1-1     By:  Ratliff                                          S.B. No. 1424

 1-2           (In the Senate - Filed March 13, 1997; March 19, 1997, read

 1-3     first time and referred to Committee on Finance; April 8, 1997,

 1-4     reported favorably by the following vote:  Yeas 11, Nays 0;

 1-5     April 8, 1997, sent to printer.)

 1-6                            A BILL TO BE ENTITLED

 1-7                                   AN ACT

 1-8     relating to the qualification for sales and use tax exemption of

 1-9     certain property used in manufacturing.

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 Subsection (r) to read as

1-13     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 the product being

1-25     manufactured, processed, or fabricated for ultimate sale; and

1-26                 (3)  services performed directly on the product being

1-27     manufactured prior to its distribution for sale and for the purpose

1-28     of making the product more marketable.

1-29           (c)  The exemption does not include:

1-30                 (1)  machinery, equipment, or replacement parts or

1-31     their accessories having a useful life when new in excess of six

1-32     months;

1-33                 (2)  intraplant transportation equipment, including

1-34     intraplant transportation equipment used to move a product or raw

1-35     material in connection with the manufacturing process and

1-36     specifically including all piping and conveyor systems;

1-37                 (3)  maintenance or janitorial supplies or equipment[,]

1-38     or other machinery, equipment, materials, or supplies that are used

1-39     incidentally in a manufacturing, processing, or fabrication

1-40     operation;

1-41                 (4) [(3)]  hand tools; [or]

1-42                 (5) [(4)]  office equipment or supplies, equipment or

1-43     supplies used in sales or distribution activities, research or

1-44     development of new products, or transportation activities, or other

1-45     tangible personal property not used in an actual manufacturing,

1-46     processing, or fabrication operation;

1-47                 (6)  machinery and equipment or supplies used to

1-48     manufacture, maintain, repair, or remodel items that are not sold;

1-49     or

1-50                 (7)  machinery and equipment or supplies used to

1-51     maintain or store tangible personal property.

1-52           (r)  A taxpayer claiming exemption under this section must

1-53     maintain proof that purchases of taxable services and tangible

1-54     personal property are exempted under this section and not excluded

1-55     from the exemption.

1-56           SECTION 2.  This Act takes effect September 1, 1997.

1-57           SECTION 3.  The importance of this legislation and the

1-58     crowded condition of the calendars in both houses create an

1-59     emergency and an imperative public necessity that the

1-60     constitutional rule requiring bills to be read on three several

1-61     days in each house be suspended, and this rule is hereby suspended.

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