SRC-AAA H.B. 1855 75(R)   BILL ANALYSIS


Senate Research Center   H.B. 1855
By: Eiland (Ratliff)
Finance
5-7-97
Engrossed


DIGEST 

Section 151.318, Tax Code (Property Used in Manufacturing), exempts
various items from the sales tax that are purchased for use in the
manufacturing process.  Subsection (c)(2) strictly excludes from exemption
intraplant transportation equipment, other equipment, materials, and
supplies, which are not used directly in the manufacturing process.  In
the recent Tyler Pipe v. Sharp and Chevron Chemical v. Sharp cases, the
courts determined the comptroller's interpretation of the law regarding
the taxable status of certain items used in the manufacturing process was
too narrow, and substantially broadened the scope of the exemption.
H.B. 1855 limits the sales tax exemption for manufacturing machinery and
equipment to items that are directly used in the manufacturing process and
that directly make or cause a chemical or physical change to the products
being manufactured.
PURPOSE

As proposed, H.B. 1855 limits the sales tax exemption for manufacturing
machinery and  equipment to items that are directly used in the
manufacturing process and that directly make or cause a chemical or
physical change to the products being manufactured.
RULEMAKING AUTHORITY

This bill does not grant any additional rulemaking authority to a state
officer, institution, or agency. 

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Section 151.318, Tax Code, by amending Subsections (a)
and (c) and adding Subsections (r) and (s), to provide that certain items
are exempted from taxes including tangible personal property directly used
or consumed during actual manufacturing of tangible property if the use or
consumption of the property is necessary to the manufacturing and directly
makes or causes a chemical or physical change to certain products.
Provides that actuators, steam production equipment and its fuel,
in-process flow through tanks, cooling towers, generators, heat
exchangers, electronic control room equipment, and certain computerized
control units are exempted from taxes imposed by this  chapter.  Provides
that the exemption does not include certain intraplant transportation
equipment, or machinery and equipment or supplies used to maintain or
store tangible personal property.  Provides that a taxpayer claiming the
exemption under this chapter has the burden of proof of the exemption.
Provides that certain subsections do not apply to semiconductor
fabrication cleanrooms and equipment. 

SECTION 2. Effective date: October 1, 1997.
 
SECTION 3. Emergency clause.