Divergent Use of Manufacturing Equipment in Texas Discussed.

If a manufacturer uses tax exempt manufacturing equipment to make repairs on a product under the terms of its warranty, it constitutes divergent use of the exempt equipment for purposes of sales tax in Texas. The manufacturing process ceases once the tangible personal property (the packaged product) has been transferred to the buyer. At that point, any use of the tax exempt equipment to repair the product is considered divergent and may trigger tax liability. This letter reverses a previously issued letter to the same taxpayer in 2004. (Letter No. 201003824L, Texas Comptroller of Public Accounts, March 15, 2010, released August 2010).

Posted on January 9, 2011