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;
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, computerized
2-6 control units, compressors, and hydraulic units, that are used to
2-7 power, supply, support, or control equipment that qualifies for
2-8 exemption under Subdivision (2) or to generate electricity, chilled
2-9 water, or steam for ultimate sale; and
2-10 (5) machinery, equipment, and replacement parts or
2-11 accessories used or consumed in the actual manufacturing,
2-12 processing, or fabrication of tangible personal property for
2-13 ultimate sale if their use or consumption is necessary and
2-14 essential to a pollution control process.
2-15 (c) The exemption does not include:
2-16 (1) [machinery, equipment, or replacement parts or
2-17 their accessories having a useful life when new in excess of six
2-18 months;]
2-19 [(2)] intraplant transportation equipment, including
2-20 intraplant transportation equipment used to move a product or raw
2-21 material in connection with the manufacturing process and
2-22 specifically including all piping and conveyor systems, provided
2-23 that piping that is a component part of a single item of
2-24 manufacturing equipment or pollution control equipment eligible for
2-25 the exemption under Subsection (a)(2), (a)(4), or (a)(5) remains
2-26 eligible for the exemption;
2-27 (2) maintenance or janitorial supplies or equipment[,]
3-1 or other machinery, equipment, materials, or supplies that are used
3-2 incidentally in a manufacturing, processing, or fabrication
3-3 operation;
3-4 (3) hand tools; [or]
3-5 (4) office equipment or supplies, equipment or
3-6 supplies used in sales or distribution activities, research or
3-7 development of new products, or transportation activities, or other
3-8 tangible personal property not used in an actual manufacturing,
3-9 processing, or fabrication operation; or
3-10 (5) machinery and equipment or supplies used to
3-11 maintain or store tangible personal property.
3-12 (r) A taxpayer claiming an exemption under this section has
3-13 the burden of proof that the exemption is applicable and that no
3-14 exclusion under Subsection (c) applies.
3-15 (s) The following do not apply to the semiconductor
3-16 fabrication cleanrooms and equipment in Subsection (q):
3-17 (1) limitations in Subsection (a)(2) that refer to
3-18 tangible personal property directly causing chemical and physical
3-19 changes to the product being manufactured, processed, or fabricated
3-20 for ultimate sale;
3-21 (2) Subsection (c)(1); and
3-22 (3) Subsection (c)(5).
3-23 SECTION 2. Sections 151.318(n) and (q), Tax Code, are
3-24 amended to read as follows:
3-25 (n) A person engaged in overhauling, retrofitting, or
3-26 repairing jet turbine aircraft engines and their component parts is
3-27 entitled to an exemption from the [a refund or a reduction in the
4-1 amount of] tax imposed by this chapter for the purchase of
4-2 machinery, equipment, or replacement parts or accessories with a
4-3 useful life in excess of six months, or supplies, including
4-4 aluminum oxide, nitric acid, and sodium cyanide, used in
4-5 electrochemical plating or a similar process that are used or
4-6 consumed in the overhauling, retrofitting, or repairing. [The
4-7 amount of the refund or reduced amount of tax due is the same as
4-8 provided by Subsection (h) for property covered by Subsection (g).]
4-9 (q) For purposes of Subsection (b), "semiconductor
4-10 fabrication cleanrooms and equipment" means all tangible personal
4-11 property, without regard to whether the property is affixed to or
4-12 incorporated into realty, used in connection with the
4-13 manufacturing, processing, or fabrication in a cleanroom
4-14 environment of a semiconductor product, without regard to whether
4-15 the property is actually contained in the cleanroom environment.
4-16 The term includes integrated systems, fixtures, and piping, all
4-17 property necessary or adapted to reduce contamination or to control
4-18 airflow, temperature, humidity, chemical purity, or other
4-19 environmental conditions or manufacturing tolerances, and
4-20 production equipment and machinery. The term does not include the
4-21 building or a permanent, nonremovable component of the building,
4-22 that houses the cleanroom environment. The term includes moveable
4-23 cleanroom partitions and cleanroom lighting. "Semiconductor
4-24 fabrication cleanrooms and equipment" are not "interplant
4-25 transportation equipment" or "used incidentally in a manufacturing,
4-26 processing, or fabrication operation" as those terms are used in
4-27 Subsections (c)(1) and [Subsection] (c)(2).
5-1 SECTION 3. Sections 151.318(f)-(m), Tax Code, are repealed.
5-2 SECTION 4. This Act takes effect October 1, 1997.
5-3 SECTION 5. The importance of this legislation and the
5-4 crowded condition of the calendars in both houses create an
5-5 emergency and an imperative public necessity that the
5-6 constitutional rule requiring bills to be read on three several
5-7 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 1855 was passed by the House on May
5, 1997, by a non-record vote; and that the House concurred in
Senate amendments to H.B. No. 1855 on May 20, 1997, by a non-record
vote; and that the House adopted H.C.R. No. 292 authorizing certain
corrections in H.B. No. 1855 on May 24, 1997, by a non-record vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 1855 was passed by the Senate, with
amendments, on May 16, 1997, by a viva-voce vote; and that the
Senate adopted H.C.R. No. 292 authorizing certain corrections in
H.B. No. 1855 on May 27, 1997, by a viva-voce vote.
_______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor