Is selling and installing a modular semiconductor cleanroom exempt from Texas sales tax, and what about repairing or remodeling the building around it?

Plain-English summary

A company that designs and fabricates modular cleanrooms in its own shop, then ships and erects them on-site, asked about the sales tax treatment of a project adding onto an existing cleanroom in an existing Round Rock, Texas building. It quoted the job as either fabricate-and-ship-only, or with an on-site installation option.

Texas Tax Code § 151.318(b)(2) exempts "semiconductor fabrication cleanrooms and equipment," and § 151.318(q) defines that broadly — covering integrated systems, fixtures, piping, and any tangible personal property (whether affixed to realty or not) used in connection with manufacturing/processing/fabricating a semiconductor product in a cleanroom environment, including property not physically inside the cleanroom itself. But that definition explicitly excludes the building or any permanent, nonremovable component of the building that houses the cleanroom.

Whether the exemption applies here turns on who the end customer is: it's only exempt when the customer is a genuine semiconductor manufacturer (making semiconductor products) claiming the exemption with a properly completed exemption certificate — which the seller may accept in good faith absent actual knowledge it's invalid. If the customer is instead a manufacturer of semiconductor process equipment (not semiconductors themselves), the whole charge to sell and install the cleanroom is taxable, with no exemption available. The letter notes it wasn't clear from the facts submitted which kind of customer was involved.

Critically, the building itself is never covered by the cleanroom exemption. If the company is also responsible for repairing or remodeling the building that houses the cleanroom (as opposed to the cleanroom equipment itself), that work is always taxed as nonresidential repair and remodeling — regardless of whether the cleanroom sale/installation portion is exempt — and the taxable building work must be separately stated from any exempt cleanroom charges.

What this means for you

Cleanroom fabricators and installers

Confirm your customer's actual business before assuming the § 151.318(b)(2) exemption applies — it's available only when the end customer is a semiconductor manufacturer (not a manufacturer of the equipment semiconductor makers use) and gives you a properly completed exemption certificate. You can accept that certificate in good faith unless you know it's invalid, and can pass a resale certificate to your own suppliers/subcontractors doing the installation.

Contractors doing combined cleanroom + building work

Always separately state charges for repairing/remodeling the surrounding building from charges for the cleanroom equipment itself. The building work is taxable nonresidential repair/remodeling no matter what, since the § 151.318(q) definition specifically excludes the building and its permanent components from the exemption.

Accountants and tax professionals

This is a clean illustration of the "item-by-item" boundary line the manufacturing exemption draws elsewhere in Texas law: the exemption follows the equipment/systems used in the cleanroom process, not the shell of the building that happens to contain them.

Common questions

Q: Is selling and installing a semiconductor cleanroom always exempt from Texas sales tax?
A: No — only when the end customer is a semiconductor manufacturer (making semiconductor products) who provides a properly completed exemption certificate under § 151.318(b)(2). Selling the same cleanroom to a manufacturer of semiconductor process equipment is fully taxable.

Q: Does the cleanroom exemption cover the building that houses it?
A: No. § 151.318(q) expressly excludes the building or any permanent, nonremovable component of the building from the definition of exempt cleanroom equipment.

Q: If I'm also remodeling the building around the cleanroom, is that exempt too?
A: No. Repairing or remodeling the building is taxed as nonresidential repair and remodeling, and must be billed as a separate, stated charge apart from any exempt cleanroom equipment/installation charges.

Q: Can I rely on this letter for my own cleanroom project?
A: Only the taxpayer who requested it can use it for detrimental reliance, and the letter itself notes uncertainty about the customer's status (manufacturer of semiconductors vs. manufacturer of semiconductor equipment) — get your own facts confirmed rather than assuming this result applies.

Citations and references

Statutes:

• Tex. Tax Code § 151.318(b)(2) — exemption for semiconductor fabrication cleanrooms and equipment
• Tex. Tax Code § 151.318(q) — defines "semiconductor fabrication cleanrooms and equipment"; excludes the building/permanent building components

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9911866L

Original ruling text

November 5, 1999

Dear **:

Thank you for your letter concerning the sales tax exemptions for semiconductor
manufacturers.

Your company designs, fabricates in your shop, and then goes to the job site
and erects modular cleanrooms. The particular project in question will be
based in Round Rock, Texas. It is an addition to an existing cleanroom in an
existing building. You have quoted the project as fabricate and ship only with
an additional option of installing it on site.

Texas Tax Code Sec. 151.318(b)(2) exempts semiconductor fabrication cleanrooms
and equipment. Sec. 151.318(q) defines "semiconductor fabrication cleanrooms
and equipment" as:

all tangible personal property, without regard to whether the property is
affixed to or incorporated into realty, used in connection with the
manufacturing, processing, or fabrication in a cleanroom environment of a
semiconductor product, without regard to whether the property is actually
contained in the cleanroom environment. The term includes integrated systems,
fixtures, and piping, all property necessary or adapted to reduce contamination
or to control airflow, temperature, humidity, chemical purity, or other
environmental conditions or manufacturing tolerances, and production equipment
and machinery. The term does not include the building or a permanent,
nonremovable component of the building, that houses the cleanroom environment.
The term includes moveable cleanroom partitions and cleanroom lighting.

Therefore, a cleanroom is not exempt unless used in connection with the
manufacturing, processing, or fabrication in a cleanroom environment of a
semiconductor product. It is not clear whether your customer is a manufacturer
of semiconductor products or merely a manufacturer of the equipment used by
semiconductor manufacturers. The exemption in Sec. 151.318(b)(2) is for
semiconductor manufacturers. A semiconductor manufacturer who claims an
exemption under Sec. 151.318(b)(2) must give you a properly completed exemption
certificate. You may accept the exemption certificate in good faith unless you
have actual knowledge that the claimed exemption is not valid.

If you are selling and installing semiconductor fabrication cleanrooms and
equipment and are given a properly completed exemption certificate by a
semiconductor manufacturer, you are not required to collect sales tax on the
sale of the equipment (including the installation labor). You may give a
properly completed resale certificate to your suppliers and subcontractors
performing the installation.

However, the entire charge to sell and install a modular cleanroom in an
existing facility for a manufacturer of semiconductor process equipment is
taxable as explained above. You may give a properly completed resale
certificate to your suppliers and subcontractors performing the installation.

If you are also responsible for repairing or remodeling the building that
houses the cleanroom, this service is taxed as nonresidential repair and
remodeling and charges for the taxable service must be separately stated from
any exempt charges for the sale and installation of the semiconductor
fabrication cleanrooms and equipment for a semiconductor manufacturer.

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