Can a manufacturer issue an exemption certificate for the part of its garbage collection service that removes waste from its manufacturing process, and how is 'industrial solid waste' defined?

Plain-English summary

A Texas manufacturer of "poly bags" for the food industry asked the Comptroller's office about the taxability of its garbage collection services. The company estimated that 95 percent of the garbage collected from its facility came from its manufacturing operation, and it wanted to accrue (self-assess) tax on only the remaining 5 percent that was non-manufacturing waste.

The Comptroller's office agreed with this approach. The letter explains that the company may issue its waste removal service provider an exemption certificate covering the portion of the service attributable to removing "industrial solid waste." Under Rule 3.356, that term means waste products resulting from the actual manufacturing process — the letter gives sawdust from lumber mills and slag from steel manufacturing as examples. For this taxpayer, excess film left over from the manufacturing process qualified as industrial solid waste, but discarded shipping refuse (the packaging in which raw materials were received) did not qualify, because it was not a byproduct of the actual manufacturing process itself. Based on this distinction, the letter confirms the company should accrue tax on only the 5 percent of garbage collection attributable to non-manufacturing waste.

What this means for you

Manufacturers with garbage collection services

If your waste stream is a mix of true manufacturing byproducts (like scrap, sawdust, slag, or excess production material) and other non-manufacturing waste (like packaging or shipping materials), you may be able to issue your waste hauler an exemption certificate for the manufacturing portion of the service, while accruing tax yourself on the taxable, non-manufacturing portion.

Distinguishing manufacturing waste from shipping/packaging waste

This letter draws a specific line: waste generated by the actual manufacturing process (here, excess film from production) counts as exempt "industrial solid waste," but waste from receiving raw materials — like discarded shipping refuse — does not, even though both end up in the same dumpster. Businesses should be prepared to separately estimate or document the percentage of waste attributable to each category.

Accountants and tax professionals

The letter relies on the Rule 3.356 definition of "industrial solid waste" as waste products resulting from the actual manufacturing process, and treats a taxpayer's reasonable estimate (95%/5% split) as an acceptable basis for allocating exempt versus taxable garbage collection charges, with the taxpayer self-accruing tax on the non-qualifying share.

Common questions

Q: What counts as "industrial solid waste" under this letter?
A: Waste products resulting from the actual manufacturing process — the letter cites sawdust from lumber mills and slag from steel manufacturing as examples, and found that excess film from the taxpayer's own manufacturing process qualified.

Q: Does packaging or shipping waste count as industrial solid waste?
A: No. The letter specifically states that discarded shipping refuse in which raw materials are received does not qualify as industrial solid waste.

Q: How should the taxpayer handle tax on its garbage collection service?
A: The taxpayer may issue its waste removal service provider an exemption certificate for the portion of the service attributable to industrial solid waste (here, estimated at 95%), and should accrue tax itself on the remaining non-manufacturing portion (here, the estimated 5%).

Citations and references

• 34 Tex. Admin. Code Rule 3.356 (referenced in the text as "Rule 3.356," defining "industrial solid waste" as waste products resulting from the actual manufacturing process)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9503L1341G03

Original ruling text

March 14,1995

Dear ***:

Thank you for your recent letter concerning the taxability of garbage
collection services. Mr. Sharp asked me to look into the matter.

You wrote on behalf of your Texas client, a manufacturer of "poly bags" for the
food industry. You estimate that 95 percent of the garbage collected from your
client stems from its manufacturing operation. Your client wants to accrue tax
on only the 5 percent non-manufacturing waste.

We agree that your client may issue its waste removal service provider an
exemption certificate for a portion of the service attributable to the removal
of "industrial solid waste." That term, as used in Rule 3.356, means waste
products resulting from the actual manufacturing process, such as sawdust from
lumber mills or slag from a steel manufacturing process.

Excess film resulting from your client's manufacturing process will qualify as
industrial solid waste, while discarded shipping refuse in which raw materials
are received does not qualify. Therefore, your client should accrue tax on only
the 5 percent non-manufacturing waste.

I hope this satisfactorily answers your questions. Should you require
additional information, please contact Joe Galvan of my Tax Administration
Division. You can reach Joe at 1-800-531-5441, extension 3-4514.

Please feel free to contact me if I can be of further assistance to you.

Sincerely,

Glen D. Hunt
Director, Tax Administration

cc: Joe Galvan, Manager, Tax Administration

NOTE: Previous Accession Number 9503996L