To summarize, the majority of the work performed by the Failure Analysis
Services Lab at CORPORATION in CITY A, Texas is in direct support of the
manufacturing process at the facility. It provides immediate analysis and
feedback for problems found during in-line fabrication inspections and
monitors.

QUESTION

Is the equipment used in the Failure Analysis Services Lab taxable?

Response: Section 151.318(q) exempts "semiconductor fabrication cleanrooms and
equipment." This includes all tangible personal 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 without regard to whether the property is
actually contained in the cleanroom environment .If the equipment used in the
Failure Analysis Services Lab is used to monitor and control in-line
fabrication equipment used in the cleanroom, the equipment qualifies for
exemption.

FACT #4

The company has 3 cleanrooms in the CITY A, TX facility. The cleanrooms are
referred to as Fab 1, 2, and 3. Glass broke from a door that is in the hallway
between Fab 2 and Fab 3. The hallway allows fab operators to walk to and from
Fab 2 and Fab 3. The hallway is inside the cleanroom environment and the door
is part of a movable partition wall.

QUESTION

Is the cost to replace the glass broken in the door taxable?

Response: The cost to repair the glass is not taxable.

This opinion is based on the facts presented. Other facts, though similar, may
result in different answers.

I hope this information is helpful. I'll be glad to help you if you have
additional questions. My e-mail address is [email protected]. My
direct line is 475-0037. The toll-free number is 1-800-531-5441, ext. 5-0037.

Sincerely,

Lindey Osborne
Tax Policy Division