Do clean rooms and equipment used to manufacture mobile telephones qualify for Texas's semiconductor-fabrication cleanroom exemption?

Plain-English summary

The Texas Comptroller's Tax Policy Division answered a taxpayer who asked about the taxability of clean rooms used in manufacturing mobile telephones. The letter explains that, effective October 1, 1995, Section 151.318 of the Tax Code was amended to add an exemption for semiconductor fabrication cleanrooms and equipment.

That exemption covers all tangible personal property — whether or not it's affixed to or incorporated into realty — that is used in connection with manufacturing, processing, or fabricating a semiconductor product in a cleanroom environment. The exempt property doesn't even have to physically sit inside the cleanroom itself, and things like special flooring and ventilation systems can qualify.

However, the Comptroller was clear that this exemption does not apply to a manufacturer of mobile telephones. Even though mobile telephones incorporate semiconductors and the manufacturer may have similar cleanroom processing needs and concerns as an actual semiconductor manufacturer, the exemption is limited to producers of semiconductor products themselves — not to companies that merely use semiconductors as a component of a different end product.

What this means for you

Mobile telephone or other electronics manufacturers

If your company builds a finished product (like a mobile telephone) that contains semiconductors, this letter says you cannot claim the Section 151.318 cleanroom exemption for your own clean rooms and related equipment, even if your processing environment looks similar to a semiconductor fabrication facility. The exemption is reserved for manufacturers actually fabricating the semiconductor product itself.

Actual semiconductor (microchip) manufacturers

If you manufacture, process, or fabricate semiconductor products in a cleanroom environment, the Section 151.318 exemption (effective October 1, 1995) can cover tangible personal property connected to that cleanroom process, including property not physically inside the cleanroom, such as certain flooring and ventilation systems.

Accountants and tax professionals

When evaluating a client's cleanroom exemption claim, confirm what the client is actually manufacturing. This letter shows the Comptroller drawing a line between semiconductor fabrication itself and downstream manufacturers who simply incorporate semiconductors into their own products — only the former qualifies.

Common questions

Q: Does the Section 151.318 cleanroom exemption cover mobile telephone manufacturers?
A: No. This letter states the exemption does not apply to a manufacturer of mobile telephones that incorporates semiconductors into its product, even though it may have similar processing needs and concerns as a semiconductor manufacturer.

Q: What does the exemption actually cover?
A: Tangible personal property used in connection with the manufacturing, processing, or fabrication of a semiconductor product in a cleanroom environment, including property not physically located inside the cleanroom, such as special flooring and ventilation systems.

Q: When did this exemption take effect?
A: October 1, 1995, per the amendment to Section 151.318 described in this letter.

Q: Can another business rely on this letter?
A: This opinion is based on the facts presented to the Comptroller; the letter itself notes that if there are additional or different facts, the opinion may change.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.318 (semiconductor fabrication cleanroom and equipment exemption, effective 10/1/1995)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9509529L

Original ruling text

September 22, 1995

Dear *****:

Thank you for your letter of September 20, 1995, concerning the taxability of
clean rooms used in the manufacturing of mobile telephones.

Effective October 1, 1995, Section 151.318 of the statute was amended to exempt
semiconductor fabrication cleanrooms and equipment. This includes all tangible
personal property, without regard to whether the property is affixed to or
incorporated into realty, that is used in connection with the manufacturing,
processing, or fabrication in a cleanroom environment of a semiconductor
product. The exempt property itself does not have to be actually contained in
the cleanroom environment. Special flooring and ventilation systems may qualify
for exemption.

This exemption does not apply to a manufacturer of mobile telephones that
incorporate semiconductors into their product and as a result may have similar
processing needs and concerns of an actual manufacturer of semiconductors.

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 Policy Division