Texas Manufacturers: Your Returnable Containers May Be Tax-Exempt After ChampionX

If your business manufactures products in Texas and uses returnable containers to deliver those products to customers, you may be paying sales tax you do not owe. A recent decision from the Texas Fifteenth Court of Appeals confirms that returnable containers used in the manufacturing process can qualify for the manufacturing exemption under Texas Tax Code Section 151.318, and it opens the door for refund claims that the Texas Comptroller has been denying for decades.

In Hancock v. ChampionX, LLC, No. 15-24-00111-CV (Tex. App. Mar. 12, 2026), the court affirmed a trial court judgment awarding ChampionX a $3.17 million refund of sales and use taxes paid on returnable porta-feed containers and related cleaning, delivery, and pickup services. The decision effectively undermines a 1984 appellate court ruling in East Texas Oxygen Company that the Comptroller has relied on for over 40 years to deny manufacturing and resale exemptions for returnable containers.

ChampionX manufactures chemicals for the oil and gas and water treatment industries. It places those chemicals into specially designed returnable containers ranging from 30 to 700 gallons. The containers are not simple shipping vessels. They are engineered to prevent chemical reactions during transport, preserve the chemical composition of the product, and comply with Department of Transportation regulations and public health standards. When a customer finishes with a container, it is picked up, professionally cleaned and recertified, and returned to ChampionX’s manufacturing process.

ChampionX paid sales and use tax on its purchases of the containers and on the cleaning, delivery, and pickup services. It then filed refund claims arguing the containers qualified for the manufacturing exemption under three separate provisions of Section 151.318(a): property necessary and essential to pollution control, to quality control, and to compliance with federal, state, or local public health laws.

The Comptroller denied the claims, arguing that the specific container exemption under Section 151.322 of the Tax Code controlled over the more general manufacturing exemption. The Comptroller’s position was straightforward: if the containers do not qualify under the narrow container exemption, they cannot qualify under the broader manufacturing exemption. This had been the Comptroller’s longstanding interpretation, grounded in the principle that a specific statute controls over a general one.

The Fifteenth Court of Appeals rejected this argument. The court held that the container exemption and the manufacturing exemption are not irreconcilable and can both be given effect. The court found that nothing in the Tax Code suggests that if property does not qualify for the container exemption, it automatically fails to qualify for the manufacturing exemption. The two statutes address different categories of exempt property and can coexist without conflict.

This is the holding that matters most for Texas manufacturers. For decades, the Comptroller has used the container exemption as a ceiling, arguing that returnable containers can only be exempt if they satisfy the specific requirements of Section 151.322, and if they do not, they are taxable regardless of whether they play a role in the manufacturing process. After ChampionX, that argument is significantly weakened. A container that is used or consumed in the actual manufacturing process and that is necessary and essential to pollution control, quality control, or public health compliance can qualify for the manufacturing exemption on its own terms.

The court also rejected the Comptroller’s argument that the containers lose their exempt status when they are emptied and sent out for cleaning. The State argued that during the period between pickup from the customer and return to the manufacturing process, the containers are no longer being used in manufacturing and therefore are not exempt. The court disagreed, holding that the manufacturing exemption does not require the property to be actively in use at every moment. The exemption applies so long as the containers were sold, leased, or rented to a manufacturer at the time the services were performed.

There is a practical litigation lesson embedded in this case as well. The Comptroller raised certain arguments about the specific provisions of the manufacturing exemption for the first time in its reply brief on appeal. The court found these arguments waived. If you are litigating a tax refund case against the Comptroller, you cannot afford to hold back arguments and raise them late. The court will enforce waiver, even against the State.

For Houston-area manufacturers, particularly in the energy, chemical, and industrial sectors, the implications are concrete. If you purchase or lease returnable containers that play a role in your manufacturing process, and you have been paying sales and use tax on those containers and related services because the Comptroller told you the container exemption did not apply, you should revisit that analysis. After ChampionX, the manufacturing exemption provides an independent basis for tax-free treatment. The same applies to cleaning, delivery, and pickup services performed on those containers under Section 151.3111.

Refund claims in Texas are subject to a four-year statute of limitations from the date the tax was paid. If you have been paying sales tax on qualifying containers and services for years, the refund opportunity may be substantial. ChampionX recovered $3.17 million covering periods from 2011 through 2018.

If you manufacture products in Texas and deliver them in returnable containers, talk to a tax advisor about whether your containers qualify for the manufacturing exemption. The Comptroller’s longstanding position just took a significant hit, and the refund window is open.