Be cause the intere s t s o f the Comptroller of Public Ac counts and the A ttorney Gene ral 1 conver g e, we ref

er to the a ppellees c ollectively

as the “ Comptroller.” 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

444 444 444 444 444 444 444 444 444 ON MOTION F OR REHEARING

444 444 444 444 444 444 444 444 444
NO. 03-0 7 -00 006 -CV

Hou st on W ir e & C abl e Co m pany , App e lla nt

v. Sus an Com bs, Com ptroller of P ubl ic Acc ounts of the State of T exas, and Gre g Abbott, Attor ney Ge neral of the State of Texas , Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 200TH JUDICIAL DISTRICT NO. D-1- GN-05- 0005 81 , HO NORAB LE LORA J. LIVI NGSTON , JUDGE PRESIDI NG

M E M O R

A N D U M O P I N I O N Upon consider ation of appe llant’s motion f o r re h ear ing, w e over

rule the motion; howeve r, we withdraw our opinion a n d j u d gm en t dated De cembe r 12, 2007, and substitute the following
. Houston Wire & Cable Company (“H WC ”) a

ppeals the Comptroller’ s denial of a sales 1 tax refund claim for its purc hase of cable ree ls, arguing that its purchase of ree ls was non-taxable. I n two issues, HWC challeng es the leg al and f actua l sufficienc y

of the evidenc e, contendingthat the purcha ses are not tax able be cause the re els qualify for the sa le-for -re sale e x emption, seeTex. TaxThe leg islature ame nded sec tion 151.318 sever al t imes during the refund period; however, 2 the cha ng es had no impac t on the i ssues in this case. F or conve nience , we c ite to the curr ent ver sion of the statute. 2 Code Ann. § 151.302(a) (West 2002), and be cause HWC qualifies for the manuf actur ing e x emption,

see id. § 151.318(a) (1) ( West S upp. 2006). We rejec t HWC ’s contentions and a ffirm the judg ment 2 of the dis tr ic t c ourt
.
F ACTUAL AND P ROCEDURAL BACK GR OUND

The background fac ts a

re undisputed. HWC is a supplier of elec trical wire and ca

ble. HWC b uy s c a

ble in b ulk

fr om su pp lie rs and ma int a ins the c a ble in its inv e nto ry . H WC c uts , s po ols , and deliver s cable acc ording to the specific needs of its customers, wh o are primarily elec trical wholesale rs and distributors. When HWC purcha ses cable from its suppliers, the ca ble is delivere d
on ree ls. W hen HWC rece ives ord er s fr om its customers, it cuts and respools the ca ble onto new
ree ls. The re els used by HWC t o respool the c able a re the s u b

j ec t o f t h is lawsuit. They are purcha sed by

HWC to allow i t to customiz e the cable assemblies for its customers. A customer’ s
or de r c ou ld s pe c if

y , f or ins tanc e , th e ty

pe , a rb or size , c olo r, c od ing , lab e lin g , la g g ing , atta c hme nts , or fumig a tio ns re qu ir e me nts fo r the re e ls. In the pr oc e ss of re sp oo lin g , H WC a tta c he s th e re e ls t o the spec ific ca

ble orde red by

the customer. The pa rties ag ree that purcha ses of the cable itself qualify for the sale-f or-r esale sales ta x exem pti on . HWC c on te nd s th a t it s p ur c ha se s o f t he re e ls, lik e wi se , q

ua lif y fo r t he sa le -f or -r e sa le exemption and therefor e paid the sa les tax under protest for the period in question, Aug ust 1, 1997,3

throug h Dec ember

31, 2001. The amount of the re fund at issue is $160,596.03, which include s the tax paid on the reels plus statutory pro rata intere st for the re fund per iod. HWC contends that it is entitled to a re fund bec ause pu rc hases of the re els, like purcha ses of the c able, qua lify for the sale-f or-r esale exemption. Alt ernatively , even if the re els are
e xclu de d fr om the sa le -f

or -r e sa le e xemp tio n, HWC a rgue s th a t it

is e nti tle d to a

re fu nd be c a us e it qualifies for

the manufa cturingexemption. On both points, HWC challeng es the leg al and f actua l
su ff ic ie nc y of the dis tr ic t c ourt ’s fi nd ing s. Af te r t he Com ptr oll e r d e nie d it s r e fu

nd c la im, HWC f

ile d s ui t in dis tr ic t c ourt
. F oll ow ing a

tr ia l de novo , see Tex. Tax Code Ann. §§ 112.054, .154 (West 2001), the district cour t g rante d judgme nt in favor of the Comptroller on all issues. This appea l followed.

AN AL YSI S Stan dard of Revie w

I n revie wing the leg al s ufficie ncy of t he evidence, we view the evidenc e in the lig ht most favora

ble to the judg ment, cre diting fa vorable evidenc e if a rea sonable fact-f inder c ould, and disreg arding contrary

evidenc e unless a r easona ble fa ct-finde r could not. City of Keller v. W ilson , 16 8 S. W.3 d 8 02 , 8 07 (T ex . 20 05 ). Th e te st f or le g a l su ff

ic ie nc y is whe the r t

he e vid e nc e wo uld enable rea sonable a

nd fair- minded people to re ach the judgme nt being revie wed. Id. at 827-28. Th e re is l e g a lly

ins uf fi c ie nt e vid e nc e or

“ no e vid e nc e ” of

a vit a l f a c t whe n ( a ) t

he re is a c omp le te absenc e of e vidence of a vital fa ct; (b) the court is barre d by rules of la

w or of e vidence from g iving weig ht to the only

evidenc e off

ere d to prove a

vital fac t; (c) the e vidence offe red to prove a vital fa ct is no more than a me re scintilla; or (d) the evidenc e conclusively establishes the opposite of the vital4

fac t. Merre ll Dow Pharms., Inc. v . Havne r , 95 3 S.W. 2d 70 6, 71 1 (T e x. 19 97 ). Mo re tha n a sc int ill a of e v id e n c e e xis ts to s u

p p o rt a f in d in g if th e e v id e n c e w o u ld a ll o w r e a s o n a b le an d fair- minded pe op le to d if

fe r i n th e ir

c on c lus ion s. Id. I n revie wing the fa ctual suff iciency of t he evidence, we consider and weig h all of the evidenc e in the re cord, a

nd we may

overturn a

judgme nt only

if it is so ag ainst the g reat weig ht and preponde ranc e of the evidenc e as to be clea rl y wr o n g and manife stly unjust. Cai n v . B ain , 70 9 S. W.2 d 1 75 , 1 76 (T e x. 19 86 ); Dyson v . Olin Corp. , 692 S.W .2d 456, 457 (Tex. 1985). Sale-for-Resale Exem

ption HWC arg ues that the e vidence is both lega lly and fa ctually

insufficient to support the di st ri c t c ourt ’s fi nd ingtha t H WC’ s p ur c ha se s o f r e e ls a re e xclu de d f

ro m th e sa le -f

or -r e sa le exemption. The sale -for -re sale e x emption applies to the sale of : (1) tang ibl e p er s o n al prope rty or a tax able se rvice to a purc haser who ac quires the prope rty

or service for the pur

pose of r eselling it in the United States of Americ a or a

possession or territory of t he United St ates of A merica or in the United Mex i ca n States in the normal cour se of business in the for m or condition in which it is acquire d o r as an attachme nt to or integ ral pa rt of other tang ible persona l property or taxable servic e.
Tex. Tax Code Ann. § 151.006(1) (West 2002).

Ex cluded f

rom this ex emption is property that is me rely packa g ing or wra pping. Id. § 1 5 1
. 3 0 2 (c ), (d ). T h e p ac k agi n g ex cl u s i o nap p l i es t o “[ i ] n t ern al o r e x t ern al wr ap p i n g, p ac k i n g,
an d p a c k a g in g s u

p p li e s u s e d

b y a p e r s o nin

w r a p p in g , p a c k in g , o r

p a c k a g in g ta

n g ib le p e rsonalTh e c ourt a dd e d that “ Th e fl ang e s [on the re e ls] ma y be e xter na l, a nd the ba rr e l is int e rn a l. 3 I f the entire reel is put into a box or shrink-wr apped on a pallet, then the e ntire re el bec omes internal packa g ing.” 5 pr op e rt y or in t he pe rf or manc e of a se rv ic e fo r t

he purp os e of

fu rt he ri ng th e sa le of

the tang ibl e persona l property

or the ser

vice.” Id. § 151.302(c)
. “[W ]rapping,” “pac king,” and “ p ac k ag ing supplies” include: (1) wra

pping pa per, wrapping twine, bag s, car tons, crate s, crating mate rial, tape , rope, r ubber ba nds, labels, staples, g lue, and mailingtubes; and (2) excelsior, straw, c ardboa rd fillers, se parators, shredde d paper , ice, dr y ice, c ott on batti ng , s hir

t bo ard s, ha

y laths , a nd pr op e rt y us e d in sid e a

pa c ka g e to sh a pe , f or m, s ta bil ize , p re se rv e , o r p ro te c t th e c on te nts
. Id. § 151.302(d).

Th e distri ct c ourt

fo un d th a t “ the re e ls s e pa ra te wi re and

c a ble pr od uc ts a nd he lp pr e ve nt t ang lin g of

wi re ,” “ pr e ve nt wi re and c a ble fr om b e ingdama g e d d ur ingsto ra g e , s hip me nt,
and ins ta llatio n, ” “ sh a

pe , form, st a

bil ize , p ro te c t, a

nd pr e se rv e the e le c tr ic a l w ir e and c a ble products,” “ may

be either intern al o r ex t er n al pac kag ing,” are used by HWC for the purpose of 3 further ing the sale of H WC ’s elec trical wire and ca ble produc ts” bec ause “ [c] ustomers expect a re el with most deliveries,” whic h “ar e attractive feature s, since the ree ls keep the product fr om tang ling and make handling the produc t easier .”

HW C d o es n o t dispute that the ree ls at issue share many of the c hara cter istics of the items the leg islature includes in its list of packag ing materials. Howe ver, H WC ’s ce ntral contention is that the ree ls posse ss a dditional c hara cter istics disting uishing them, as a matter of la w,As HWC acknowledg es, there is evidence that some smaller leng ths or siz es of c able a re 4 not sold on reels and that a re el is not nece ssary to install such cable. 6 from the “ packa g ing” the l eg islature has de scribed in se ction 151.302. Se e Sta te v . F id. & De po sit Co. of Md. , 223 S.W .3d 309, 312 (Tex. 2007) (discussingstatutory construction princ iple of ejusdem ge ne ris : “when w ords of a g ener al nature are used in conne ction with the desig nation of par ticular objects or c lasses of pe rsons or thing s, the meaningof the g ener al words w i l l b e re s t ri cted to the particula r desig nation.”) ( quotingHilco Elec . Coop. v. Midlot hian Butane Gas Co. , 111 S.W .3d 75, 81 (Tex. 2003)). HWC emphasizes that beca use sec tion 151.302 is an ex clus i o n from a tax exemption, t he Comptroller has the burden of proving the exclusion’s application. See Tex as Citr us Ex c h. v . S ha rp , 9 5 5 S. W. 2 d

1 6 4 , 1 6 8 ( T e x. Ap p . —

A u s ti n 1 9 9 7 , n o p e t. )
. “ Ino th e r w o r d s , ” H WC
asser ts, “the issue is not whether there was a simil arity betwee n the re els and the items listed in the
wr a pp ingand

pa c ka g in g ex clu si on

that w ou ld m ake the re e ls t a xab le , b ut whe the r t he re wa s a distinction between the r eels a nd the items listed that would make the re els nontaxable.” Th e “ pa c ka g ing ” the le gisl atu re ha s id e nti fi e d in se c tio n 1 51 .3 02 , H WC a sse rt s, is lim ite d to ite ms that me re ly c on ta in, pr ote c t, or ke e p or g anize d oth e r p ro du c ts. Al tho ug h th e re e ls
serve these purpose s for the w ire or c able spooled ar ound them, HWC urge s, they also serve an additional, essential purpose in the installation of that cable . HWC poi nts to undisput ed evide nce that th e re e ls a

re ne c e ssa

ry to ins ta ll the ty

pe s and le ng ths of wi re or c a ble it s e lls on

re e ls; that it

4
c us tom ize s n ot o nly

the wi re or ca

ble to c us tom e r s pe c if

ic a tio ns , b ut a lso the re e ls ( a c c or din g to ty pe, ar bor size, color, coding, labeling , lag g ing, attachments, or fumigation requireme nts); and that if the re el is damag ed, custom er s consider the whole produc t useless and re turn it. HWC further7

asser ts that “[a] ll of the items enumerated in the statute a re o f the ty pe that ar e deta ched be fore installation, a

nd in ma ny instances must be de tache d befor e installation,” while “ the re els are used for installation.”

HWC urge s that these fe ature s and uses distinguish the r eels fr om mere pack ag ing for wir e or c able a

nd char acte rize a si n gl e, i n t egrated produc t—wire or c able assemblies
. H WC points to testimony that its customers and the s pecia lty wire industry in ge nera l reg ard the wire or
c a ble a sse mbl ie s to be a sin g le , inte g rate d pro du c t. HWC al so e mph a size s th e te sti mony of Ke vin Koller, a Comptroller’s Off

ice staf fer who forme rly

serve d as the super

visor of the Comptr o l l er’ s sales and motor ve hicle tax section. During HWC’s cross-examination, Koller ac knowledg ed that
cer tain items that might possess some cha rac teristics of pac kag ing c ould serve a dditional functions related to installation or application of a produc t that could rende r the item as a n integ ral pa

rt of the p ro d u ct i t s el f. Ko l l er

o p i n edt h at , fo r e x am p l e, th e C o mp tro l l er ’s Of fi ce wo u l d co n s i d er

th e c as i n gs
on bu lle ts, the ba se c on ta ine r o r t ub e on lip sti c k, and the lig hte r c omp on e nt of a c ig are tte lig hte r t o be c omp on e nts of

sin g le , inte g rate d p ro du c ts r a th er tha n p ro du c t pa c ka g ing . H WC ana log ize s it s
ree ls to these products. In its view, eac h of th es e i t em s is required f or the “ installation” of the product: the c asing is nece ssary to f ire the bullet; the lipst ick tube is used to apply or “install” the lip sti c k; t he lig hte r i s u se d to inj e c t or “ ins ta ll” lig hte r f

lui d to cre a te the fl ame ; and the re e l, simil arly , is used to install cable or wir e.

HW C ’s ar gu m en t s u l t i m at el y fa i l
. C o n tra ry t o HW C ’s s u gges t i o n s , th e “ p ac k agi n g” identified by

the leg islature in sec tion 151.302 d o es n ot imply a rig id exclusi on of any

item that can be said to be used i n “ins talling” the produc t it contains. W hat would clea rly appea r to be8

“pac kag ing” for many

products includes components that in some respe ct fa cilitate their installation or use—the w ide var iety

of nozz les, spouts, squeeze tops, and applicators on consumer f ood product
c on ta ine rs are but on e c ommon plac e e xamp le . Wh e the r c us tom e rs mig ht s pe c if y so me of the se features would not alone a lter this conclusion.

Fur ther, a lthough the district c ourt hea rd HWC’s evidence that its cu stomers and those in the industry

reg arde d its wire or c able a ssemblies as a sing le, integr at ed product, ther e
was a lso evidence that HWC’s product was the w ire or c able itself r ather t h an i t s m eans of ins ta llatio n. Th e e vid e nce de mon str a te s, a s th e dis tr ic t c ourt fo un d, that “ [t]he wi re and c a ble products must be sepa

rate d from the packa g ing, including the ree l, be fore the wire and ca ble ca n be
ener g ized or befor e the e lectric al circ uit for which the w ire a nd cable was purc hased c an be completed.” This fac t sug g ests that the reels are more akin to disposable pac kag ing tha n an integ ral part o f th e p r o d u c t i ts e lf
. I t l ik e w is e un d e r

mi n e s H WC ’ s an a lo g ie s to p r o d u c ts w h o s e me an s of installation or application ar e integ ral to the produc ts themselves. As the Comptroller obser ves, a lipsti ck tube re m ai n s at t ac hed to the lipstick as it is applied to the lips—the intended use for the product—until the supply of lipstick is completely

exhausted. The same is true of a c iga rette lig hter
and lig hte r f lui d. B y c ontr a st, HWC’ s wi re a nd c a ble is e nti re ly

un us a ble un le ss a

nd un til it i s
se pa rate d fr om i ts r e e l. T he bu lle t c a sin g ana logy , a s H WC ur g e s, is s ome wh a t c los e r: by the tim e a bullet flies out of a

g un and hits a targ et, its ca s i n g h as b ee n discarde d. Nonethele ss, the bullet
c a sin g—li ke lip sti c k tube s and c ig are tte lig hte rs , a nd un lik e HWC’ s r e e ls— is a c tua lly e mpl oy e d in the ultimate use of the pr oduct it contains—the firingof the bullet fr om the g un.9 I n light of t h es e consi derations, HW C’s ree ls are not disting uishable fr om the pa c ka g ingmate ri a ls the le g isl a tur e ha s id e nti fi e d in se c tio n 1 51 .3 02 of

the ta x co de . We a c c or din g ly find that the evide nce w as leg ally and fa ctually

sufficie nt to enable the district court to conclude that “[t] he re els at issue in this case a re pa ckagi n g m at er i al s,” “[t] he re els are not an attac hment to, ingr edient of, integ ral pa

rt of, or c omponent part of elec trical wire and cable products sold by HWC,” and “[t]he purchase s of the ree ls at issue did not qualify for the sa le for r esale exemption i n Texas Tax Code § 151.302(a).” We overrule HWC’s first issue.
Manu facturing E

xempt ion I n th e a lte rn a tiv e , H WC argue s th a t, e ve n if the re e ls a

re pa c kagin g, HWC i s a manufa cture r, and the ree ls are elig ible for the manufa cturing exemption. HWC challeng es the leg al and factual sufficiency of t he evidence supporting the district court’s determination that HWC is not a manuf actur er. Packag ing products purcha sed by a manuf actur er a re e ligible f

or the manuf

actur ing
e xemp tio n. Se c tio n 15 1. 31 8( d) de fi ne s ma nu fa c tur inga s “ e a c h o pe ratio n b e g inn ingwi th t he fi rs t sta g e in t he pr od uc tio n o f t ang ibl e pers on al pr op e rt y and e nd ingwi th t

he c omp le tio n o f t ang ibl e persona l property

havingthe phy si ca l proper ties (including packa g ing, if any ) that it has when transfe rre d by

the manufa cture r to another .” Id. § 151 .3 18 (d ). Th e Com ptr oll e r’ s r

ule s c on fi rm

thi s interpre tation, including “ wra pping, pa cking , and pac kag ing supplies” in the list of items ex empted from taxes under Chapte r 151 whe n p u rcha sed by a manuf actur er. See34 Tex. Admin. C odeThe Comptroller ame nded Rule 3.300 in 2001; howeve r, t he chang es had no effe ct on the 5 provisions releva

nt to this case . For

convenie nce, w e cite to the c urre nt version of the r ule. 10 § 3.300(d)( 15) (2007)
. Even if the ree ls are most appr opriately classified a s packa g ing, a s we have 5 alre ady deter mined, they

are elig ibl e fo r the manuf actur ing e x emption if HWC i s a manufa cture r. W e t u rn t o t h e q u es t i o no f w h et h er HW C ’s o p er at i o n s am o un tt o m a n u f a c t u r i n g, pr oc e ssi ng , o r f

a br ic a tio n. HWC a

rgue s th a t it

is a manu fa c tur e r u

nd e r t he ta x co de be c a

us e bo th proce ssing a

nd fabr ication ar e re quired to re spool the ca b l e. T h e Comptroller conte nds that the evidenc e shows that HWC is a “re packe r,” that none of HWC’s operations a m o u nt to either proce ssing or

fabr ication, and that HWC is not a manufa cture r and c annot claim the manuf actur ing exemption.
1. P r oc e ssi ng Comptroller Rule 3.300(a) a ddresse s proce ssing a nd fabr ica t ion: “Processingand fabr ication are two activities that are perf ormed duringmanufa cturing . For example, the person who takes raw st eel and makes pipe is eng ag ed in fa brication. The worke rs who coa t or threa d the pipe
are eng ag ed in proc essing .” Id. § 3.300(a) (9)( B)
. More specifica lly , proce ssing is descr ibed i n the
ru le a s:
T h e p h y s i ca l ap p l i ca t i o no f t h e m at er i al s an d l ab o r n ec es s ary

t o m o d i fy

o r t o ch an ge the cha rac teristics of tang ible persona l pr o p er t y . The re pair of ta ng ible persona l proper ty , belong ing to a

nother, by

restoringit to its original c ondition is not considere d proce ssing of

that proper

ty . The mer e pac king, unpacking , or shelvingof a p r o d u c tt o b e s o l d

w i l l n o tb e c o n s i d e r e d

t o b e p r o c e s s i n g o f

th a tp r o p e rty. P ro ce s s i n g d o es n o ti n cl u d e r em o d el i n g.
Id. § 3.300(a) (10).So me o f th e s e intr in s ic c h ar a c te r is ti c s ar e r e s is ta n c e , c a p a c it an c e , in d

u c ta nce, and 6 attenuation. To deter mine resistanc e, the pr oduct of the rho or r esistivity and the leng th is divi ded by 7 the cr oss-sectional a

rea (R=pL /A wher e R=re sistance, p= rho or r esistivity , L =leng th, and A=Area ). T h e Comptroller’s rule spe cifica lly includes both coating a nd threa ding of

pipe as 8 proce ssing. Pipe is commonly cut at the same t i m e that it is threade d or coated. Cutting pipe, a separ ate and distinguishable operation, is noticeably absent from the Comptroller’s list of activities t h at ar e c o n s i d er ed

p ro ce s s i n g. 11 T h e ev i d ence is sufficient to support the c ourt’s findingthat none of H WC ’s operations involve chang ing the intrinsic c hara cter istics of the ca ble. The c able a

rrives at HWC ’s 6
wa re ho us e on

bu lk r e e ls i n s e lla

ble fo rm . H WC c uts and re pa c ka g e s the c a ble fr om t he bu lk r e e ls
acc ording to customer spec ifications. Althoug h the leng th of the ca ble affe ct s its resistance, the
c h an g e i n r e s i s t an c e i s i n h e r e n t i n t h e n a tur e o f th e c a b l e a s d e t e r

m i n e d b y th e l aw s o f

ph y sic s. 7 Fur ther, the a ppropriate resistanc e and c orre sponding le ng th neede d is c alculate d by the customer, not HWC . HWC s i m p l y rec eives a n order for a specifie d leng th of ca

ble. Acc ording to the testimony , HWC adds value by cutting a nd spooling the c able, of

fer ing sa me-da y delivery , providing full cable -mana g ement ser vices, and acting as a one-stop shop for its c ustomers. HWC create s no new product and doe s nothing to the intrinsic cha rac teristics of the e x isting produc t to add value; rathe r, HWC adds value throug h its packag ing a nd distribution s ervic es. We conclude that none of HW C ’s ac t i v i t i es am o u n tt o p ro ce s s i n g.

HWC a rgue s th a t c utt in g cab le is c omp ara ble to t hr e a din g pip e , w hic h amou nts to proce ssing unde r the Comptroller’s r ules. See id. § 3.300(a) (9)( B) . Cutti ng pipe and thre ading pip e are tw o s e pa

rate and dis tin g uis ha

ble op e ra tions
. Threa ding pipe involves chang ing the 8 char acte ristics of the pipe itself to a llow installation. During the threa ding proce ss, grooves a re c ut12

into t h e en d o f t h e p ipe so that the pipe c an be attached to a nother pipe. H WC ’s oper ations are dis tin g uis ha

ble
. B e y on d c utt ing the c a ble to sp e c if

ie d le ng ths , HWC do e s no thi ng to th e cable simil ar to thre adinga pipe that would c hang e the c hara cter istics of the ca ble itself. HWC p re se nte d some e vid e nc e that it pr oc e sse d th e re e ls b y

pa int ing , d

ri lli ngho le s, modifying the siz e of the arbor hole, fumi g ating , and addingattachme nts. Howeve r, havingfound that HWC’s product is the cable , not the ca ble assemblies, a

nd that the re els are packa g ing f or the
c a ble , n on e of

the chang e s ma de to t

he re e ls a mou nt t o p ro c e ssi ngof

the pr od uc t. S inc e the re e ls
are pa c ka g ing , c ha

ng ingor c us tom izin g the re e ls i s p art of the pa c ka g ingpr oc e ss. HWC relies on Rylander v . Haber Fabrics Corp. to s up po rt th e arg ume nt t hat it s operations amount to processing . 13 S.W .3d 845 (Tex. App.—Austin 2000, no pet.). Haber F abric s purcha sed sec ond quality fabr ic. Id. at 847. Afte r sortingand inspec ting, de fec tive portions of the fabric wer e re moved and pr ocesse d by hand. Id. T h e r e m a i n i n g p o rt i o n s w e r e p a c k a g e d a s f i r st quality fabr ic and wr apped f

or shipping to retailers such as W al-Mar t and J o Ann Fa

brics. Id. The district court conc luded that Habe r F abric s’s act i v ities amounted to proce ssing, a nd this Court ag ree d, finding that, afte r beingsorted, inspec ted, cut, and pa ckag ed , the fa bric ha d new char acte ristics and a ne w identity as first quality

fabr ic. I nstead of tr ansfor

ming se cond quality cable into first quality cable , HWC receive s f i r s tqu a l i t y

c a b l e i nb u l k

an d r e p a c k a g e s th e s am e c a

b l e i n t o s m a l l e r p o rt i o n s f o r i t s c u s t o m e r s . It d o es n o tt ra n s fo rm t h e c ab l e. I n t h e p ro ce s s o f re s p o o l i n g th e cab l e, HW C d o es n o th i n g t o ch an ge the c a ble ’s int ri ns ic c ha ra c te ri sti c s; i t me re ly

c uts the c a

ble int o s ho rt e r l e ng ths
.13 H WC p r e s e n te d

e v id e nce th a t i t i n s p e c ts th e c a b le f o r d e f e c ts ; h o w e v e r , H WC employ ees testified that testing for defe cts is not standard pr actice and is only done at the c ustomer’s reque st or if HWC has reason to be lieve that testi ng is nece ssary . Even if HWC tests a ca ble, finds a def ect, a nd cuts out the defe ctive portion, findingand cur ing de fec ts is not t he primar y purpose of its business. As indi cate d by the testimony that HWC i nspects ca

ble only in cer tain situations, the
c a ble it re c e ive s is a ssume d to be witho ut de fe c t. Un lik e Ha be r F a br ic s, HWC doe s not r outin e ly
rec eive a defe ctive or unmarke table product, examine a nd modify that product, a nd repa ckag e that p ro d u ct as fi rs tqu al i t y . HW C ca n n o tb e s ai d t o b e e n gagi n g i np ro ce s s i n g.
2. F abrication HWC a lso arg ues th at the e vid e nc e e sta bli sh e s th a t it s o pe ratio ns amou nt t o fabr ication , wh i ch , like proce ssing, is included in the ma nufac turing exemption. Under the Comptroller’s rule, f

abric ation i s “[t] o make, build, cr eate , produce , or asse mble components of tang ible persona l property , or to make ta ng ible pers o nal prope rty

work in a ne w or diff

ere nt manner.” Id. § 3.300(a) (5). HWC argues that it “ make[s] tang ible persona l property work in a ne w or diff

ere nt
mann e r” by

a tta c hin g re e ls, wh ic h f

a c ili tate the c a

ble ’s ins ta llati on . HWC a lso argue s th a t it is eng ag ed in fa

brication because it “assemble[s] components of tang ibl e p ersona l property .” As we have previously discussed, adding the re els to the ca ble amounts to repa ckag ing a nd does nothing to m ake the c a

ble its e lf wo rk in a ne w o r d if

fe re nt m ann e r. F ur

the r, the re e ls a

re mos t a pp ro pr iate ly classified a s packa g ing a

nd not integr al or c omponent parts of the cable
. Vi e wi ngthe e vid e nc e of

HWC’ s o pe ratio ns in t

he lig ht m os t f

avo ra ble to t he ve rd ic t,
we c onclude that ther e wa s leg ally sufficie nt evidence to support the district co u rt ’s finding14

that HWC i s not a manufa cture r and, there fore , cannot qualify for the manufa cturingexemption. See City of Keller , 168 S.W .3d at 829-30. L ikewise, w e co n clude that ther e wa s fac tually sufficie nt evidenc e to support this finding be cause the dec ision of the district court wa s not so ag ainst the g reat weig ht and pre pondera

nce of the evidenc e as to be clea rly wrong and manife stly

unjust. Se e Cai n , 709 S.W .2d at 176. We overr ule HWC’s second issue.

CO NC LU SION Havingrevie wed the evidenc e prese nted at trial, we c onclude ther e wa s leg ally and fac tually sufficie nt evidence to support the di strict court’s findings of f act a nd conclusions of law
. We a ff ir m th e dis tr ic t c ourt ’s jud g me nt.

__________________________________________ J an P. Patterson, J ustice Be fore J ustices Patterson, Pury ear and Pember

ton Affir med on Motion for Rehea ring Filed: Mar ch 12, 2008