1-1     By:  Eiland (Senate Sponsor - Ratliff)                H.B. No. 1855

 1-2           (In the Senate - Received from the House May 6, 1997;

 1-3     May 7, 1997, read first time and referred to Committee on Finance;

 1-4     May 9, 1997, reported favorably by the following vote:  Yeas 11,

 1-5     Nays 0; May 9, 1997, sent to printer.)

 1-6                            A BILL TO BE ENTITLED

 1-7                                   AN ACT

 1-8     relating to sales tax exemption for items used in manufacturing

 1-9     tangible personal property for ultimate sale.

1-10           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

1-11           SECTION 1.  Section 151.318, Tax Code, is amended by amending

1-12     Subsections (a) and (c) and adding Subsections (r) and (s) to read

1-13     as follows:

1-14           (a)  The following items are exempted from the taxes imposed

1-15     by this chapter:

1-16                 (1)  tangible personal property that will become an

1-17     ingredient or component part of tangible personal property

1-18     manufactured, processed, or fabricated for ultimate sale;

1-19                 (2)  tangible personal property directly used or

1-20     consumed in or during the actual manufacturing, processing, or

1-21     fabrication of tangible personal property for ultimate sale if the

1-22     use or consumption of the property is necessary or essential to the

1-23     manufacturing, processing, or fabrication operation and directly

1-24     makes or causes a chemical or physical change to:

1-25                       (A)  the product being manufactured, processed,

1-26     or fabricated for ultimate sale; or

1-27                       (B)  any intermediate or preliminary product that

1-28     will become an ingredient or component part of the product being

1-29     manufactured, processed, or fabricated for ultimate sale; [and]

1-30                 (3)  services performed directly on the product being

1-31     manufactured prior to its distribution for sale and for the purpose

1-32     of making the product more marketable; and

1-33                 (4)  actuators, steam production equipment and its

1-34     fuel, in-process flow through tanks, cooling towers, generators,

1-35     heat exchangers, electronic control room equipment, and

1-36     computerized control units that are used to power, supply, support,

1-37     or control equipment that qualifies for exemption under Subdivision

1-38     (2) or to generate electricity, chilled water, or steam for

1-39     ultimate sale.

1-40           (c)  The exemption does not include:

1-41                 (1)  machinery, equipment, or replacement parts or

1-42     their accessories having a useful life when new in excess of six

1-43     months;

1-44                 (2)  intraplant transportation equipment, including

1-45     intraplant transportation equipment used to move a product or raw

1-46     material in connection with the manufacturing process and

1-47     specifically including all piping and conveyor systems;

1-48                 (3)  maintenance or janitorial supplies or equipment[,]

1-49     or other machinery, equipment, materials, or supplies that are used

1-50     incidentally in a manufacturing, processing, or fabrication

1-51     operation;

1-52                 (4) [(3)]  hand tools; [or]

1-53                 (5) [(4)]  office equipment or supplies, equipment or

1-54     supplies used in sales or distribution activities, research or

1-55     development of new products, or transportation activities, or other

1-56     tangible personal property not used in an actual manufacturing,

1-57     processing, or fabrication operation; or

1-58                 (6)  machinery and equipment or supplies used to

1-59     maintain or store tangible personal property.

1-60           (r)  A taxpayer claiming an exemption under this section has

1-61     the burden of proof that the exemption is applicable and that no

1-62     exclusion under Subsection (c) applies.

1-63           (s)  The following do not apply to the semiconductor

1-64     fabrication cleanrooms and equipment in Subsection (q):

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

 2-2     tangible personal property directly causing chemical and physical

 2-3     changes to the product being manufactured, processed, or fabricated

 2-4     for ultimate sale;

 2-5                 (2)  Subsection (c)(2); and

 2-6                 (3)  Subsection (c)(6).

 2-7           SECTION 2.  This Act takes effect October 1, 1997.

 2-8           SECTION 3.  The importance of this legislation and the

 2-9     crowded condition of the calendars in both houses create an

2-10     emergency and an imperative public necessity that the

2-11     constitutional rule requiring bills to be read on three several

2-12     days in each house be suspended, and this rule is hereby suspended.

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