By Eiland                                             H.B. No. 1855

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to sales tax exemption for items used in manufacturing

 1-3     tangible personal property for ultimate sale.

 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-5           SECTION 1.  Section 151.318, Tax Code, is amended by amending

 1-6     Subsections (a) and (c) and adding Subsections (r) and (s) to read

 1-7     as follows:

 1-8           (a)  The following items are exempted from the taxes imposed

 1-9     by this chapter:

1-10                 (1)  tangible personal property that will become an

1-11     ingredient or component part of tangible personal property

1-12     manufactured, processed, or fabricated for ultimate sale;

1-13                 (2)  tangible personal property directly used or

1-14     consumed in or during the actual manufacturing, processing, or

1-15     fabrication of tangible personal property for ultimate sale if the

1-16     use or consumption of the property is necessary or essential to the

1-17     manufacturing, processing, or fabrication operation and directly

1-18     makes or causes a chemical or physical change to:

1-19                       (A)  the product being manufactured, processed,

1-20     or fabricated for ultimate sale; or

1-21                       (B)  any intermediate or preliminary product that

1-22     will become an ingredient or component part of the product being

1-23     manufactured, processed, or fabricated for ultimate sale; [and]

1-24                 (3)  services performed directly on the product being

 2-1     manufactured prior to its distribution for sale and for the purpose

 2-2     of making the product more marketable; and

 2-3                 (4)  actuators, steam production equipment and its

 2-4     fuel, in-process flow through tanks, cooling towers, generators,

 2-5     heat exchangers, electronic control room equipment, and

 2-6     computerized control units that are used to power, supply, support,

 2-7     or control equipment that qualifies for exemption under Subdivision

 2-8     (2) or to generate electricity, chilled water, or steam for

 2-9     ultimate sale.

2-10           (c)  The exemption does not include:

2-11                 (1)  machinery, equipment, or replacement parts or

2-12     their accessories having a useful life when new in excess of six

2-13     months;

2-14                 (2)  intraplant transportation equipment, including

2-15     intraplant transportation equipment used to move a product or raw

2-16     material in connection with the manufacturing process and

2-17     specifically including all piping and conveyor systems;

2-18                 (3)  maintenance or janitorial supplies or equipment[,]

2-19     or other machinery, equipment, materials, or supplies that are used

2-20     incidentally in a manufacturing, processing, or fabrication

2-21     operation;

2-22                 (4) [(3)]  hand tools; [or]

2-23                 (5) [(4)]  office equipment or supplies, equipment or

2-24     supplies used in sales or distribution activities, research or

2-25     development of new products, or transportation activities, or other

2-26     tangible personal property not used in an actual manufacturing,

2-27     processing, or fabrication operation; or

 3-1                 (6)  machinery and equipment or supplies used to

 3-2     maintain or store tangible personal property.

 3-3           (r)  A taxpayer claiming an exemption under this section has

 3-4     the burden of proof that the exemption is applicable and that no

 3-5     exclusion under Subsection (c) applies.

 3-6           (s)  The following do not apply to the semiconductor

 3-7     fabrication cleanrooms and equipment in Subsection (q):

 3-8                 (1)  limitations in Subsection (a)(2) that refer to

 3-9     tangible personal property directly causing chemical and physical

3-10     changes to the product being manufactured, processed, or fabricated

3-11     for ultimate sale;

3-12                 (2)  Subsection (c)(2); and

3-13                 (3)  Subsection (c)(6).

3-14           SECTION 2.  This Act takes effect October 1, 1997.

3-15           SECTION 3.  The importance of this legislation and the

3-16     crowded condition of the calendars in both houses create an

3-17     emergency and an imperative public necessity that the

3-18     constitutional rule requiring bills to be read on three several

3-19     days in each house be suspended, and this rule is hereby suspended.