A chemical processing plant is buying a redundant Honeywell computerized control system that runs its manufacturing operations. Is the computerized control system, and the software that runs it, exempt from Texas sales tax as manufacturing equipment?

Plain-English summary

A chemical processing company asked about the taxability of a redundant Honeywell computerized control system it was buying to run the manufacturing (chemical) processes in its plant. The Comptroller confirmed the system qualifies for Texas's manufacturing exemption.

Effective October 1, 1997, House Bill 1855 amended the sales tax law's manufacturing exemption to specifically cover electronic control-room equipment and computerized-control units that a manufacturer uses to power, supply, support, or control equipment that itself qualifies as exempt manufacturing equipment. Because this system's job was controlling the plant's exempt manufacturing (chemical processing) equipment, the company could give an exemption certificate for the computerized control system itself — including its workstation monitor, network interface module, process manager, history module, and power supply — as well as any software used to control the exempt processing equipment.

One condition mattered: the charges for the computerized control system and its software had to be separately stated from any charges for taxable equipment or services on the invoice.

What this means for you

Manufacturers buying process-control systems (SCADA, DCS, PLC-based systems)

If your plant is buying a computerized control system — SCADA, DCS, or similar — that powers, supplies, supports, or controls equipment that already qualifies as exempt manufacturing equipment, House Bill 1855's 1997 amendment lets you extend the manufacturing exemption to that control system and its software, not just the underlying production equipment.

Anyone negotiating vendor invoices for control systems

Make sure the vendor separately states the charges for the exempt control system/software from any taxable equipment or services in the same purchase. Bundling them together without separation risks losing the exemption on the whole charge.

Accountants and tax professionals

This exemption dates specifically to HB 1855's October 1, 1997 effective date — purchases before that date would need to be evaluated under the prior, narrower manufacturing-exemption rules. Confirm the underlying equipment the control system serves is itself qualifying manufacturing equipment; the control system's exemption is derivative of that.

Common questions

Q: Is a computerized control system used to run a manufacturing process exempt from Texas sales tax?
A: Yes, if it powers, supplies, supports, or controls equipment that qualifies as exempt manufacturing equipment, and if purchased on or after October 1, 1997 under House Bill 1855.

Q: Does the exemption cover the software too, not just the hardware?
A: Yes — the letter specifically extends the exemption certificate to software used to control exempt processing equipment.

Q: What do I have to do on the invoice to keep the exemption?
A: The charges for the exempt computerized system and software must be separately stated from any charges for taxable equipment or services.

Q: Can I rely on this letter for my own control-system purchase?
A: No. This opinion is based on the facts submitted, and the letter itself notes that other facts, though similar, may yield different results. It binds the Comptroller only for the taxpayer it was issued to.

Citations and references

• House Bill 1855 (1997), amending the Tax Code's manufacturing exemption effective October 1, 1997, to cover electronic control-room equipment and computerized-control units

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9805560L

Original ruling text

May 1, 1998

Dear Mr. **:

Thank you for your letter of April 28th regarding the taxability of the
Honeywell computerized control system for your chemical processing plant.

** is a chemical processing company. From our recent phone
conversation and your letter, you stated that you are purchasing a redundant
computerized system that controls the manufacturing operation (chemical
processes) in the plant.

Effective October 1, 1997, the exemptions for manufacturers in the sales tax
law was amended. I have enclosed a copy of the September 1997 Legislative
Update that explains the changes in the law as a result of House Bill 1855.

HB 1855 specifically exempts electronic control-room equipment and
computerized-control units used by a manufacturer to power, supply, support or
control equipment that qualifies as exempt manufacturing equipment. You may
give an exemption certificate for the purchase of the computerized control
system (workstation monitor, network interface module, process manager, history
module, and power supply) and any software used to control exempt processing
equipment in your plant. The charges for the computerized system and software
must be separately stated from any charges for taxable equipment or services.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division