Texas Letter Ruling 9210L1200F03: Recycling Plant — Manufacturing Process Begins With Shredding — Also Machinery/Equipment Used

Subject

Recycling Plant — Manufacturing Process Begins With Shredding — Also Machinery/Equipment Used

Plain-English summary

The Texas Comptroller ruled that a tire-recycling company is engaged in manufacturing, not just tire disposal, for purposes of the manufacturing exemptions under 34 Tex. Admin. Code Rule 3.300.

The company received old tires and ran them through shredders that cut the tires into squares no more than three inches across. At the time of the letter, the company was being paid per pound just to shred the tires, and those three-inch squares were being stockpiled for future processing. However, the company had already bought and received equipment to further process the three-inch squares into rubber crumbs, which would be used to manufacture items like rubber mats and truck mud-flaps that would eventually be sold.

The Comptroller's response was short and direct: because the company would be reselling the shredded rubber rather than simply throwing it away, it was engaging in manufacturing. The letter notes this conclusion is based specifically on the facts presented, and that other, similar facts could produce a different result.

What this means for you

Recyclers and processors of scrap or waste material

If you take a waste material (like used tires) and process it — even through an early step like shredding — with the intent of eventually reselling the processed material or a product made from it, the Comptroller treats that as manufacturing rather than mere disposal. The key fact in this ruling was that the company intended to sell the end product (rubber crumb, ultimately used in mats and mud-flaps), not just get paid to dispose of tires.

Business owners weighing manufacturing-exemption eligibility

The ruling suggests that "manufacturing" for exemption purposes under Rule 3.300 can begin at an early, seemingly simple processing step — here, shredding — as long as that step is part of a chain that ends in a sale of the processed material or a product made from it. Being paid on a per-pound processing/disposal basis at one stage does not, by itself, disqualify a company from manufacturer status if it also has equipment in place to carry the material further toward a resalable product.

Accountants and tax professionals

This is a short, fact-specific letter ruling with no statutes or rules quoted beyond the taxpayer's own reference to 34 Tex. Admin. Code Rule 3.300. The Comptroller's reasoning rests entirely on the resale intent: "Since Company A will be reselling the shredded rubber rather than simply disposing of it, they are engaging in manufacturing." The letter explicitly cautions that other, similar facts may yield different results, so this ruling should not be treated as a categorical rule for all recyclers.

Common questions

Q: Does shredding tires by itself count as manufacturing?
A: In this ruling, yes — but only because the company was not just disposing of the tires. It intended to further process the shredded squares into rubber crumbs to be used in products (mats, mud-flaps) that would be sold. The resale intent was central to the Comptroller's conclusion.

Q: What if a company were only paid to shred tires for disposal, with no further processing or resale?
A: The ruling doesn't address that scenario directly, but the Comptroller's reasoning distinguishes manufacturing from "simply disposing" of the material. The letter's own caution that "other facts, though similar, may yield different results" suggests a company that never processes or resells the shredded material could come out differently.

Q: Can this company rely on this letter forever?
A: Under the disclaimer, a STAR letter can support a detrimental-reliance claim only for the taxpayer it was directly issued to, and STAR documents may no longer reflect current policy even if not marked superseded.

Citations and references

No statutes or administrative rules are directly quoted or cited by the Comptroller in the body of this letter. The taxpayer's question referenced "Texas Administrative Code 34 Rule 3.300" (the manufacturing exemption rule), but the Comptroller's response does not itself cite or quote any statute or rule text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9210L1200F03

Original ruling text

October 29, 1992

Dear **:

Thank you for your recent letter which is restated in part with response below.

Company A, located in Texas, recycles tires. Currently, Company A receives
these old tires and runs them through a series of machines (shredders) that
shreds these tires into squares which are no longer than three inches. After
the tires are reduced to these three inch squares, they are stockpiled for
future processing.

Currently, Company A is paid per pound for the shredding of these tires.
Although Company A is not currently selling a product, it has bought and
received the equipment necessary to further process the three inch squares into
rubber crumbs that will be used to manufacture such items as rubber
mats and mud- flaps on trucks, that will be eventually sold.

Is Company A considered a processor or manufacturer and entitled to the
manufacturing exemptions under Texas Administrative Code 34 Rule 3.300?

Response: Yes. Since Company A will be reselling the shredded rubber rather
than simply disposing of it, they are engaging in manufacturing.

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

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531-5441. My direct line number is (512)
463-4680. The number for FAX transmissions is (512) 475-0900. You may write to
me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division