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The manufacturing process ends when the product has the same physical properties as when sold or transferred by the manufacturer to another, including any packaging.įor software, the manufacturing process includes the design and writing of the code, as well as testing and demonstrating the software. Typically, the first activity that changes raw materials or ingredients of the product begins the manufacturing process. The manufacturing process begins with the first stage of production. The manufacturing exemption applies to machinery or equipment that causes a physical or chemical change in a product in order to make it saleable. service providers, such as telecommunications service providers or data processors.persons repairing real or tangible personal property belonging to others.The following non-manufacturers do not qualify for manufacturing exemptions: modifying or changing the characteristics of the product being manufactured for ultimate sale, or its component parts Who Does Not Qualify for Exemption?.fabricating or assembling components into tangible personal property for ultimate sale.performing one or more of the manufacturing operations for a manufacturer.manufacturing tangible personal property for sale.Manufacturers (including sub-manufacturers) who perform any of the following activities are eligible to claim manufacturing exemptions: A hammer, for example, is taxable even if it is used in fabricating a product for sale.
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Some items, such as hand tools, are excluded from the exemption. The exemption also applies to tangible personal property that makes a chemical or physical change in the product being manufactured and is necessary and essential in the manufacturing process. Texas sales and use tax exempts tangible personal property that becomes an ingredient or component of an item manufactured for sale, as well as taxable services performed on a manufactured product to make it more marketable. State sales and use tax exemptions are available to taxpayers who manufacture, fabricate or process tangible personal property for sale.