Can a manufacturer located in a Texas enterprise project claim the phase-in sales tax exemption on manufacturing machinery and equipment in addition to the tax refunds available under the enterprise project program?

Plain-English summary

A taxpayer asked the Comptroller whether the phase-in exemption for certain manufacturing machinery and equipment applies to manufacturers located inside a Texas enterprise project — a designated economic-development zone where qualifying businesses can receive state tax refunds tied to job creation and capital investment.

The Comptroller's answer was straightforward: manufacturers located in an enterprise project may claim the phase-in exemption on qualifying machinery and equipment in addition to the tax refunds already available through the enterprise project program. In other words, being in an enterprise project doesn't disqualify a manufacturer from also claiming the separate phase-in exemption for manufacturing equipment. The one limit the letter places on stacking these benefits is that the combined value of the exemption and the refund cannot exceed the total amount of tax that was actually due on the equipment in the first place — a taxpayer cannot use the two programs together to receive more back than it originally paid.

What this means for you

Manufacturers operating in an enterprise project

If your manufacturing facility is located in a designated enterprise project, you are not limited to claiming only the enterprise project refund on your qualifying machinery and equipment purchases. You may also claim the phase-in exemption for manufacturing equipment. Track both benefits carefully, though, since the combined total cannot exceed the tax that was actually paid or due.

Accountants and tax professionals advising enterprise project businesses

When computing the tax benefit available to a manufacturing client inside an enterprise project, remember these are two distinct programs that can be combined, not mutually exclusive alternatives. Make sure any refund claim and any phase-in exemption claim are reconciled against each other so the total does not exceed the tax originally due — over-claiming past that cap is not permitted under this letter.

Economic development and enterprise zone administrators

This letter confirms that state manufacturing tax incentives are not withdrawn or reduced simply because a business also participates in the enterprise project refund program; the two are additive up to the amount of tax actually owed.

Common questions

Q: If my manufacturing plant is in an enterprise project, do I have to choose between the phase-in exemption and the enterprise project refund?
A: No. You may claim both on qualifying machinery and equipment; they are not mutually exclusive.

Q: Is there a limit on how much I can claim between the two programs combined?
A: Yes. The combination of the phase-in exemption and the enterprise project refund may not exceed the total tax that was due on the equipment.

Q: Does this apply to all machinery and equipment, or only equipment that qualifies for the phase-in exemption?
A: The letter addresses "qualifying machinery and equipment" — i.e., equipment that independently qualifies for the phase-in manufacturing exemption. The enterprise project refund is then available on top of that exemption, subject to the combined cap.

Citations and references

• Tex. Tax Code § 151.318 (phase-in exemption for manufacturing machinery and equipment)
• Tex. Gov't Code Ch. 2303 (Texas Enterprise Zone Act, enterprise project tax refunds)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9406L1304F13

Original ruling text

June 9, 1994

Dear *****:

Thank you for your letter dated June 1, 1994, regarding the
phase-in exemption for certain machinery and equipment used
in manufacturing.

You ask if the phase-in exemption applies to manufacturers
located in an enterprise project.

Manufacturers in enterprise projects may claim the phase-in
exemption on qualifying machinery and equipment in addition
to the applicable tax refunds provided for enterprise
projects; however, the combination of the two may not
exceed the total tax that was due.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have any questions or need more information, please
write or call me toll free at 1-800-531-5441, extension
50330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9406392L