A taxpayer’s rental of gas compressor equipment (previously tax exempt when rented under a one-year contract) became taxable when the initial contract ended and the taxpayer was allowed to retain and rent the equipment on a month-to-month basis. The State determined that a manufacturing exemption does not apply to equipment rented or leased for any term less than one year. Eligibility for the manufacturing exemption is determined by the term of the contract, as opposed to the time that the equipment was at a taxpayer’s location. The State agrees that the compressors qualify for exemption under Section 151.318(a)(2) as tangible personal property directly used in or during the manufacturing process. However, under Section 151.318(e), the exemption does not apply to any item rented or leased for less than one year. (Texas Comptroller of Public Accounts, Hearing No. 45,247, November 29, 2005)