A recent Texas decision significantly broadens the scope of the state’s sales and use tax manufacturing exemption for reusable containers and closely related services.
- Reusable, returnable containers and related cleaning/return services can qualify for the Texas manufacturing exemption when they are sufficiently integrated into a continuous production process.
- The court rejected Texas’s historically narrow approach (including reliance on East Texas Oxygen) and treated certain reusable containers more like exempt wrapping/packaging materials than ordinary transportation equipment.
- The ruling opens potential refund and planning opportunities, particularly for transportation, logistics, and industrial service providers operating closed-loop or specialized container systems that are essential to preserving product integrity and returning containers to production.
Background
In Hancock v. ChampionX, LLC, No. 15-24-00111-CV, Texas Fifteenth Court of Appeals, February 12, 2026, a Texas appellate court held that certain reusable containers, and related cleaning and return services, can qualify for the Texas sales and use tax manufacturing exemption when they are sufficiently integrated into the production process.
Forvis Mazars Insight: This represents a notable shift from Texas’s historically narrow interpretation of the exemption and may create planning and refund opportunities for transportation, logistics, and industrial service providers.
Key Holding
ChampionX manufactured chemical products using returnable containers that were delivered to customers, then collected, cleaned, and reused in subsequent production cycles. The court found the containers qualified for exemption because they were necessary to preserve and transport products within the production cycle. It also held that the containers retained their exempt status during cleaning, as manufacturing was viewed as a continuous process. Related cleaning and transportation services required to return containers to production were also treated as part of the manufacturing process. Texas had long denied such exemptions based on an older case, East Texas Oxygen Co. (1984), which blocked tax-free treatment for returnable gas cylinders, reasoning that specific container exemption preempted general exemptions and prevented double exemptions on containers. The court refused to classify the containers as mere transportation equipment (like intraplant conveyors) noting that they function more like “wrapping and packaging materials” that are necessary for production.
Forvis Mazars Insight: The court distinguished reusable containers from ordinary shipping materials, emphasizing their role in an integrated production system. This decision does not broadly exempt all transportation or containers; instead, it focuses on whether the property and services are necessary and closely connected to production. Importantly, the ruling suggests that third-party service providers may qualify where their services are embedded in the manufacturing process.
Application to Transportation and Logistics Providers
This case is particularly relevant for businesses providing container leasing, cleaning, refurbishment, and dedicated pickup-and-return transportation. The strongest exemption positions will likely involve arrangements where containers are specialized, maintain product integrity, require cleaning for reuse, and are transported as part of a return-to-production cycle. However, ordinary freight or distribution services without production integration remain taxable.
Other Businesses Impacted by This Decision
Businesses that may reduce their sales tax burdens because of this decision include bulk chemical transporters, third-party container leasing and cleaning providers, logistics companies managing closed-loop container systems, and industrial service providers in sectors such as chemicals, oil and gas, food and beverage, agriculture, and coatings.
Other Considerations
This is an appellate decision and may be subject to further review by the Texas Supreme Court. The Comptroller may even seek legislative changes, given the potential revenue impact and/or provide guidance that further clarifies or limits its scope.
Conclusion
The ChampionX decision broadens the practical reach of the Texas manufacturing exemption by recognizing that reusable containers and related services can qualify for the exemption because they may be a part of a continuous production process. The most favorable positions are likely to involve systems that can be shown to have a close connection to and supportive role in production, whereas ordinary logistics services that are more remote from the production process may face greater challenges qualifying for the exemption.
How Forvis Mazars Can Help
To help you take action on this decision, our state and local tax team can assist you in reviewing the tax treatment of container-related charges, identifying potential refund opportunities for open periods, documenting how containers and services are integrated into your production process, updating contracts and invoicing to support exemption positions, and separating qualifying services from non-exempt logistics activities.