December 6, 1999
FOR IMMEDIATE RELEASE
Ryan & Company Obtains Decision to Exempt Repairs of Manufacturing Equipment from Texas Sales Tax.
Ryan & Company recently obtained a final decision in Comptroller's
Hearing No. 37,457 holding that repairs of manufacturing equipment
for the period October 1, 1993 through December 31, 1994 are partially
exempt under Texas Tax Code § 151.3111(a). Prior to this decision,
the Comptroller had held that such repairs were taxable.
As part of the taxpayer’s bread baking operations, pan glazing is
applied to baking pans by a third party vendor. Initially, after the pan
glazing is applied to the baking pan, very little other lubrication, such
as baking oil, is required to be applied, due to the ease with which baked
goods can be removed from the baking pan. As the glaze is worn during
the frequent baking operations, the baked products tend to stick more
frequently to the pans, requiring the increased use of other lubricants,
such as oil, to reduce sticking. Prior to the point of such deterioration,
which occurs within a several months period, the pan is sent to the vendor
for a new glaze coating. The vendor cleans the pans, strips the remaining
old glazing, and applies new glazing. The vendor also straightens any
bent pans.
The Tax Division determined that the pan glazing was a taxable repair
service and although the pans were partially exempt under the manufacturing
equipment phase-in, the repair labor was fully taxable. The Tax Division
concluded that the exemption in § 151.3111(a) did not apply to the
taxpayer since the pans were only partially exempt.
The Administrative Law Judge ruled in favor of the taxpayer concluding
that the phase-in provisions were included in § 151.318, a section
that provides for exemptions. The Judge determined that the term "reduction
of tax" appears to suggest that only part of the tax would be paid
at the time of purchase, meaning that part of the purchase price is exempt
from tax. Accordingly, the taxpayer was entitled to a refund of 50% of
the sales tax paid on the purchase of pan glazing services from October
1, 1993, through December 31, 1993, and 75% of the sales tax paid on purchases
of those services made in 1994. Please contact
a Ryan & Company professional for more information.
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