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

NO. 03-0 7 -00 006 -CV

Hou st on W ir e & C abl e Co m pany , A ppe 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
Houston Wi re a

nd Cable Company

(“HWC ”) a

ppeals the Comptroller’ s denial of 1 a sale s tax ref

und claim for its purc hase of cable ree ls, arguing that its purchase of re el s was nontaxable. I n two issues, HWC challeng es the leg al and f actua l sufficienc y

of the e vidence , contending that the purc hases a

re not taxable bec ause the ree l s qualify for the sa le-for -re sale e x emption, see Tex. Tax Code Ann. § 151.302(a) (West 2002), and beca use HW C qualifies for

the manufa cturingThe 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 exemption, see id. § 151.318(a) (1) ( West S upp. 2006). We rejec t HWC ’s contentions and a ffirm 2 the jud g me nt o f t

he dis tr ic t c ourt
.
F ACTUAL AND P ROCEDURAL BACK GR OUND The ba ckg round fa cts are undisputed. HWC is a supplier of e lectric al wire and ca ble. HWC b uy s c a

ble in b ulk

fr om s up pli e rs and ma int a ins the c a ble in its inv e nto ry . HWC c uts , s po ols , and deliver s cable acc ordin g t o the spec ific nee ds of its customers, who ar e primar ily elec trical wholesale rs and distributors. When HWC purchases c able from its suppliers, the ca ble is delivere d
on ree ls. W hen HWC rece ives order s from its customers, it cuts and re spools the ca b l e onto new
ree ls. Th e re el s u s ed by HWC t o respool the c able a re the subject of this lawsuit. They are purcha sed by

HWC t o allow it 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 , co lor , c od ing , la

be lin g , la g g ing , atta c hme nts , or fumig a tio ns re qu ir e me nts fo r t he re e ls. I n the pr oc e ss of re sp oo lin g , HWC atta c he s the 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 sa le-for -re sale sale s ta x exem pti on . H WC c on te nd s th a t it s purc 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, throug h Dec ember

31, 2001. The amount of the ref und at issue is $160,596.03, which includes the tax paid on the reels plus statutory pro rata intere st for the re fund per iod.3 HWC contends that it is entitled to a re fund bec ause pur chase s of th e reels, like purcha ses of the cable , qualify for the sale-f or-r esale exemption. Alternatively , even if the re els are
e xclu de d f

ro m th e 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 poi nts, 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 uit in di st ri c t c ourt
. F oll ow inga

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 suffic iency of the e vidence , we view the evidence in the light most favora

ble to the judg ment, cre diting favorable evidenc e if a rea sonable fa ct-finde r could, a nd disreg ardingcontra

ry evidenc e unles s a re asonable fac t-finder could not. City of Keller v. W ilson , 16 8 S. W.3 d 8 02 , 8 07 (Tex
. 20 05 ). The 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. T h e r e i s l e g a l l y

i n s u f f i c i e n te v i d e n c e o r

“ n o e v i d e n c e ” o f

a v i t a l f a c tw h e n( a ) t h e r e i s a

c o mp l e te absenc e of e vidence of a vital fa ct; (b) the c ourt is barre d by rules of law or of evidenc e fr om giving 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 mere scinti lla; or (d) the evidenc e conc lusively establishes the opposite of the vital fac t. Merre ll Dow Pharms., Inc. v. H avner , 953 S.W. 2d 70 6, 71 1 (T e x. 19 97 ). Mo re tha n a sc int ill a4

of evide nce e x ists to s upport a find i n g i f t h e evidence w ould allow rea sonable a nd 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 the 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 aga inst the gr eat we ight and preponde ranc e of the evidenc e as to be clea rly wrong and mani fe s t l y u n j u st. 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 t h at t h e evidence is both leg ally and fa ctually

insufficient to support the dis tr ic t c ourt ’s fi nd ing that 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-for -re sa le exemption. The sale -for -re sale e x emption applies to the sale of : ( 1 ) tang ibl e p e r s o n a l p r o p e rty o r a taxa b le s e r v ic e to a p u r c h a s e r

w h o a c quires the prope rty

or ser vice f or the purpose of

rese lling it in the United States of Americ a or a

possession or terr itory

of t he United States of Amer ica or in the United Mexican States in the normal cour se of busin es s in the form or condition in which it i s ac q u i re d o r as a n 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 proper ty 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, and pac kag ing supplies use d by a per s o n in wrapping , packing , or pac kag ing ta ng ible persona l 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 ngthe sa le of the t ang ibl eTh 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 persona l pr operty or the service .” Id. § 151.302(c) . “[W ]rapping,” “pac king,” and “pa ckag ing supplies” include: (1) wra

pping paper , wra

pping 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 dis tr ic t c ourt found t hat “ the re e ls s e pa

rate 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 , f or m, s ta bil ize , p ro te c t, a

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

be either internal or e x terna l packa g ing,” and “ are us e d b y

HWC f or the purp os e 3 of fu rt he ri ng the sa le of

HWC’ s e le c tr ic a l w ir e and c a ble pr od uc ts” be c a

us e “ [c]u sto me rs e xpe c t a
ree l with most deliverie s,” which “are attrac tive features, since the re els kee p the produc t from tang ling a nd make ha

ndling the pr oduct ea sier.” HWC does not dis pute that the re els at issue share many of the c hara cter istics of the items the leg islature includes in its list of packa g ing materia ls. Howeve r, HWC’s central c ontention is that the ree ls possess additional chara cter istics dist inguishingthem, as a matter of law, fr om the “pac kag ing” the leg islature has descr ibed in section 151.302. See State v. Fid. & Deposit Co. of Md. ,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. 6 223 S.W .3d 309, 312 (Tex. 2007) (discussing statutory construction princ iple of e jus de m ge ne ris :

“ wh e n w or ds of

a g e ne ra l na

tur e are us ed in c onne c tio n w iththe de sig natio n o f p art ic ula r o bje c ts or cla sses of per sons or things, the me aningof the g ener al words will be r estricted to the pa rticular desig nation.”) ( quoting Hilco Elec . Coop. v. Midlothian Butane Gas Co. , 111 S.W .3d 75, 81 (Tex. 2003)). HWC emphasiz es that bec ause se ction 151.302 is an exclusion from a tax ex emption, t h e Comptroller has the bur den of pr oving the exclusion’s application. S e e Te x a s Ci trus Exch.

v . S ha rp , 955 S.W. 2d 16 4, 16 8 (T e x. Ap p. —Aus tin 19 97 , no pe t.)
. “ I n o the r w or ds ,” HWC a sse rt s, “the issue is not whe ther ther e wa s a similarity betwee n the re els and the items listed in the wra pping and pac kag ing e x clusion that would make the re el s tax able, but whe ther ther e wa s a distinction betwee n the re els and the items listed that would make the ree ls nontax able.”

Th e “ pa c ka g ing ” the le g isl a tur e has id enti 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 pr od uc ts. Al tho ug h the re e ls
serve th e s e p u r

p o s e s f o r th e w ir e o r

c a b le s p o o le d

ar o u n d th e m, H WC u r g e s , th e y

a ls o s e r v e an additional, essential purpose in the installation of that ca ble. HWC point s to undisputed evidence that the re e ls are ne c e ssa

ry to ins ta ll the ty

pe s a nd 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

c a ble to c us tom e r s pe c if

ic a tio ns , b ut a lso the re e ls (accord ingto ty pe, arbor siz e, color, coding , labeling , lag g ing, a ttachments, or f

umigation requireme nts); and that if the re el is damag ed, customer s consider the whole produc t useless and re turn i t
. HWC further
asser ts that “[a] ll of the items enumerated in the s t at ute ar e of the ty pe that ar e deta ched be fore7

installation, and in ma

ny instances must be detac hed bef ore installation,” while “ the re els are used for installation.”

H WC u r g e s th a t t

h e s e f e a tu r e s an d u s e s d is ti n g u is hth e r e e ls f r o m m e r e p a c k a g ing fo r wire or ca

ble and c hara cter ize a single , integ rate d product—wire or ca ble a s s e m b lies
. H WC points to t estimony

that its customers and the s pecia lty wire industry in g ener al 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 the te sti mony of Ke vin Koller, a Comptroller’s Off

ice staf fer who formerl y

serve d as the super

visor of the Comptroller’s sales and motor vehicle tax sec tion. During HWC’s c ross-examination, K oller ac knowledg ed that
cer tain items that might possess some cha rac teristics of packag 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 ed t h at , fo r ex am p l e, t h e C o mp t ro l l er ’s Of fi ce wo u l d

co n s i d er t h 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 co mpone nts of

sin g le , inte g rate d p ro du c ts r a the r t ha n p ro du c t pa c ka g ing . H WC ana log ize s it s
ree ls to thes e p ro d u cts . I n its view, eac h of these items is re quired for the “installation” of the product: t he casing is nece ssary to fire the bullet; the l ipstick tube i s used t o apply or “install” the lip sti c k; t he lig hte r i s u se d to injec t or “ ins ta ll” lig hte r f

lui d to c re a te the fl a me ; 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 t ra ry t o HW C ’s s u gges t i o n s , t h e “ p ac k agi n g” identified b y t he leg islature in sec tion 151.302 does not impl y a rig id exclusi on of any

item that can be said to be used in “installing ” the pr oduct it contains. What wou l d cl early appea r to be “pac kag ing” for many products includes components t hat i n some respe ct fa cilitate their installation8

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 omm on pla c 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 custom ers a nd those in the industry

reg arde d its wire or cable assemblies as a single , integ rate d product, ther e wa s also evidenc e that HWC’s produc t w as the wire or cable itself rathe r than its mea ns of installation. The e vidence demonstrates, a s the district court found, that “[t] he wire and ca ble produc ts must be separ ated f

rom the pac kag ing, inc luding the r eel, be fore t h e wi re an d cable can be ener g ized or befor e the elec trical c ircuit for which the wire and ca ble was pur chase d can be completed.” This fac t sug g ests that the re els are more akin to d i s p o s ab l e p ackag ing tha n an integ ral pa

rt of the pr oduct itself. I t likewise under m i n es HWC’s analog ies to products whose me ans of installation or application ar e integ ral t o the produc ts themselves. As the Comptroller obser ves, a lipstick tube
re ma ins a tta c he d to the lip sti c k a s it is a pp lie d to the lip s—

the int e nd e d u se fo r t

he pr od uc t—u nti l the supply

of l i p s t i ck i s completely exhausted. The same is true of a cig are tte lighter

and lig hter fluid. By contra st, HWC ’s wire and cable is e ntirely unusable unless and until it is separated from its reel. The bullet c asing analog y , as HWC urg es, is somewhat closer : by the time a bullet flies out of a g un and hits a targ et, its casinghas bee n discarde d. Nonethele ss, the bullet casing —like lipsti ck tubes and c iga

rette lig hters, and unlike H WC ’s re els—is actually employ ed in the ultimate use of the product it contains—the f iring of the bullet fr om the g un. I n l i gh t of these c onsiderations, HWC’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 ly9

find that the evidence was leg ally and fa ctually

sufficie nt to enable the district c ourt to conclude that “[t] he reels at i s s u e in

th is c a s e ar e p a c k a g in g mate r ia ls , ” “ [t ]h e r e e ls ar e n o t a na tt a c h me n t to, ingr edient of, integ ral pa

rt of, or component part of electrica l wire and cable products sold by HWC,” and “[t]he purchase s of the re els at issue did not qualify for the sale for resa le exemption in Tex as Tax Code § 151.302(a).” We overrule HWC’s first issue.
Manu facturing E

xempt ion I n th e a lternat iv e , H WC argue s th a t, e ve n if the re e ls a

re pa c ka g ing , H WC is a manufa cture r, and the ree ls are elig ible for the manufa cturingexemption. HW C challeng es the leg al and fa ctual suff

iciency of the evidenc e supporting the district court’s de termination that HWC is not a manuf actur er. Acc ording to the t ax code, a pr oduct sold to a manufa cture r is exempt from sales tax if the produc t is “tang ible persona l property that will become a

n ingr edient or co m p o n en t part of tang ible persona l property manufa cture d, proce ssed, or fa bricated for ultimate sa le.” Tex. Tax Code Ann. § 1 51 .3 18 (a )( 1) . T o q ua lif y fo r the manu fa c tur ing e xemp tio n, the re e ls mus t be “ ingre die nts or compone nt parts” of

the c ab l e as semblies, and HWC’s respooling proce ss must fall under the definition of manufa cturing , proce ssing, or fabr ication. Packag ing pr oducts purcha sed by a manufa cture r are elig ible for the ma nufac turing
e xemp tio n. Se c tio n 15 1. 31 8( d) de fi ne s manu 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 pe rs on a l propert y and e nd ingwi th t he c omp le tio n o f t ang ibl e persona l property

havingthe phy sical prope rties (including p acka g ing, if any ) that it has when transfe rre d by

the manufa cture r to anoth er.” Id. § 151.318(d). The Comptroller’s rules c onfirmThe Comptroller amende d Rule 3.300 in 2001; howe ver, the chang es had no e ffe 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 thi s in te rp re tatio n, incl ud ing“ wr a pp ing , p a c kin g , a

nd pa c ka g ingsu

pp lie s” in t

he lis t of ite ms exempted from tax es under Chapter 151 whe n purcha sed by a manuf actur er. See34 Tex. Admin. Code § 3.300(d)( 15) (2007)
. Even if the reels are most appropr iately classified a s packa g ing, a s we 5 have alr eady

de te rm ine d, the y

are e lig ibl e fo r t

he manu fa c tur inge xemp tio n if HWC i s a
manu fa c tur e r. Th e p a

r t i e s d o no t di sp ute the re e ls’ c la ssi fi c a tio n a s “ ingre die nts or c omp on e nt p art s” of the c a ble a sse mbl ie s, and

we c on c lud e that th e re e ls q ua lif y a s “ ingre die nts or c omp on e nt p art s” under the exemption.

W e n ex ttu rn t o t h e que s t i o no f w h et h er HW C ’s o p er at i o n s am o u n tt o m an u fa ct u ri n g, pr oc e ssi ng , o r f

a br icati on . 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 both proce ssing a

nd fabr ication ar e re quired to re spool the cable . The Compt ro l l er co n tends that the evidenc e shows that HWC is a “re packe r,” that none of HWC’s operations am o unt to either proce ssing or fabr ication, and that HWC is not a manuf actur er a nd cannot c laim the manufa cturing exemption.
1. P r oc e ssi ng Comptroller Rule 3.300(a) a ddresse s proce ssing a nd fabr ication: “P ro cessingand fabr ication ar e two ac tiviti es that ar e per formed during manufa cturing . For example, the person who takes ra w steel a nd makes pipe is eng ag ed in fabr ication. The worker s who coat or threa d the pipe
are eng ag ed in proc essing .” Id. § 3 .3 00 (a )( 9)(B). Mo re spe c if ic a lly , p ro c e ssi ngis d e sc ri be d in the ru le a s:Some o f t h ese intrinsi c cha rac teristics are resistanc e, ca pacitanc e, inductanc e, and 6 attenuation. To deter mine resistanc e, the pr oduct of the r ho or re sistivi ty

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=A rea ).

11 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 property . The re pai r o f tang ible persona l proper ty , belong ing to a

nother, by

restoringit to it s orig in al condition is not considere d proce ssing of

that proper

ty . The mer e packing , unpacking , or shelving of 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

t h a tp r o p e rt y. 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).

The e vidence is sufficient to support the co u rt ’s finding that none of H WC ’s operations involve chang ing the intrinsic char acte ristics of the ca ble. The c able a

rrives at HWC ’s 6
wa re ho us e on

bu lk re e ls in se lla

ble fo rm . HWC c uts and re pa c ka g e s the c a ble fr om the bu lk r e e ls
acc ording to customer spec ifications. Althoug h the leng th of the c ab l e aff ects its resistanc e, the
c ha ng e in r e sis tanc e is i nh e re nt i n th e natur e of the c a ble a s d e te rmin ed by th e laws of ph y sic s. 7 Fur ther, the appr opriate r esistance and cor respondingleng th neede d is calculated by the customer, not HWC . HWC si mply rec eives a

n orde r fo r a specified 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, a nd actingas a one -stop shop for its customers. HW C creates no new pr oduct 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 conc lude 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.The Comptroller’s r ule spec ifically

includes both coating a nd thread i n g of pipe a s 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. 12 HW C argues tha

t c utt ingc a

ble 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 hab le op e ra

tio ns . Threa ding pipe involves chang ing the 8 char acte ristics of t he pipe itself to allow i nstallation. During the threa ding pr ocess, g rooves a re c ut into the e n d o f th e p ip e s o th a t th e p ip e c an b e a tt a c h e d to an o th e r p ip e . H WC ’ s o p era tions are dis t i n g u i s h a

b l e . B e y o n d c u t t i n g t h e c a b l e t o s p e c i f

i e d l e n g t h s , H W C d o e s n o t h i n g t o t he c a ble simil ar to thre adinga pipe that would c hang e the c hara cter istics of the ca ble itself. HWC pr e se nte d so me e vid e nc e that it pr oc e sse d the re e ls by pa int ing , d

ri lli ngho le s, modifying the siz e of the arbor hole, fumig ating , and adding attachme nts. Howeve r, havingfound that HWC’s product is the cable , not the cable assemblies, and that the ree ls are pa ckag ing for the
c a ble , n on e of

the c ha ng 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. Sin c 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 the argum ent that

its operations amount to processing . 13 S.W .3d 845 (Tex. App.—Austin 2000, no pet.). Ha ber F abric s purcha sed sec ond quality fabr ic. Id. at 847. Af

t er s orting and inspec ting, de fec tive portions of the fa bric we re rem o v ed and processed by hand. Id. The re maining por tions were pa ckag ed as first quality fabr ic and wra pped for shipping to r etailer s such as Wal-Mart and J o Ann Fa brics. Id. The district cour

t conclude d that Habe r Fabrics’ s activities amounted to processing , and this Court13

ag ree d, finding that, afte r beings o rt ed, inspec ted, cut, and pa ckag ed, the f abric had 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 n b u l k an d r e p a c k a g e s t h e s a m 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 nt h e p ro ce s s o f re s p o o l i n g t h e cab l e, HW C d o es n o t h 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
. H WC p r e s e n te d

e v id e n c e th at 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 te stified that testing f or defects is not standard prac tice and is only done at the c ustomer’s reque st or if HWC has r eason to be lieve that testing is ne cessa ry . Even if HWC t ests a ca ble, finds a def ect, a nd cuts out the defe ctive portion, finding and cur ing de fec ts is not t he primar y purpose of its business. As indicated by the testimony

that HWC i nspects ca

ble only in cer tain situations, the
c a ble it r e c e ive s is a ssume d to be wi tho ut d e fe c t. Unli ke Ha be r F a br ic s, HWC d oe s n ot r ou tin e ly
rec eive a defe ctive or unmarke table produc t, examine and 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 argue s that th e evid e nc e e sta bli sh e s th a t it s o pe ra

tio ns a mou

nt t o fa b ri ca t i o n, which, like proc essing , is included in the manufa cturingexemption. Under the Comptroller’s rule, f

abric ation is “[t] o mak e, buil d, cre ate, pr oduce, or assemble c omponents of tang ible persona l property , or to make ta ng ible persona l property

work in a ne w or diff

ere nt ma nner.” Id. § 3.300(a) (5). HWC arg ues 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 cabl e’s ins ta llatio n. HWC a lso argue s th a t it is eng ag ed in fa

brication because it “assemble[s] components of tang ible persona l proper ty .” As we14

have pr eviously

discussed, addingthe re els to the ca ble amounts to r epac kag ing and does nothing to make 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 ng the e vid e nc e of HWC’ s ope ratio ns in the lig ht mos t favo ra ble to the ve rd ic t,
we c onclude that ther e wa s leg ally sufficie nt evidence to support the dis t ri ct court’s f inding that HWC is not a manufa cture r and, there fore , cannot qualify for the manufa cturingexemption. See City of Keller , 1 6 8 S
. W .3d at 829-30. L ikewise, we conclude that there was fa ctually sufficie nt evidenc e to support this finding be cause the dec ision of the district c ourt was not so ag ainst the g reat weig ht and pre pondera

nce of the evidence as to be cle arly wrongand 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 e vidence prese nted at trial, we conclude there was 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 Filed: De cembe r 12, 2007