Are knives used by meat processors exempt from Texas sales and use tax as manufacturing equipment?

Plain-English summary

A trade association representing meat processing members asked the Texas Comptroller whether knives used by its members qualify for the sales and use tax manufacturing exemption. The Comptroller ruled they do not.

Texas's manufacturing exemption rule, 34 TAC Sec. 3.300, lists hand tools as a nonexempt category, and Tex. Tax Code Sec. 151.318(c) specifically excludes hand tools from the manufacturing exemption. The rule defines a "hand tool" as an instrument of manual operation — one used, managed, and powered by the hand, like a paintbrush, trowel, hammer, screwdriver, or file. Equipment that is hand-controlled but moved or powered by electricity, gas, steam, or another energy source (such as an electric drill, chain saw, or jack hammer) is not a hand tool.

Applying that definition, the Comptroller found that knives operated by hand and not moved or powered by another energy source fall squarely within the "hand tool" definition. Even though such knives may be necessary or essential to a meat processor's manufacturing operation, the Legislature specifically excluded hand tools from the manufacturing exemption, so the knives remain taxable.

What this means for you

Meat processors and food manufacturers

Manually operated knives used in meat processing do not qualify for the manufacturing exemption — they are taxable hand tools, regardless of how essential they are to your production process. If your knives (or similar hand-powered cutting instruments) are not moved or powered by electricity, gas, or another external energy source, expect to pay sales or use tax on them.

Businesses buying manufacturing equipment generally

The line the Comptroller draws is about power source, not necessity or importance to manufacturing. A tool controlled by hand but powered by an outside energy source (electric, gas, steam) is treated differently than a purely manual tool. Before claiming the manufacturing exemption on cutting or hand-operated equipment, check whether the item is powered solely by hand.

Accountants and tax professionals

This letter is a straightforward application of the 34 TAC Sec. 3.300 hand-tool definition and the Tex. Tax Code Sec. 151.318(c) exclusion, and it's useful precedent for any manually powered cutting or shaping tool used in a manufacturing setting, not just meat processing.

Common questions

Q: Are knives used by meat processors exempt from Texas sales tax as manufacturing equipment?
A: No. Hand-operated knives are "hand tools" under 34 TAC Sec. 3.300, and hand tools are specifically excluded from the manufacturing exemption by Tex. Tax Code Sec. 151.318(c).

Q: What makes a tool a "hand tool" under this rule?
A: An instrument of manual operation that is used, managed, and powered by the hand (e.g., a paintbrush, trowel, hammer, screwdriver, or file). If the tool is instead moved or powered by electricity, gas, steam, or another energy source — even though hand-controlled — it is not a hand tool (e.g., an electric drill, chain saw, or jack hammer).

Q: Does it matter that the knives are essential to the manufacturing process?
A: No. The letter notes that even though hand-operated knives may be necessary or essential to the manufacturing operation, hand tools have been specifically excluded by the Legislature from the manufacturing exemption.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code § 3.300 (manufacturing exemption rule; lists hand tools as nonexempt)
• Tex. Tax Code § 151.318(c) (excludes hand tools from the manufacturing 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/9410L1320F13

Original ruling text

October 7, 1994

Dear **:

Thank you for your letter requesting a ruling regarding the taxability of
knives (hand tools) used by your meat processing members.

As you stated, 34 TAC Sec. 3.300 (manufacturing rule) lists hand tools as
nonexempt manufacturing items. The basis for not exempting hand tools is found
in Texas Tax Code Sec. 151.318. Subsection (c) specifically excludes hand
tools (along with other items) from the manufacturing exemptions.

I have inserted the rule's definition of hand tool.

Hand tool - An instrument of manual operation, that is, an instrument to be
used, managed, and powered by the hand, e.g., paint brush, trowel, hammer,
screwdriver, files. Equipment which is being controlled or operated by the
hand but is moved or powered by electricity, gas, steam, etc., is not a hand
tool, e.g., electric drill, chain saw, jack hammer.

Knives that are operated by the hand and not moved or powered by another energy
source fall within this definition. Although hand operated knives may be
necessary or essential to the manufacturing operation, hand tools have been
specifically excluded by the legislature from the manufacturing exemption.

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

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division

NOTE: Previous Accession Number 9410687L