The Texas Comptroller ruled that the purchase of a battery system did not qualify for the manufacturing exemption from Texas sales and use taxes because it was used to store electricity, not manufacture it. The taxpayer operated a wind farm and began a project to participate in the Electric Reliability Council of Texas’ Fast-Responding Regulation Service (FRRS). Each participant in the FRRS was required to make energy available on demand. To do this, the taxpayer needed a battery system, which could store and maintain the electricity so it would be available and ready for distribution.

The taxpayer argued that its purchase of the battery system qualified for the manufacturing exemption – which is available for items directly used or consumed during manufacturing of tangible personal property (such as electricity) if the use or consumption is necessary for the manufacturing operation and makes or causes a chemical or physical change to the property being manufactured. The taxpayer argued that the exemption applied because the energy underwent a chemical change when the battery converted the direct current energy from the wind farm from electrical energy to chemical energy and, upon discharge, converted the chemical energy to direct current electrical energy. However, the Comptroller disagreed and ruled that the chemical change was done for storing manufactured electricity, not to manufacture electricity, and the manufacturing exemption specifically excludes property used to maintain or store tangible personal property.


Texas Private Letter Ruling No. 20180110142309 (Aug. 14, 2018).

On September 26, 2018, the Illinois Department of Revenue issued a Private Letter Ruling confirming that certain electronic signatures satisfied the first prong of the software license sales tax exemption test. In Illinois, a license of software is not a taxable retail sale if a five-part test is satisfied. The first prong asks whether the license is evidenced by a written agreement signed by the licensor and the customer. The Department had previously concluded that a license agreement in which the customer electronically accepts the terms by clicking “I agree” does not comply with the requirement. Here, the Department concluded that four methods of executing the Order Form satisfied the written agreement prong: (1) physically signing the Order Form; (2) physically signing the Order Form and then digitizing the Order Form into a PDF file; (3) using DocuSign to sign the Order Form; and (4) digitally signing the Order Form by pasting a digital image of a signature onto the PDF Order Form file and then saving the file with the signature image embedded into the Order Form. However, the Department did not have sufficient information to determine whether the use of a competing software product satisfied the prong. Additionally, the Department concluded that it would incorporate the Terms and Conditions Agreement into the Order Form in order to constitute a written agreement.


Illinois Private Letter Ruling ST 18-0010-PLR, Illinois Department of Revenue (Sept. 26, 2018).