Does the manufacturing phase-in exemption cover a power shear and the mobile power unit that runs it at a metal recycling yard?

Plain-English summary

A metal recycling firm bought a power shear and a mobile power unit separately, to process scrap steel. The shear cannot run without the power unit, and the power unit has no use except powering the attached shear, so the taxpayer asked the Comptroller whether both pieces of equipment could qualify for the phase-in exemption for manufacturing machinery and equipment.

The Comptroller agreed the shear itself qualifies for the phase-in exemption. The power unit also qualifies, but with a condition: it must be predominantly used to power the shear during processing, as opposed to being predominantly used to move the shear around the salvage yard or to transport materials. In other words, the exemption for the power unit turns on how the equipment is actually used most of the time, not just on the fact that it is wired to an exempt shear.

The letter notes the opinion is based on the facts presented and could change if the facts are different.

What this means for you

Scrap metal and salvage yard operators

If you buy a shear (or similar cutting/processing equipment) and a separate mobile power unit to run it, the shear itself should qualify for the manufacturing phase-in exemption. The power unit will also qualify, but only if you can show it is predominantly used to power the shear during actual metal processing — not predominantly used for moving the shear around the yard or hauling materials. Track or be prepared to demonstrate how the equipment is actually used, since that predominant-use test is what the exemption turns on.

Accountants and tax professionals

This letter illustrates the "predominant use" analysis the Comptroller applies to dual-purpose equipment: even where one item (the power unit) is functionally necessary to operate an already-exempt item (the shear), the ancillary item's exemption is not automatic. It depends on how the equipment is predominantly used. When advising a recycling or salvage client on phase-in exemption claims for powered equipment, ask specifically how much of the equipment's use is processing versus transport/movement.

Businesses purchasing similar powered processing equipment

The reasoning here isn't limited to scrap shears — it reflects a general point that a power source or mobile unit attached to qualifying manufacturing equipment can itself qualify for the exemption if its predominant use is powering that equipment, rather than other functions like transportation.

Common questions

Q: Does the power shear qualify for the manufacturing phase-in exemption?
A: Yes. The Comptroller confirmed the purchase of the shear will qualify for the phase-in exemption.

Q: Does the mobile power unit that runs the shear also qualify?
A: Yes, but only if it is predominantly used to power the shear during processing, as opposed to being predominantly used to move the shear within the salvage yard or to transport materials.

Q: What if the power unit is used mostly to move the shear or haul scrap rather than to power the cutting operation?
A: The letter implies that if the power unit's predominant use is moving equipment or transporting materials rather than powering the shear during processing, it would not qualify for the exemption.

Q: Does the letter cite a specific statute for this exemption?
A: No. The letter refers generally to "the phase in exemptions for manufacturing equipment, machinery, replacement parts, and accessories" but does not cite a specific Tax Code section or rule number.

Q: Is this ruling still good law today?
A: This is a 1994 letter, and STAR letters can be relied upon only by the taxpayer who received them. The predominant-use concept described here may still inform how similar equipment is analyzed, but you should confirm current law and, ideally, obtain your own ruling before relying on it.

Citations and references

The original letter does not cite any specific statute or rule by number; it refers only generally to "the phase in exemptions for manufacturing equipment, machinery, replacement parts, and accessories."

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9404L1303A01

Original ruling text

April 20, 1994

Dear *****:

Thank you for your letter of April 1, 1994, concerning the
phase in exemptions for manufacturing equipment, machinery,
replacement parts, and accessories.

Your firm is engaged in metal recycling. A power shear and
mobile power unit have been purchased separately to use in
processing steel from scrap. Your firm would like to claim
the manufacturing phase-in exemption on both pieces of
equipment as the shear cannot operate without the power unit
and the power unit has no other use other than with the
attached shear.

The purchase of the shear will qualify for the phase-in
exemption. The purchase of the power unit used to operate
the shear and move it within the salvage yard will qualify
if it is predominantly used to power the shear during
processing as opposed to moving the shear throughout the
salvage yard or transporting materials.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 5-0613.
The direct line is 512/475-0613. You may also write to Tax
Administration Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division

NOTE: Previous Accession Number 9404382L