Is the computer hardware and software a company uses to draw its own blueprints for fabricating food processing equipment exempt from Texas sales tax as manufacturing equipment?

Plain-English summary

A business that fabricates food processing equipment asked the Comptroller whether upgrading the computer hardware and software it uses to draw its own blueprints qualifies for the manufacturing exemption from Texas sales tax. The business creates its own blueprint drawings on computer as part of the design process, and those blueprints become part of the equipment package it delivers to customers.

The Comptroller ruled no. Rule 3.300(a)(9) defines "manufacturing" as beginning with "the first stage of production" and excludes acts that are merely "in preparation for production" (the rule gives the example of a lumber company cutting trees, or a manufacturer gathering, arranging, or sorting raw materials, as preparatory rather than production activity). Because blueprint preparation happens before the first stage of production even starts, the computers and software used only to create those blueprints do not qualify as exempt manufacturing equipment — regardless of the fact that the finished blueprints are later included in what's delivered to the customer.

What this means for you

Businesses that design and then fabricate their own products

Design work — including computer-aided drafting of blueprints — is treated as pre-production preparation, not as part of the manufacturing process itself. Hardware and software used solely to produce design documents (blueprints, drawings, specifications) will not qualify for the manufacturing sales tax exemption, even if those documents end up incorporated into the product package sold to the customer.

Businesses upgrading design/drafting computer equipment

If you're buying or upgrading computers and software used for drafting or design work that happens before fabrication begins, don't assume the manufacturing exemption applies. The exemption is tied to equipment used in the actual production process — from the first act of production through completion of the tangible personal property — not to equipment used in the planning or design stage that precedes it.

Common questions

Q: Does the manufacturing exemption cover computers and software used to create blueprints for a product I'll later fabricate?
A: No. Blueprint preparation occurs before the first stage of production, so equipment used only for that purpose does not qualify as manufacturing equipment under Rule 3.300(a)(9).

Q: Does it matter that the blueprints eventually become part of the equipment package delivered to the customer?
A: No — the ruling treats the timing of the activity (before production begins) as controlling, not whether the output is later included in what's delivered.

Q: What counts as "preparation for production" versus actual manufacturing under Rule 3.300(a)(9)?
A: The rule gives examples like a lumber company cutting trees, or a manufacturer gathering, arranging, or sorting raw materials or inventory — these are preparatory acts, not the "first stage of production." Blueprint drafting falls into this same preparatory category.

Q: Can I rely on this letter for my own business?
A: No. This opinion is based on the facts presented to the Comptroller, and other facts, though similar, may produce a different result. It can only be relied upon by the taxpayer to whom it was issued.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.300(a)(9) (definition of "manufacturing" for 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/9601928L

Original ruling text

January 22, 1996

Dear *****:

This is in response to your request for a ruling on computers and software used
to produce blueprint drawings that you prepare for the design and fabrication
of food processing equipment.

YOUR FACTS: You create your own blueprint drawings on computer to be used in
the fabrication process. These blueprints become a part of the equipment
package presented to the customer. You are upgrading the computers that perform
this design function. Your question is about the taxability of the hardware and
software for this computer upgrade.

RESPONSE: Subsection (a)(9) of Rule 3.300 - Manufacturing; Custom
Manufacturing; Fabricating; Processing, defines the term "manufacturing" as:

Every operation commencing with the first stage of production of tangible
personal property and ending with the completion of tangible personal property.
The first production stage means the first act of production and it shall not
include those acts in preparation for production. For example, a lumber company
cutting trees or a manufacturer gathering, arranging, or sorting raw materials
or inventory is preparing for production. ...

Emphasis added.

The preparation of blueprints occurs prior to the first stage of production.
Consequently computers and software purchased for this purpose do not qualify
as manufacturing equipment.

This opinion is based on the facts presented. Other facts though similar may
provide a different result. You may call me toll-free at 1-800-531-5441,
extension 3-4502. The direct line is 512/463-4502. You may also write to Tax
Policy Division, Comptroller of Public Accounts.

Sincerely,

Gilbert Zamora
Tax Policy Division