The Texas Court of Appeals considered whether a chemical manufacturer’s purchases of returnable containers were exempt from sales and use tax under Texas’s manufacturing exemption. The taxpayer manufactured chemicals for use in water treatment applications and for customers in the oil and gas industries. It placed its products into returnable porta-feed containers that preserved chemical composition, prevented reactions during transport, and met applicable governmental regulations and standards.

The taxpayer argued that the containers were exempt from sales and use tax under the state’s manufacturing exemption, specifically as property used or consumed during actual manufacturing that was necessary and essential to pollution control, quality control, and public health laws. The state argued that the specific container exemption controlled over the manufacturing exemption, and that under that provision, the containers were taxable as equipment used in transportation or storage, not manufacturing.

The Court rejected the state’s argument, finding that the container exemption and the manufacturing exemption could be reconciled and both be given effect. Additionally, the Court found that the state waived its challenge to the application of the manufacturing exemption by failing to address those arguments in its opening brief.

The Court also rejected the state’s argument that the containers lost exempt status when emptied, holding that the containers qualified for the exemption so long as they were sold, leased, or rented to a manufacturer at the time services were performed.

Hancock v. ChampionX, No. 15-24-00111-CV, 2026 WL 692439 (Tex. App. Mar. 12, 2026).