Texas Comptroller Rules That Cable Head-End and Distribution Equipment Does Not Qualify for Sales Tax Exemption for Manufacturing Equipment

Oct 29th, 2012

The Texas Comptroller of Public Accounts recently issued a decision ruling that certain cable equipment does not qualify for the sales tax exemption for items directly used or consumed in manufacturing. Tex. Comptroller's Dec. No. 49,018 (Sept. 14, 2012).

The taxpayer, a cable company, argued that the head-end and distribution equipment, such as coaxial and fiber optic cable, amplifiers, transmitters, splitters, and receivers among other items, were used to process cable television and telephone signals that are sold to customers. Based on that, the company reasoned the equipment should qualify for the sales tax exemption in Tex. Tax Code Ann. sec. 151.318(a)(2) for tangible personal property directly used or consumed in manufacturing.

However, the Comptroller explained that this exemption is only available if the equipment is used to manufacture, process, or fabricate tangible personal property for ultimate sale. The Comptroller relied on GTE Southwest Inc. v. Combs, No. 03-08-00561-CV (Tex. App. 3d Dist. June 3, 2010) in determining that the cable company provided taxable services and did not manufacture, process, or fabricate tangible personal property for ultimate sale. Therefore, the Comptroller ruled that the cable company's purchases of head-end and distribution equipment did qualify for the exemption.