The Texas Comptroller has issued a private letter ruling regarding the taxability of quality control equipment used in the manufacturing of carbon steel plates. The company in question is a manufacturer of carbon steel plates in Texas. During the manufacturing process, the company conducts quality control testing to ensure that the steel plates meet customer requirements and industry standards. The company follows industry standards that dictate requirements for steel plates such as design, thickness, strength, grain, and chemical properties.
The quality control testing begins upon completion of a manufactured steel plate. A sample of a metal plate is sheared off and sent to a metallurgical lab (owned by the company) for testing. During the quality control process, the company uses lathe machines, a mechanical press, and ovens to prepare samples for testing. The testing equipment includes a charpy impact tester, tensile test machine, mechanical hardness tester, and an optical emission spectrometer.
In the private letter ruling, the Comptroller determined that the equipment used for quality control testing is exempt from sales tax. Texas tax law includes a manufacturing exemption but specifically excludes hand tools from the exemption. The quality control equipment used by the company is necessary and essential to the quality control process to test metal plates to meet customer requirements and industry standards. The equipment is powered by electricity or other fuel and is therefore not considered to be hand tools. As a result, the quality control equipment used by the company is exempt from Texas sales tax. The Comptroller notes that use of the quality control equipment for any purpose other than for quality control is considered divergent use. (Comptroller Letter No. 202501016L, Texas Comptroller of Public Accounts, January 24, 2025)