In the state of Texas, taxpayers who manufacturer, process, or fabricate any kind of tangible goods that are made available for sale can qualify for various sales and tax exemptions through the state. These manufacturing exemptions have put in place with the goal of encouraging more local manufacturing in Texas, and they help attract more companies thanks to the low taxes and friendly business environment the state is known for.
Of course, tax laws can be complicated, and while there are many manufacturing exemptions available, they can be difficult to understand sometimes. Below, we will detail everything you need to know, such as the different types of exemptions, how to qualify for a manufacturing exemption, who can get an exemption for manufacturing, and more.
Who Qualifies for an Exemption for Manufacturing?
In order to qualify for a manufacturing exemption in Texas, you must be a taxpayer who does one or more of the following:
- Makes or processes tangible property that’s available for sale
- Repairs or rebuilds tangible personal property out of your inventory for sale
- Fixes tangible personal property for renting out
Now, there are some specific people the exemption for manufacturing does not apply to. This includes those who repair property that doesn’t belong to them, contractors, and service providers, even those service providers that make their own property that they use to perform their services.
What Does the Manufacturing Exemption Apply To?
The Texas exemption for manufacturing is for equipment or machinery that creates a chemical or physical change in a good that results in making it saleable. The start of the manufacturing process is typically with the first event that alters the materials and the end of the manufacturing process is when the property is packaged up for sale.
In addition to manufacturing equipment, components for qualifying machinery, and services performed on manufactured goods before being made available for sale, there are many other items that also qualify for manufacturing exemptions, such as items used for testing goods during manufacturing, items used to control pollution during the manufacturing process, various lubricants, chemicals, and other products used during manufacturing to keep the equipment from failing, certain repairs, safety apparel used during manufacturing, and many more. The State of Texas is constantly updating these items that qualify for manufacturing exemptions, so make sure to check for the latest exemptions.
Additional Manufacturing Exemptions
In addition to every manufacturing exemption mentioned above, there are several other specific kinds of exemption for manufacturing that may not be available to all manufacturers.
For example, electricity and natural gas used in manufacturing can qualify for an exemption from sales tax if it’s used predominantly for the manufacturing process. A predominant use study is required to prove predominant use.
Newspaper publishers and other printers are allowed to claim a specific manufacturing exemption for pre-press machinery, supplies, and equipment, including things like computers, photography equipment, photo processing items, and other items essential to the printing process.
Audio and video production companies can qualify for manufacturing exemptions from sales or use tax when buying or renting certain products that are needed for the production of video and audio recordings made available for sale, distribution, licensing, and broadcast. This includes a range of personal property used in production, from cameras to film to microphones to Teleprompters and a range of other equipment used in the production.
Stay Current with Texas Manufacturing Exemptions
Every exemption for manufacturing is subject to change at any time. It’s important that you stay current with state laws regarding manufacturing exemptions so you can take full advantage of the exemptions made available for your business.