N.Y. Comp. Codes R. & Regs. tit. 20 § 528.13

Current through Register Vol. 46, No. 45, November 2, 2024

Section 528.13 - Machinery and equipment used in production; telephone and telegraph equipment; parts, tools and supplies

Tax Law, § 1115(a)(12)

(a)Exemption.

(1) Exemption from statewide tax. An exemption is allowed from the tax imposed under subdivisions (a) and (c) of section 1105 of the Tax Law, and from the compensating use tax imposed under section 1110 of the Tax Law, for receipts from sales of the following:

(i) Machinery or equipment (including parts with a useful life of more than one year) used or consumed directly and predominantly in the production for sale of tangible personal property, gas, electricity, refrigeration or steam, by manufacturing, processing, generating, assembling, refining, mining or extracting. (This exemption includes all pipe, pipeline, drilling rigs, service rigs, vehicles and associated equipment used in the drilling, production and operation of oil, gas and solution-mining activities to the point of sale to the first commercial purchaser.)

(ii) Telephone central office equipment or station apparatus or comparable telegraph equipment (including parts with a useful life of more than one year) for use directly and predominantly in receiving at destination or in initiating and switching telephone or telegraph communication when such equipment or apparatus is purchased or leased by the vendor of such service for sale.

(iii)

(a) Parts with a useful life of one year or less, tools or supplies for use or consumption directly and predominantly in the production of tangible personal property, gas, electricity, refrigeration or steam for sale by manufacturing, processing, generating, assembling, refining, mining or extracting.

(b) Parts with a useful life of one year or less, tools or suppliers for use directly and predominantly in or on the equipment or apparatus described in subparagraph (ii) of this paragraph.

(iv) The services of installing, repairing, maintaining or servicing the exempt machinery, equipment, apparatus, parts, tools or supplies identified in subparagraph (i), (ii) or (iii) of this paragraph.

(2) Exemption from taxes imposed by localities other than New York City.

(i) There is an exemption from all local sales and use taxes, other than the taxes imposed in New York City, for all sales and uses of:

(a) tangible personal property used or consumed directly and predominantly in the production for sale of tangible personal property, gas, electricity, refrigeration or steam by manufacturing, processing, generating, assembling, refining, mining or extracting; and

(b) telephone central office equipment, station apparatus or comparable telegraph equipment for use directly and predominantly in receiving at destination or in initiating and switching telephone or telegraph communication when such equipment or apparatus is purchased or leased by the vendor of such service for sale. Parts, tools or supplies for use directly and predominantly in or on such equipment or apparatus are also eligible for this exemption, when purchased or leased by the vendor of such service for sale. (See clause [3][i][b] of this subdivision for the more limited exemption from tax on telephone central office equipment, etc. available in New York City.)

(ii) There is no exemption from the sales and use taxes imposed by localities on the sale of the services of installing, repairing, maintaining or servicing any of the exempt tangible personal property identified in subparagraph (i) of this paragraph. However, a charge for the installation of tangible personal property which becomes a capital improvement to real property is not subject to tax.

(3) Exemption from New York City local tax.

(i) There is an exemption from the sales and use tax imposed in New York City under section 1107 of the Tax Law for sales and uses of the following:

(a) Machinery or equipment, including parts with a useful life of more than one year, used or consumed directly and predominantly in the production for sale of tangible personal property, gas, electricity, refrigeration or steam by manufacturing, processing, generating, assembling, refining, mining or extracting. (This exemption includes all pipe, pipeline, drilling rigs, service rigs, vehicles and associated equipment used in the drilling, production and operation of oil, gas and solution mining activities to the point of sale to the first commercial purchaser.)

(b) Telephone central office equipment, station apparatus or comparable telegraph equipment, including parts with a useful life of more than one year, for use directly and predominantly in receiving at destination or in initiating and switching telephone or telegraph communication where such equipment or apparatus is purchased or leased by the vendor of such service for sale.

(ii) There is no exemption from the sales and use tax imposed in New York City under section 1107 of the Tax Law for sales or uses of:

(a) parts with a useful life of one year or less or tools or supplies used in connection with the exempt machinery, equipment or apparatus described in subparagraph (i) of this paragraph; or

(b) the services of installing, repairing, maintaining or servicing any of the exempt machinery, equipment, apparatus, parts, tools or supplies described in this paragraph. However, a charge for the installation of machinery, equipment or apparatus which becomes a capital improvement to real property is not subject to tax.

(4) An exempt use certificate is used to claim the exemptions from the State and local sales taxes described in this subdivision. (See section 532.4[e] of this Title.)

Cross-reference:

Exclusion for tangible personal property which becomes an ingredient or a component part of a product produced for sale; see section 526.6(c) of this Title.

(b)Production.

(1) The activities listed in paragraph (a)(1) of this section are classified as administration, production or distribution.

(i)Administration includes activities such as sales promotion, general office work, credit and collection, purchasing, maintenance, transporting, receiving and testing of raw materials and clerical work in production such as preparation of work, production and time records.

(ii)Production includes the production line of the plant starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where the product is finished and packaged for sale.

(iii)Distribution includes all operations subsequent to production, such as storing, displaying, selling, loading and shipping finished products.

(2) The exemption applies only to machinery and equipment used directly and predominantly in the production phase. Machinery and equipment partly used in the administration and distribution phases does not qualify for the exemption, unless it is used directly and predominantly in the production phase.

(3) The determination of when production begins is dependent upon the procedure used in a plant. If on receiving raw materials, the purchaser weighs, inspects, measures or tests the material prior to placement into storage, production begins with placement into storage, and the prior activities are administrative. If the materials are unloaded and placed in storage for production without such activities, the unloading is the beginning of production.

Example 1:

A crane is used to unload raw materials, which are immediately placed in storage at a plant. From the storage site, the material is placed on an assembly line without testing. The crane is being used in production.

Example 2:

Testing equipment used to test incoming materials is not used in production and is subject to tax.

(4) Production ends when the product is ready to be sold.

Example 3:

A food processor sells canned food in cases of 48 cans. The canned food is stacked for later labeling and casing. The line of production is deemed to extend through the labeling and casing operation.

(c)Directly and predominantly.

(1)Directly means the machinery or equipment must, during the production phase of a process:

(i) act upon or effect a change in material to form the product to be sold, or

(ii) have an active causal relationship in the production of the product to be sold, or

(iii) be used in the handling, storage, or conveyance of materials or the product to be sold, or

(iv) be used to place the product to be sold in the package in which it will enter the stream of commerce.

(2) Usage in activities collateral to the actual production process is not deemed to be used directly in production.

Example 1:

Plating racks, used during the process of electroplating products for sale are deemed to be equipment used directly in the production of tangible personal property.

Example 2:

A private water company purchases pumps, chlorinators, valves, aerators, motors, and motor controls to be used in the processing of water for sale. Such machinery and equipment is used directly in the production of water.

Example 3:

A manufacturing plant has two boilers which generate steam carried by piping systems through two turbines. One turbine produces electric power which is sold to a power company. The other turbine provides mechanical power to drive the production machinery. The steam is then used in other phases of the manufacturing process, converted to water by condensation and returned to the boilers. The boilers, piping systems and condenser are all machinery and equipment used directly in the production of tangible personal property and electricity for sale.

Example 4:

Commercial fishing vessels are deemed to be machinery or equipment used directly in the production of tangible personal property for sale by extraction.

Example 5:

Tongs and dredges used to dig up shellfish and mops and drills used to catch predators are equipment used to produce tangible personal property for sale by extraction.

Example 6:

Machines to grind meat, make hamburg patties, cube steaks, or slice meat; power saws and scales when used by slaughterhouses, wholesale meat houses and supermarkets, are used directly in processing tangible personal property for sale, and are exempt. However, similar machinery and equipment used by restaurants in the preparation of food and drink taxed under section 1105(d) of the Tax Law, are taxable as they are not used in the processing of tangible personal property for sale.

Example 7:

Trucks which are required to be registered with the Department of Motor Vehicles used to transport raw materials from a pit to a processing plant over a public road are not used directly in production.

Example 8:

A fork lift is used only in conveying material from one assembly line to another assembly line in a plant. The fork lift is used directly in production.

(3) Machinery used to produce other machinery or equipment or parts for self use in production is considered to be used directly in production.

Example 9:

A manufacturer purchases a machine which is used to construct molds, having a useful life in excess of one year which form the products being manufactured for sale. The machine is used directly in production.

Example 10:

A manufacturer uses a lathe in a machine shop to make new machinery which is used to produce tangible personal property for sale. The lathe is used directly in production.

(4) Machinery or equipment is used predominantly in production, if over 50 percent of its use is directly in the production phase of a process.

Example 11:

A fork lift is used 60 percent of the time on an assembly line and 40 percent of the time for loading finished products onto railroad cars for delivery. The fork lift is used predominantly in production.

Example 12:

An overhead crane is located near the end of an assembly line. It is used to carry materials along the assembly line and also to load finished products onto railroad cars for shipment to customers. Forty percent of the time it is used for assembly line operations and 60 percent of the time for the loading of the finished products. The crane is taxable as it is not predominantly used in the production phase of the operation.

Example 13:

A company purchases a machine to produce new paper machine rolls and to recondition old paper machine rolls for its customers. The machine is to be used for production 70 percent of the time and for reconditioning 30 percent of the time. Reconditioning is a repair service to tangible personal property, and machinery used for that purpose is not in production. However, as the machine in this example will be used directly in production over 50 percent of the time, it qualifies for exemption.

(5) Machinery or equipment used in production by someone other than its owner is exempt under the same conditions as other machinery and equipment.

Example 14:

A manufacturer of tangible personal property containing some plastic parts contracts with a plastic manufacturer to produce the plastic parts for it by an injection molding process. The plastic manufacturer requires the customer to provide it with the necessary molds, which have a useful life in excess of one year. The purchase of the molds by the customer before use will be exempt, provided they are used directly and predominantly in manufacturing, even though the use is by someone other than the owner.

(d) Waste treatment equipment.

(1) Machinery and equipment used for disposing of industrial waste, as a part of a process for preventing water or air pollution, will be considered as being used directly and predominantly in production by manufacturing, processing, generating, assembling, refining, mining or extracting, if

(i) the machinery and equipment is purchased by a manufacturer and used predominantly to actually treat, bury, or store waste materials from a production process, and

(ii) over 50 percent of the waste treated, buried or stored results from the production process.

Example 1:

A manufacturing plant has a pumping station to transmit effluent from an industrial process to a municipal sewage treatment system. The equipment at the pumping station is exempt.

Example 2:

A manufacturing plant has a treatment plant at which it treats effluent from an industrial process and sanitary waste. Eighty percent of the waste treated is industrial effluent. The equipment at the treatment plant is exempt as it is used directly and predominantly in production.

Example 3:

A company uses cloth filter dust collectors to collect dust from the grinding of material for sale. The air is treated by being passed through a special cloth which acts as a filter, and collects the particles. The equipment for dust collection is used directly in manufacturing and is exempt.

Example 4:

A company uses a scrubber and ventilation system which places a gaseous mixture, generated in a manufacturing process, in contact with water. This converts the gaseous chemicals into a dilute solution. The scrubber and ventilation system is machinery or equipment used directly in production, as it treats industrial waste, and purchase thereof is exempt from tax.

Example 5:

Equipment used to contain oil spillage or recover oil spillage is not considered to be in the treatment of waste from industrial process.

(2) Building materials, which become part of a capital improvement used as a waste treatment facility are not eligible for the exemption.

Example 6:

A company builds a concrete waste treatment center that has equipment to treat effluent from a manufacturing process. The concrete building and tanks are real property and are not machinery and equipment. They are not exempt although the machinery and equipment contained therein may be exempt.

Example 7:

A company increases the height of a smokestack as part of its pollution control program. The materials used to construct the smokestack are not machinery or equipment but are additions to real property and are not exempt although equipment contained therein may qualify for the exemption.

(e)Parts, tools and supplies.

(1) The term part means a replacement for any portion of a machine or piece of equipment, and any device actually attached to the machinery or equipment and used in connection with the performance of its function. A part cannot accomplish the work for which it was designed independent of the machine for which it is intended to be a component.

Example 1:

A replacement blade for a bench saw used in production has a useful life of six months. Such blade is a part which is exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

Example 2:

A buttonhole attachment for a sewing machine used in production has a useful life of 18 months. Such attachment is a part which is exempt from State and local taxes including the taxes imposed in New York City under section 1107 of the Tax Law.

Example 3:

A compressor motor used for production painting is replaced after the machine has been in operation for six months. The normal useful life of this type of motor is two years. This replacement motor is exempt from State and local taxes including the taxes imposed in New York City under section 1107 of the Tax Law.

Example 4:

A manufacturer uses molds to form products being manufactured for sale. The molds are inserted and attached to injection-molding machines, into which a plastic is injected under heat and pressure; the plastic is then ejected from the mold as a finished product. The useful life of the mold is in excess of one year. The molds are parts, which qualify for exemption from State and local taxes including the taxes imposed in New York City under section 1107 of the Tax Law.

Example 5:

Fourdrinier wires, felt blankets and dryer felts, used with paper-making machines, which have a useful life of 10 to 100 days, are parts which are exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

(2) The term tool means a manually operated implement for performing a task.

Example 6:

A hand saw and a hand drill used by a furniture maker for producing a table for sale are tools exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

Example 7:

A power saw and an electric drill used by a furniture maker for producing a table for sale are machinery and equipment exempt from State and local taxes including the taxes imposed in New York City under section 1107 of the Tax Law.

Example 8:

A manufacturer purchases wrenches that are used to tighten fittings on machines used directly and predominantly in the production of tangible personal property for sale. As tools used directly and predominantly in the production of tangible personal property for sale, the wrenches are exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

(3) The term supply means an item of tangible personal property used in the maintenance of machinery or equipment and an item of tangible personal property used or consumed in production, whose use is incidental to such production, or which is expendable.

Example 9:

Oil, grease or coolant used for the efficient operation of machines that are used directly and predominantly in the production of tangible personal property for sale are supplies exempt for State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

Example 10:

Charts used in instruments that record and control the flow of materials through the manufacturing process are supplies exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

Example 11:

Garnet paper used in connection with sanding machines to smooth furniture before finishing is a supply exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

Example 12:

A paper pattern used by a dressmaker in producing dressing for sale is a supply exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

Example 13:

Safety apparel, safety shoes and eye shields used directly and predominantly in production are supplies exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

Example 14:

Sand used to form molds in a foundry's casting operation is a supply exempt from State and local taxes except for the taxes imposed in New York City under section 1107 of the Tax Law.

(f)Telephone and telegraph equipment.

(1) Telephone and telegraph central office equipment or station apparatus, used directly and predominantly in receiving at destination or initiating and switching telephone and telegraph communication is exempt, when such equipment and apparatus is purchased or leased by the vendor of such service for sale.

(2) The purchase or lease of equipment by a person subscribing to a telephone or telegraph service, which is comparable to telephone or telegraph central office equipment or station apparatus is not eligible for exemption.

Example 1:

A telephone company purchases switchboards and handsets for installation at a subscriber's premises. Such purchases are exempt.

Example 2:

An airline company purchases consoles which initiate, receive and switch telephone calls which are sent over telephone company lines. The consoles are not exempt, as they were not purchased by a telephone company in connection with a telephone service for sale.

(3) The exemption does not apply to other equipment used in conjunction with telephone and telegraph communication, such as testing equipment.

Example 3:

A telephone company purchases devices which are installed on relay racks and are used to test two-way trunk transmission level. These devices are not exempt as they neither initiate, receive or switch communication.

Example 4:

A telephone company purchases electronic scanning devices which are used in the central office to measure conversation holding times for the purposes of diagnosing trouble conditions and developing equipment requirements. These devices are not exempt as they do not initiate, receive or switch communication.

(4) The provisions of subdivision (e) of this section apply to parts, tools and supplies used with central office equipment and station apparatus.

(5) The exemption provided by this subdivision does not apply to equipment used to provide cable television service or music service, since those services are not telephony or telegraphy.

Cross reference:

Telephony or telegraphy defined, see section 527.2(d) of this Title; for exclusion of cable television and music services from the meaning of telephony and telegraphy, see paragraph (d)(3) of section 527.2 of this Title.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 528.13