By:  Ratliff                                 S.B. No. 1424

         97S0667/1                           

                                A BILL TO BE ENTITLED

                                       AN ACT

 1-1     relating to the qualification for sales and use tax exemption of

 1-2     certain property used in manufacturing.

 1-3           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-4           SECTION 1.  Section 151.318, Tax Code, is amended by amending

 1-5     Subsections (a) and (c) and by adding Subsection (r) to read as

 1-6     follows:

 1-7           (a)  The following items are exempted from the taxes imposed

 1-8     by this chapter:

 1-9                 (1)  tangible personal property that will become an

1-10     ingredient or component part of tangible personal property

1-11     manufactured, processed, or fabricated for ultimate sale;

1-12                 (2)  tangible personal property directly used or

1-13     consumed in or during the actual manufacturing, processing, or

1-14     fabrication of tangible personal property for ultimate sale if the

1-15     use or consumption of the property is necessary or essential to the

1-16     manufacturing, processing, or fabrication operation and directly

1-17     makes or causes a chemical or physical change to the product being

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

1-19                 (3)  services performed directly on the product being

1-20     manufactured prior to its distribution for sale and for the purpose

1-21     of making the product more marketable.

1-22           (c)  The exemption does not include:

1-23                 (1)  machinery, equipment, or replacement parts or

 2-1     their accessories having a useful life when new in excess of six

 2-2     months;

 2-3                 (2)  intraplant transportation equipment, including

 2-4     intraplant transportation equipment used to move a product or raw

 2-5     material in connection with the manufacturing process and

 2-6     specifically including all piping and conveyor systems;

 2-7                 (3)  maintenance or janitorial supplies or equipment[,]

 2-8     or other machinery, equipment, materials, or supplies that are used

 2-9     incidentally in a manufacturing, processing, or fabrication

2-10     operation;

2-11                 (4) [(3)]  hand tools; [or]

2-12                 (5) [(4)]  office equipment or supplies, equipment or

2-13     supplies used in sales or distribution activities, research or

2-14     development of new products, or transportation activities, or other

2-15     tangible personal property not used in an actual manufacturing,

2-16     processing, or fabrication operation;

2-17                 (6)  machinery and equipment or supplies used to

2-18     manufacture, maintain, repair, or remodel items that are not sold;

2-19     or

2-20                 (7)  machinery and equipment or supplies used to

2-21     maintain or store tangible personal property.

2-22           (r)  A taxpayer claiming exemption under this section must

2-23     maintain proof that purchases of taxable services and tangible

2-24     personal property are exempted under this section and not excluded

2-25     from the exemption.

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

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

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

 3-4     emergency and an imperative public necessity that the

 3-5     constitutional rule requiring bills to be read on three several

 3-6     days in each house be suspended, and this rule is hereby suspended.