This guide from Orchardshore Advances in Cleburne, Texas summarizes the Texas Comptroller's publication on manufacturing exemptions, the exemption certificate a manufacturer gives a vendor, who qualifies and who does not, and how the exemption affects an equipment budget. Confirm any tax position with the Comptroller or a tax adviser.
The Texas Sales Tax Exemption Certificate for Manufacturing Purchases
According to the Comptroller's publication Manufacturing Exemptions (94-124), a qualifying manufacturer can give its vendor a properly completed Form 01-339 (back), the Texas Sales and Use Tax Exemption Certification, instead of paying tax on qualifying manufacturing equipment, material and supplies. The publication lists what the certificate must include:
- The purchaser's name and address.
- A description of the item being purchased.
- The reason the purchase is exempt from tax.
- The purchaser's signature and the date.
- The seller's name and address.
The form itself is published by the Comptroller as Form 01-339; the exemption certification is on its back page.
Who Qualifies for Sales Tax Exemption in Texas Manufacturing, and Who Does Not
The Comptroller's publication describes manufacturers, including sub-manufacturers, as eligible when they manufacture tangible personal property for sale, perform one or more manufacturing operations for a manufacturer, fabricate or assemble components into property for ultimate sale, or modify the characteristics of a product being made for sale.
The same publication says contractors, people repairing property that belongs to others, and service providers do not qualify. That matters in Johnson County, TX, where construction has far more employer establishments than manufacturing: a contractor buying a machine does not become a manufacturer by owning it.
Texas Sales Tax Exemption Rules for Manufacturing Machinery in a Build-Out
The publication applies the exemption to machinery or equipment that causes a physical or chemical change in a product to make it saleable, and it describes the manufacturing process as starting with the first activity that changes raw materials and ending when the product has the properties it has when sold, including packaging. It also covers items used for quality control on products for sale, and certain pollution control equipment.
It names exclusions as well: hand tools are taxable even when used in fabrication (its example is a hammer), and the exemption does not apply to intraplant transportation equipment. A build-out that mixes production machines with forklifts, office furniture and building improvements will mix exempt and taxable items, and the budget should separate them.
The Exemption Form for Manufacturing Purchases and Your Funding Request
For a funding request, the exemption matters because it changes the amount financed. A partner financing a machine works from the vendor's invoice. If the invoice shows no sales tax because the shop gave the vendor an exemption certificate, the financed amount is the price alone. If the shop pays tax and later learns the item qualified, the money spent on tax was cash the shop did not need to borrow or spend.
The Comptroller's publication also addresses divergent use: using exempt equipment for purposes other than manufacturing items for sale. Its example is a photographer who uses an exempt camera for personal photos. Read that section if a machine will also do repair work or in-house projects, and ask a tax adviser how it applies.
Budgeting a Machine Purchase With and Without Sales Tax
Illustration only, invented figures: a fabricator buys a $240,000 press brake. If sales tax at a combined rate of 8.25% applied, the tax would add $19,800 (our arithmetic). In the invented case, if the purchase qualifies for the manufacturing exemption and the fabricator gives the vendor a completed certificate, that $19,800 is not part of the invoice or of the amount financed. The rate here is an assumption for the example; check the actual combined rate for the delivery location with the Comptroller.
| Scenario | Price | Sales tax | Invoice total |
|---|---|---|---|
| Taxable purchase | $240,000 | $19,800 | $259,800 |
| Qualifying exempt purchase | $240,000 | $0 | $240,000 |
Where Johnson County, TX Plants Stand in the 2023 Census Tables
County Business Patterns counted 190 manufacturing employer establishments in Johnson County, TX in 2023, with 8,095 employees and $507.2 million in annual payroll, the largest payroll of any sector. Fabricated metal product manufacturers, including machine shops, numbered 50 with 2,000 employees; food manufacturers numbered 11. Manufacturing equipment financing in Cleburne, TX covers how those shops fund machines.
Where to Confirm Before You Rely on the Exemption
- The Comptroller's manufacturing exemptions publication for the rules described above.
- The Comptroller's sales and use tax pages for rates and filing.
- The Comptroller's sales tax permit application if the business does not yet hold a permit.
- A tax adviser for whether a specific machine and use qualify.
Orchardshore Advances does not give tax advice. This guide summarizes the Comptroller's published text so that an equipment budget can be built on the right number.
By Orchardshore Advances · Updated