The Fifteenth Court of Appeals Holds that Returnable Containers May Qualify for the Manufacturing Exemption Creating Potential Opportunities for Refund Claims

It may not be polite to say we told you so, but we did. The authors of this article have long predicted the eventual demise of a 1980’s court decision that, like a few other relics from that decade (e.g., cassette tapes and floppy disks), has at least arguably long outlived whatever usefulness it had. In a decision issued last week, the 15th Court of Appeals held that the purchase of returnable containers and related services could be purchased tax free by a manufacturer of chemicals under the Texas sales tax Manufacturing Exemption. See Hancock v. ChampionX, LLC, 2026 WL 392041 (Tex. App. – Austin [15th Dist.] Feb. 12, 2026, no pet h.). In doing so, the court effectively reigned in the scope of a 1984 appellate court decision that the Texas Comptroller has relied on for decades to disallow both the resale and manufacturing exemptions for the purchase of returnable containers subsequently sold with product. See East Texas Oxygen Co. v. State, 681 S.W.2d 741 (Tex. App. – Austin 1984, no writ). While the ChampionX, LLC decision could still be appealed to and potentially heard by the Texas Supreme Court, it paves the way for potential refund claims for many taxpayers and a potential reduction of an operating cost that manufactures have had to endure for years.

The taxpayer at issue is ChampionX, LLC, which for the periods at issue was involved in manufacturing chemicals for use in oil and gas operations. It sought a refund of Texas sales tax paid for the purchase of returnable containers used to deliver product to customers and related services for delivery, pickup, and cleaning citing both the Manufacturing Exemption in Section 151.318 and the exemption for related qualifying services in Section 151.3111 of the Texas Tax Code. The Texas Comptroller denied these exemptions relying on the East Texas Oxygen Company case wherein the Third Court of Appeals previously determined that returnable cylinders purchased by a retailer for the purpose of selling oxygen did not qualify for the resale exemption.

For context, the East Texas Oxygen Co. case is one of those decisions that has no doubt left many reasonably-minded lawyers asking, “What on Earth?” The court in that case first acknowledged that under a literal reading of the resale exemption, the oxygen tank cylinders purchased by ETOC for sale with its product could be purchased tax free. However, the court nevertheless held that the resale exemption did not apply to the purchase of those cylinders citing two reasons. First it determined that, because a separate exemption in Tex. Tax Code §151.322 (the Container Exemption) applied to the sale of returnable containers when sold with product, the containers could avoid taxation entirely if the resale exemption were allowed on the purchases (i.e., both the purchase and the sale would be exempt). The court found this contrary to legislative intent which seems remarkable given that the entire reason for statutory exemptions is to exempt transactions from tax that would otherwise be owed, and there were indeed two separate statutory exemptions which did just that. The second stated reason cited by the East Texas Oxygen Co. court was that, because there could be an overlap between the Container Exemption and the resale exemption in some situations including for example where returnable containers were returned for refilling (which does not appear to have been at issue in that case), the resale exemption could not apply to returnable containers at all. This basis seems likewise remarkable given that the court effectively invalidated an exemption it acknowledged literally applied solely on the basis of a statutory redundancy.

The key issue in ChampionX, LLC was accordingly whether the Container Exemption preempts the Manufacturing Exemption in the context of returnable containers. The Comptroller argued that, as a more specific statute, it did and thus Champion X, LLC could not therefore claim the Manufacturing Exemption on its purchases. The Court disagreed holding that, even assuming arguendo, the Container Exemption was in fact a more specific statute, ChampionX was still eligible for the Manufacturing Exemption. The Court reasoned that a more specific statute will preempt a general statute where the two are “irreconcilable”, meaning that both cannot “concurrently operate.” The question, according to the court, “is whether the ‘literal terms of the two provisions cannot both be true.’”

In finding there was no irreconcilable conflict, the court first noted that nothing in the Texas Tax Code suggests that if property does not qualify for the Container Exemption, it also cannot qualify for the Manufacturing Exemption. According to the court, the Legislature could have excluded containers from the Manufacturing Exemption as it has for certain other products, but did not do so. The court also noted that, “[w]hile both statutes have a common purpose of avoiding double taxation” they can be reconciled because the Manufacturing Exemption explicitly applies to manufacturing whereas the Container Exemption is broader and may apply to non-manufacturing scenarios. The court was also quick to note that it was not bound by the East Texas Oxygen Co. decision cited by the Texas Comptroller and found it distinguishable because that case did not address the manufacturing exemption.

Thus, while East Texas Oxygen Company was not formally rejected by the ChampionX, LLC court, the universe of its continued significance seems to be getting considerably smaller. The court’s analysis in ChampionX, LLC in fact seems difficult to reconcile with the East Texas Oxygen Co. While the ChampionX, LLC court found that the Container Exemption could be reconciled with the Manufacturing Exemption because it was broader, the same could arguably be said about the resale exemption which also seems similarly broader than the Container Exemption. In addition, as in ChampionX, the Texas Legislature could have carved out an exception to the resale exemption for returnable containers but did not do so.

For now, the 15th Court of Appeals’ holding in ChampionX spells potentially good news for taxpayers engaged in manufacturing across industries that utilize returnable containers. While ChampionX specifically dealt with containers used to sell manufactured chemicals for use in the oil and gas industry, its holding is certainly not limited to that industry. Returnable containers are used by many different taxpayers across a plethora of different industries. Any taxpayers engaged in manufacturing who have paid tax on returnable containers should consider promptly reviewing those purchases to determine if they may qualify for refund claims in the interest of potentially filing refund claims within the applicable statute of limitations. Interested parties are welcome to contact either of the authors for assistance.

David Colmenero can be reached at dcolmenero@meadowscollier.com and Alex Pilawski can be reached at apilawski@meadowscollier.com. To contact them by phone, please call 214.744.3700.