Does a mold or die used to make wax patterns (which are then used to cast metal parts for resale) qualify for Texas's manufacturing exemption if it has a useful life longer than six months?

Plain-English summary

A company that builds molds and dies for customers, using them to make wax patterns that are later cast into metal parts, asked the Comptroller to clarify the "six month useful life" exemption for molds and dies. Its customers are all manufacturers who either resell these parts directly or use them as components in a product they resell.

The Comptroller explained that useful life is no longer the deciding factor for molds, dies, and patterns purchased on or after January 1, 1995 -- these items are exempt as long as they (1) were purchased on or after that date, (2) are used in the actual manufacturing, processing, fabrication, or repair of tangible personal property to be sold, and (3) are necessary and essential to that operation. The useful-life distinction still matters ONLY for molds/dies/patterns purchased BEFORE January 1, 1995: during that earlier period, only items with a useful life under six months were exempt, with longer-lived tooling subject to a phased-in exemption instead. Because both this company and its manufacturer-customers are making parts destined for resale, the company's molds and dies qualify for the manufacturing exemption regardless of their useful life.

What this means for you

Manufacturers and toolmakers building molds, dies, or patterns

If your molds/dies/patterns were purchased on or after January 1, 1995, and are necessary/essential to manufacturing, processing, fabricating, or repairing tangible personal property destined for resale, they're exempt regardless of how long they'll last -- you no longer need to track or prove a six-month-or-less useful life for post-1995 purchases.

Businesses still holding pre-1995 tooling

The old six-month useful-life test still governs items purchased before January 1, 1995 -- check the purchase date carefully before assuming the newer, life-agnostic rule applies.

Accountants and tax professionals

This letter is a clean statement of the 1995 law change eliminating the useful-life distinction going forward, while confirming the older phased-in exemption rule remains relevant only for legacy pre-1995 purchases.

Common questions

Q: Does a mold or die's useful life matter for the manufacturing exemption today?
A: No, per this letter, for items purchased on or after January 1, 1995 -- only whether it's used in and necessary/essential to manufacturing, processing, fabrication, or repair of property to be sold.

Q: When does useful life still matter?
A: Only for molds, dies, and patterns purchased before January 1, 1995, per this letter, which were subject to a phased-in exemption based on a six-month useful-life threshold.

Q: Does it matter that the mold/die is used to make an intermediate wax pattern rather than the final metal part directly?
A: No, per this letter -- since the ultimate output (cast metal parts) is resold or used as a resold product's component by the manufacturer-customers, the exemption applies to the mold/die used in that chain.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9706596L

Original ruling text

June 27, 1997

Dear ***:

This is in response to your request for a ruling clarifying the six month
useful life exemption for molds and dies.

Your letter described how *** builds a mold or die for a customer and
uses the mold or die to make a wax pattern of the part required by the
customer. The wax pattern is then used to make a ceramic shell into which
molten metal is poured to make the desired part. All your customers are
manufacturers who then resell these parts to their customers or use them as
components in a product that they resell.

Response: Molds, dies, and patterns (aids) purchased or used by a manufacturer
with a useful life in excess of six months are exempt provided that the aids:

(1) are purchased on or after January 1, 1995,

(2) will be used in the actual manufacturing, processing, fabrication, or
repair of tangible personal property to be sold, and

(3) the use of the item is necessary and essential to the manufacturing,
processing, fabrication, or repair operation.

The life of a mold, die, or pattern does make a difference if purchased before
January 1, 1995, because only such items with a useful life of less than six
months were exempted during that period. Molds, dies, and patterns with a
useful life in excess of six months that were purchased before January 1, 1995,
were subject to the phased-in exemption.

Because both *** and *****'s customers are manufacturers of
parts that are to be resold the molds and dies will qualify for the
manufacturing exemption.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please 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. My Internet address is:
[email protected].

Sincerely,

Gilbert Zamora
Tax Policy Division