A taxpayer’s spent carbon reactivation process did not qualify as “manufacturing” for the purposes of Texas’ manufacturing sales tax exemption, according to recently released guidance from the Texas Comptroller of Public Accounts. In a private letter ruling, the Comptroller holds that a taxpayer who operates a carbon reactivation plant is ineligible for the exemption because it did not obtain title to the carbon until after the completion of the reactivation process.

Refiners and industrial facilities use carbon as a filter for organic contaminants. The taxpayer reactivates or “repairs” spent carbon by burning the contaminants off in a high-temperature furnace so the carbon can function again as a filter. Due to liability issues, this taxpayer does not acquire title to spent carbon as waste material; the taxpayer only acquires the carbon post-reactivation when it is not waste but rather an item in commerce.

For the purposes of the sales tax exemption, manufacturing includes “the repair or rebuilding of tangible personal property that the manufacturer owns for the purpose of being sold, but does not include the repair or rebuilding of property that belongs to another.” In this case, the taxpayer is not engaged in manufacturing because it repairs carbon while the customer still owns title to the carbon.

Texas Private Letter Ruling No. 201905003L (May 9, 2019).