1855, 75th Legislature, 1997, effective October 1, 1997, limits, with certain exceptions, the exemption for tangible personal property used in the manufacturing process to property that makes or causes a chemical or physical change in the product being manufactured or in an intermediate or preliminary product that becomes a part of the product manufactured for sale. These new limitations do not apply to semiconductor fabrication cleanrooms, pollution control equipment, and a stipulated list of equipment used to power, supply, support or control qualifying manufacturing equipment or pollution control equipment (such as actuators, steam production equipment, cooling towers, transformers, pumps, compressors, computerized control units, etc.). Senate Bill 1, 75th Legislature, effective July 1, 1997, exempts water conservation equipment used by manufacturers. Senate Bill 862, 75th Legislature, effective October 1, 1997, clarified that computer software manufacturing begins with the design and writing of the program and includes testing or demonstration. House Bill 3211, 76th Legislature, 1999, effective October 1, 1999, provided clarifications to the language passed in the 75th Legislature.
James LeBas, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, there will be no significant fiscal impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of enforcing the rule will be in providing taxpayers with additional information regarding their tax responsibilities. This rule is adopted under the Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.
The amendment implements Senate Bills 1 and 862, and House Bill 1855, 75th Legislature, 1997, and House Bill 3211, 76th Legislature, 1999.
Rule 3.300. Manufacturing; Custom Manufacturing; Fabricating; Processing. (Tax Code, § 151.005, 151.007, and 151.318)
(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Accessory - A machine fixture that [which] causes the machinery to operate in a specialized way.
(2) Custom manufacturing - Producing tangible personal property to the special order of the customer, e.g., tailor-made clothing, custom-made draperies or slip-covers, or furniture made-to-order. Custom manufacturers are manufacturers for the purpose of this section.
(3) Display item - A manufactured item that is identical in size and function to other items held for sale which it represents and that is ultimately sold at retail. For example, manufacturer's apparel lines, furniture showroom pieces, light fixture displays.
(4) Equipment - Any apparatus, work clothing, device, or simple machines used directly in production.
(5) Fabrication - To make, build, create, produce, or assemble components of tangible personal property, or to make tangible personal property work in a new or different manner.
(6) Hand tool - An instrument [of manual operation,] that is[, an instrument] to be used, managed, and powered by the hand[,] (e.g., paint brush, trowel, hammer, screwdriver, files). Equipment that is [which is being] controlled or operated by the hand, but is moved or powered by electricity, gas, steam, or other fuel[etc.], is not a hand tool[,] (e.g., electric drill, chain saw, jack hammer).
(7) Machinery - All power-operated machines.
(8) Manufacturer - A person who is engaged in manufacturing. The definition [and] includes processors, fabricators, submanufacturers, and custom manufacturers.
(9) Manufacturing - Each[Every] operation beginning[commencing] with the first stage in the[of] production of tangible personal property and ending with the completion of tangible personal property. The first production stage means the first act of production, and it shall not include those acts in preparation for production. For example, a lumber company that cuts[cutting] trees or a manufacturer that gathers, arranges, or sorts[gathering, arranging, or sorting] raw materials or inventory is preparing for production. The first production stage for the manufacturing of software is the design and writing of the code or program, and manufacturing includes the testing or demonstration of the software. Manufacturing includes the repair[repairing] or rebuilding of tangible personal property that the manufacturer owns [owned by the manufacturer] for the purpose of being sold, but does not include the repair or rebuilding of property that belongs [belonging] to another. [When production is completed, maintaining the life of tangible personal property or preventing its deterioration is not a part of the manufacturing process.]
(A) Completion of production means the tangible personal property[article] has all the physical properties, including packaging, if any, that[which] it has when transferred by the manufacturer to another. For example, a manufacturer of raw rubber has completed production [of a manufactured article] when the raw rubber is ready to be transferred to a manufacturer of rubber goods.
(B) Processing and fabrication are two activities that [which] are performed during manufacturing. For example, the person who takes raw steel and makes pipe is engaged in fabrication. The workers who coat or thread the pipe are engaged in processing.
(10) Processing - The physical application of the materials and labor necessary to modify or to change the characteristics of tangible personal property. The repair of tangible personal property, belonging to another, by restoring it to its original condition is not considered processing of that property. The mere packing, unpacking, or shelving of a product to be sold will not be considered to be processing of that property. Processing does not include remodeling.
(11) Remodeling - To make tangible personal property belonging to another over again, in a similar but different way, or to change the style, shape, or form, without causing a loss of its identity, or without causing the property to work in a new or different manner.
(12) Replacement part - Any repair part attached to the machinery, equipment, or accessory.
(13) Sample - A scale model or representative piece of a manufactured product held for sale. For example, cloth swatches and wallpaper books.
(14) Semiconductor fabrication cleanrooms and equipment - All tangible personal property, without regard to whether the property is affixed to or incorporated into realty, that is used in connection with the manufacturing, processing, or fabrication in a cleanroom environment of a semiconductor product, without regard to whether the property is actually contained in the cleanroom environment.
[(A)] The term includes integrated systems, fixtures, and piping;[,] moveable cleanroom partitions and cleanroom lighting;[,] all property necessary or adapted to reduce contamination or to control airflow, temperature, humidity, chemical purity, or other environmental conditions or manufacturing tolerances;[, and] production equipment and machinery; all tangible personal property that moves the product or other materials that are necessary and essential to the process, including piping that is used to move gas, liquids, deionized water, and hazardous waste material; silicon wafer moving, handling, and tracking systems; and electrical supply and control equipment, such as switches, wiring, and monitoring equipment that is incorporated into the realty.
[(B) Semiconductor fabrication cleanroom equipment is not "intraplant transportation equipment" nor is it used incidentally in a manufacturing, processing, or fabrication operation.]
[(C)] The term does not include the building or any permanent, nonremovable structural component part of the building, such as vibration-isolation platforms and vibration columns[, that houses the cleanroom environment].
(15) Submanufacturer - A person who performs one or more of the manufacturing operations described in paragraph (9) of this subsection upon a product, or upon an intermediate or preliminary product, for a manufacturer.[Useful life - The time it takes for an item used in the manufacturing process to be entirely consumed or without value beginning the date the item was purchased new.]
(b) Manufacturer's responsibilities.
(1) Collection of tax. Persons who are engaged in the business of fabricating, manufacturing, processing, or custom manufacturing must collect sales tax on the total sales price of the manufactured item or accept a resale or[take an] exemption certificate in lieu of the tax. The sales price includes[, but is not limited to,] the cost of materials, labor or service costs, and all expenses that are connected with production. Persons who fabricate, custom manufacture, or process [fabricating, custom manufacturing, or processing] tangible personal property that the customer furnishes,[which is furnished] either directly or indirectly, [by the customer] must collect tax on such fabricating, custom manufacturing, or processing charge. Manufacturers shall pay or accrue sales or use tax on all items used in the manufacturing process that [which] do not qualify for exemption from tax. A manufacturer who purchases tangible personal property tax free by means of an exemption certificate or resale certificate and subsequently uses the item for a nonexempt purpose must remit the tax to the comptroller based on the purchase price of the item or the fair market rental value of the equipment for the period of time during which the equipment is used for purposes other than manufacturing. Reference should be made to §3.285 of this title (relating to Resale Certificate; Sales for Resale), §3.287 of this title (relating to Exemption Certificates), and §3.346 of this title (relating to Use Tax).
(2) Installed items. Generally, the charge for labor to install an item sold is taxable when the item sold is taxable. Persons who manufacture and install items that [which] become improvements to residential realty or are incorporated into new real property structures are contractors and are subject to the provisions of §3.291 of this title (relating to Contractors). Example: cabinetmakers [or drapery makers] who also affix the [draperies or] cabinets as a part of a new-construction contract. [See also §3.347 of this title (relating to Improvements to Realty).] Persons who manufacture and install items that become improvements to existing nonresidential realty are subject to the provisions of §3.357 of this title (relating to Labor Relating to Nonresidential Real Property Repair, Remodeling, Restoration, Maintenance, New Construction, and Residential Property). Persons who manufacture and install items as a part of a [repair] contract to repair tangible personal property are subject to the provisions of §3.292 of this title (relating to Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property). Example: fabricating a propeller shaft for a customer as a part of an outboard motor repair. Persons who manufacture and install items that [which] do not become improvements to realty or that [which] are not part of a repair must collect sales tax on the total charge. Example: a retailer who makes and installs draperies for a home owner.
(3) Molds, dies, patterns. The manufacturer's purchase [by the manufacturer] of molds, dies, patterns, jigs, tooling, photo engraving, and other manufacturing aids, and their raw materials or component parts, may qualify for exemption under subsection (d) of this section. [will be presumed to have been purchased for use as machinery, equipment, or accessories necessary or essential to the manufacturing process and are therefore presumed to be taxable at the time of purchase. Only if such aids have a useful life when new of six months or less is their purchase exempt.]
(A) Written agreement - sale. A separate charge by the manufacturer for the aid will be considered a sale of the aid to the customer only if [there is] a written agreement exists between parties that clearly makes [clearly making] the customer the owner of the aid. As owner of the aid, the customer will owe tax on the amount that the manufacturer charged, [charged by the manufacturer] unless [the aid has a useful life when new of six months or less and the product produced is resold by] the customer is also manufacturing a product for sale.
(B) No written agreement - no sale. When [there is] no written agreement exists between the manufacturer and the customer, and the manufacturer separates the charge for the aid from the charge for the items produced by means of the aid, a sale will not be considered to have occurred. The combined charges constitute the sales [selling] price of the manufactured item. (Charge for aid plus charge for items produced equals sales [selling] price of items.) The total charge shall be taxable or nontaxable depending on the taxability of the items produced. [Only if the aids have a useful life when new of six months or less is their purchase by the manufacturer exempt.]
(4) Samples. Since the sole use of such samples is to demonstrate not the sample but the other items that the sample [which it] represents, the purchase of the raw materials that are used to make the sample is subject to [the] sales or use tax, regardless of the fact that the sample itself may be ultimately sold.
(c) Nonexempt manufacturing items. Certain items are specifically subject to tax:
(1) taxable items that are not otherwise exempted by this section; [used by a manufacturer, processor, or fabricator in any activities other than the actual manufacturing, processing, fabricating operation, or repair of tangible personal property held for sale by the manufacturer such as machinery, equipment, and supplies used in selling or distributing, research and development, or in transportation activities;]
(2) machinery, equipment, replacement parts, and accessories that are rented or leased for a term of less than one year;
(3) items that [which] are merely useful or incidental to the operation, such as office machines, office supplies, [intraplant] transportation equipment, maintenance supplies, cleaning supplies, lubricants, and other items that [which] are [used to maintain equipment that is] incidental to the manufacturing process and are not otherwise exempted by this section; [are taxable; and]
(4) hand tools;[.]
(5) intraplant transportation equipment, unless exempted in subsections (d)(17) and (18) of this section, including equipment that is used to move a product or raw material in connection with the manufacturing process, and specifically including all piping, conveyor systems, and related pumps (unless otherwise exempted), meters, valves, or rollers. Intraplant transportation equipment is taxable even if manufacturing or processing activities (such as cooling, mixing, or pollution containment) occur during the transportation of product or component parts of the product;
(6) machinery and equipment or supplies that are not otherwise exempted in this section, but that are used to maintain or store tangible personal property (for example, refrigeration equipment that a restaurant uses);
(7) tangible personal property that is used in the transmission or distribution of electricity, including transformers, cable, switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are not otherwise exempted under this section, and lines, conduit, towers, and poles.
(d) The following items are exempted from the taxes imposed by Tax Code, Chapter 151, if purchased, leased, or rented by a manufacturer for storage, use, or consumption: [Exempt manufacturing items.]
(1) tangible personal property that will become an ingredient or component part of tangible personal property that is manufactured, processed, or fabricated for ultimate sale; [Gas and electricity. Gas and electricity when used directly in manufacturing are exempt. See §3.295 of this title (relating to Natural Gas and Electricity).]
(2) tangible personal property that is directly used or consumed in or during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale, if the use or consumption of the property is necessary or essential to the manufacturing, processing, or fabrication operation and directly makes or causes a chemical or physical change to:[Component parts. Tangible personal property purchased for use as an ingredient of or component part of a product manufactured for ultimate sale at retail is exempt.]
(A) the product that is being manufactured, processed, or fabricated for ultimate sale; or
(B) any intermediate or preliminary product that will become an ingredient or component part of the product that is being manufactured, processed, or fabricated for ultimate sale.
(3) services that are performed directly on the product that is being manufactured prior to the product's distribution for sale, and for the purpose of making the product more marketable;[Necessary and essential materials.]
[(A) Materials that are necessary or essential to the operation of machinery or equipment used in the actual manufacturing process are exempt. All materials which are directly used or consumed in any phase of the actual manufacturing, processing, or fabricating operation are exempt if they are necessary or essential to the operation. For example, lubricants consumed in the operation of machinery or equipment used in the actual manufacturing process, explosives used to blast granite or other material from the earth for further processing and sale, ice used during processing or manufacturing that is necessary and essential to the process, any material which is used or consumed in a process to remove impurities, to achieve quality control, to cause a physical or chemical change in a product, or otherwise make the product more marketable are exempt. Materials used to test the quality of the product after the manufacturing process is complete are not exempt.]
[(B) Materials, other than machinery or equipment, used in manufacturing to satisfy or comply with requirements of law or regulations for public health or pollution control purposes are exempt.]
[(C) Labor charges for repair, maintenance, remodeling, or restoration services to pollution control equipment or machinery required by law or regulation and other tangible personal property that is exempt under this section are exempt].
[(D) Gases used on the premises of a manufacturing plant to prevent contamination of raw material or product, or to prevent a fire, explosion, or other hazardous or environmentally damaging situation at any stage in the manufacturing process or in loading or storage of the product or raw material on premises are exempt.]
(4) actuators, steam production equipment and its fuel, in-process flow through tanks, cooling towers, generators, heat exchangers, transformers and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, and telemetry units that are related to the transformers, electronic control room equipment, computerized control units, pumps, compressors, hydraulic units, and related accessories that are used to power, supply, support, or control equipment that qualifies for exemption under paragraph (2) or (6) of this subsection or to generate electricity, chilled water, or steam for ultimate sale; [Services. Services performed directly on the product being manufactured when these services are performed prior to its distribution for sale and are for the purpose of making the product more marketable.]
(5) transformers located at an electric generating facility that increase the voltage of electricity generated for ultimate sale, the electrical cable that carries the electricity from the electric generating equipment to the step-up transformers, and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, telemetry units, and related accessories that are associated with the step-up transformers; and transformers that decrease the voltage of electricity generated for ultimate sale and the switches, breakers, capacitor banks, regulators, relays, reclosers, fuses, interruptors, reactors, arrestors, resistors, insulators, instrument transformers, telemetry units, and related accessories that are associated with the step-down transformers; <et>[Wrapping, packing, and packaging supplies. Wrapping, packing, and packaging supplies used to further the sale of a product are exempt. See §3.314 of this title (relating to Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, and Export Packers).]
(6) tangible personal property that is used or consumed in the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale, if the use or consumption of the property is necessary and essential to a pollution control process; [Display item. Both the purchase of such an item and the raw materials used to make such an item are exempt from the sales and use tax, so long as the item is used only to demonstrate itself and the same or similar items prior to its sale to an ultimate consumer. The item may not be used for any purpose other than demonstration or display. Any other use by the manufacturer is taxable as a divergent use.]
(7) lubricants, chemicals, chemical compounds, gases, or liquids that are used or consumed during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale, if their use or consumption is necessary and essential to prevent the decline, failure, lapse, or deterioration of equipment that is exempted by this section; [Useful life of six months or less.]
[(A) Machinery, equipment, accessories, and replacement parts which are entirely consumed or without value within six months from the date the items were purchased new are exempt.]
[(B) Work clothing such as safety goggles, gloves, and similar work clothing having a useful life when new of six months or less which are necessary and essential to the manufacturing process when purchased by the manufacturer and not resold to the employee are exempt. Work clothing is exempt only if the manufacturing operation would not be possible without its use.]
(8) gases that are used on the premises of a manufacturing plant to prevent contamination of raw material or product, or to prevent a fire, explosion, or other hazardous or environmentally damaging situation at any stage in the manufacturing process or in loading or storage of the product or raw material on premises;
(9) tangible personal property that is used or consumed during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale, if the use or consumption of the property is necessary and essential to a quality control process. For example, equipment that is used to test the product after the item is produced, but prior to wrapping and packaging. Equipment that is used to test raw materials prior to processing does not qualify for this exemption;
(10) safety apparel or work clothing that is used during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale, if the manufacturing process would not be possible without the use of the apparel or clothing and the apparel or clothing is not resold to the employee. Examples are safety goggles, gloves, ear plugs, or hairnets that the law requires employees to wear during processing, or static wrist guards that manufacturing personnel wear in a manufacturing process that must be free of static electricity. A regulation that requires employees to wear clean clothing is not sufficient to qualify uniforms for exemption;
(11) tangible personal property that is used or consumed in the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale, if the use or consumption of the property is necessary and essential to comply with federal, state, or local laws or rules that establish requirements for public health purposes. For example, disinfectants that are used in a meat packing operation to sanitize work areas are exempt. Tangible personal property that is required to be on site, but used only in emergency situations, is not considered consumed in the actual manufacturing process (for example, fire extinguishers, eye baths, and safety signs are not exempt under this provision);
(12) tangible personal property that is specifically installed to:
(A) reduce water use and wastewater flow volumes from the manufacturing, processing, fabrication, or repair operation;
(B) reuse and recycle wastewater streams that are generated within the manufacturing, processing, fabrication, or repair operation; or
(C) treat wastewater from another industrial or municipal source for the purpose of replacing existing freshwater sources in the manufacturing, processing, fabrication, or repair operation.
(13) gas and electricity when used directly in manufacturing. See §3.295 of this title (relating to Natural Gas and Electricity).
(14) labor charges for repair, maintenance, remodeling, or restoration services to pollution control equipment or machinery that a law or regulation requires, and other tangible personal property that is exempt under this section.
(15) wrapping, packing, and packaging supplies that are used to further the sale of a product. See §3.314 of this title (relating to Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, and Export Packers).
(16) display items and the raw materials that are used to make display items, so long as the item is used only to demonstrate itself and the same or similar items prior to its sale to an ultimate consumer. The item may not be used for any purpose other than demonstration or display. Any other use by the manufacturer is taxable as a divergent use.
(17) piping or conveyor systems that are a component part of a single item of manufacturing equipment or pollution control equipment that is eligible for the exemption. For example, a printing press contains rollers and pipes to transport or feed paper or ink during the manufacturing process. The purchase of the press would continue to qualify for exemption, and rollers, pipe, or other press repair parts would remain as qualifying accessories or repair parts, even when purchased separately. An integrated group of manufacturing and processing machines and ancillary equipment that operate together to create or produce the product, or an intermediate or preliminary product that will become an ingredient or component part of the product, is not a single item of manufacturing equipment.
(18) piping through which the product, or an intermediate or preliminary product that will become an ingredient or component part of the product, is recycled or circulated in a loop between the single item of manufacturing equipment and the ancillary equipment that supports only that single item of manufacturing equipment, if the single item of manufacturing equipment and the ancillary equipment operate together to perform a specific step in the manufacturing process; and piping through which the product, or an intermediate or preliminary product that will become an ingredient or component part of the product, is recycled back to another single item of manufacturing equipment and its ancillary equipment in the same manufacturing process.
(e) Rented or leased taxable items. The exemptions provided in this section do not apply to any taxable item rented or leased before October 1, 1995, under an operating lease to a person engaged in manufacturing. Taxable items used in a manner exempted under this section and leased on or after October 1, 1995, for a term of [exceeding] one year or more qualify for exemption.
(f) Semiconductor fabrication cleanrooms and equipment. Semiconductor fabrication cleanrooms and equipment as defined in subsection (a)(14) of this section and associated materials and other items that are necessary and essential to maintain the cleanroom environment are exempt. Semiconductor fabrication cleanrooms and equipment are not intraplant transportation equipment or used incidentally in a manufacturing process or fabrication operation as those terms are used in subsections (c)(3) and (c)(5) of this section. [Useful life of more than six months.]
[(1) State tax paid on qualifying machinery, equipment, replacement parts, and accessories with a useful life exceeding six months qualified for a partial refund by the comptroller if the items were purchased by a manufacturer and the tax was paid after December 31, 1989. A reduction in the amount of tax due applies at the time of purchase to items purchased on or after October 1, 1993. Purchases on or after January 1, 1995, are exempt. The date that title or possession transfers from the retailer to the manufacturer is the purchase date. Items purchased out of state will be considered purchased on the date they are brought into this state.]
[(2) Manufacturing machinery, equipment, replacement parts, and accessories purchased by a manufacturer qualify for a refund, a reduction in the amount of tax paid, or for exemption:]
[(A) if it will be used in the actual manufacturing, processing, fabrication, or repair of tangible personal property to be sold, and the use of the item is necessary and essential to the manufacturing, processing, fabrication, or repair operation or a pollution control process resulting from the operation; and]
[(B) is not purchased under a lump-sum contract to improve real property or under a lump-sum real property repair or remodeling contract.]
[(3) Qualifying items purchased in 1990 and from January 1, 1991, through September 30, 1991, and on which tax is paid qualify for a refund of 25% of the state tax paid. The refund may be claimed only during the calendar year after the tax is paid.]
[(4) Manufacturing machinery and equipment purchased from October 1, 1991, through September 30, 1993, do not qualify for sales tax refunds or tax reductions.]
[(A) Fifty percent of the sales price of qualifying items purchased from October 1, 1993, through December 31, 1993, is exempted from the state sales and use tax.]
[(B) Seventy-five percent of the sales price of qualifying items purchased during 1994 is exempted from the state sales and use tax.]
[(C) Qualifying items purchased on or after January 1, 1995, are exempt.]
[(5) Except for equipment listed in subparagraphs (A)-(C) of this paragraph, semiconductor fabrication cleanroom equipment qualifies for exemption as provided under paragraph (4) of this subsection. Equipment listed in subparagraphs (A)-(C) of this paragraph, is exempt if purchased on or after October 1, 1995:]
[(A) tangible personal property that moves the product or other materials necessary and essential to the process including piping used to move gas, liquids, deionized water and hazardous waste material; silicon wafer moving, handling and tracking systems;]
[(B) electrical supply and control equipment such as switches, wiring and monitoring equipment incorporated into the realty; and]
[(C) partition panels that are not incorporated into realty.]
(g) Overhaul, retrofit, or repair of jet turbine engines. A person who is engaged in the overhaul, retrofit, or repair of jet turbine aircraft engines and their component parts may claim an exemption from tax on the purchase of machinery, equipment, or replacement parts or accessories with a useful life in excess of six months, or supplies, including aluminum oxide, nitric acid, and sodium cyanide, used in electrochemical plating or a similar process, that are used or consumed in the overhauling, retrofitting, or repairing of jet turbine aircraft engines or their component parts. [Method of obtaining the refund.]
[(1) A refund under subsection (f) of this section must be claimed only during the calendar year following the year in which the tax was paid. Claims for refund must be on the form provided by the comptroller for that purpose. No other form may be used and credit may not be taken on a return.]
[(2) The claimant will be required to list invoice numbers, voucher numbers, or other code numbers referring to source documents, item description, date of purchase, invoice date, date tax was paid, or the report period tax was paid directly to the comptroller, or any other information requested by the comptroller. All records and documentation supporting the claim must be retained by the claimant for inspection by the comptroller.]
[(3) Amounts claimed and obtained on nonqualifying items may be recovered by the comptroller together with applicable penalty and interest from the date of the refund.]
(h) Persons engaged in printing tangible personal property. A person who is engaged in printing or imprinting tangible personal property for sale or production of a publication for the dissemination of news of a general character and of a general interest that is printed on newsprint and distributed to the general public daily, weekly, or at some other short interval, free of charge, may purchase tax free, in addition to other items that are exempted under this section, the following items that are necessary and essential to and used in connection with the printing process: pre-press machinery, equipment, and supplies, including computers, cameras, film, film developing chemicals, veloxes, plate-making machinery, plate metal, litho negatives, color separation negatives, proofs of color negatives, production art work, and typesetting or composition proofs. [Method of paying a reduced amount of tax.]
[(1) The purchaser shall provide the retailer an exemption certificate for the appropriate percentage of the sales tax for qualifying items purchased on or after October 1, 1993.]
[(A) A retailer who receives an exemption certificate for purchases in 1993 for 50% of the sales tax shall collect state sales tax on 50% of the sales price.]
[(B) A retailer who receives an exemption certificate for purchases in 1994 for 75% of the sales price shall collect state sales tax on 25% of the sales price.]
[(2) A purchaser who remits use tax on qualifying items purchased on or after October 1, 1993, shall deduct from the amount reported as the purchase price the appropriate percentage allowed as a reduction in the state tax.]
(i) Separated and lump-sum contracts to improve realty. A contractor who incorporates into realty any equipment or materials that qualify for exemption under subsection (d) of this section may accept an exemption certificate in lieu of tax from the manufacturer for the separately stated exempt materials sold under a separated contract. Taxable materials, such as foundation materials and items that are noted under subsection (c) of this section must be separately stated from qualifying equipment, or a single charge for qualifying and nonqualifying materials will be presumed taxable. When nonresidential repair, remodeling, or restoration of realty is performed, qualifying equipment must be separately stated from both nonqualifying materials and taxable labor, or the exemption on the qualifying equipment is lost. A lump-sum charge to repair, remodel, or restore nonresidential realty is taxable. See §3.357 of this title (relating to Labor Relating to Nonresidential Real Property Repair, Remodeling, Restoration, Maintenance, New Construction, and Residential Property). A lump-sum charge to perform new construction as covered in §3.291 of this title (relating to Contractors) is not taxable. The contractor is the consumer of all the goods that the contractor uses in the performance of a lump sum new construction contract, and neither the contractor nor the manufacturer may claim an exemption on otherwise qualifying manufacturing equipment. [Tax refund or reduced amount. A person engaged in overhauling, retrofitting, or repairing jet turbine engines and their component parts is entitled to a refund, a reduction, or an exemption in the amount of sales and use tax for the purchase of qualifying items including aluminum oxide, nitric acid, and sodium cyanide used in electrochemical plating or a similar process that are used or consumed in the overhauling, retrofitting, or repairing of jet turbine engines or their component parts. The refund or reduced amount of tax is obtained in the same manner as is provided for manufacturers under subsections (g) and (h) of this section.]
(j) A taxpayer who claims an exemption under this section must prove that the exemption applies and that no exclusion under subsection (c) of this section applies. [Divergent use. Machinery and equipment purchased on or after January 1, 1995, and on which the full sales tax exemption is claimed is subject to tax on either the fair market rental value or on the full purchase price during any period of use for other than manufacturing purposes as provided for under §3.287 of this title (relating to Exemption Certificates). Machinery and equipment purchased between January 1, 1990, and December 31, 1994, and on which the reduced tax was paid must be used primarily or predominantly in the manufacturing process. No additional tax is due on a divergent use provided the divergent use is less than 50% of the overall use. Tax is due on the full purchase price if the use is primarily for a use not eligible for exemption.]
This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's authority to adopt.
Issued in Austin, Texas, on January 12, 2001.
MARTIN E. CHERRY Deputy General Counsel for Tax Policy and Agency Affairs Comptroller of Public Accounts