Do the fork trucks used to unload raw materials and the storage racking that holds them before production qualify for New York's manufacturing exemption from sales tax?

Plain-English summary

Henry & Henry Inc. manufactures bakery ingredients and soda fountain toppings and syrups sold mainly to distributors. Raw materials arrive at two dedicated loading docks, where staff visually check for damage and verify the package count before signing off and releasing the delivery driver — nothing is weighed, tested, or measured at that point. Fork trucks then move the materials either straight to the production area (if needed right away) or, more typically, to steel racking bolted to the floor of a raw-material warehouse, where they sit until the production department requisitions them.

New York's manufacturing exemption covers equipment "used or consumed directly and predominantly" in production, and the regulations draw the production/administration line based on whether goods are weighed, inspected, measured, or tested before storage: if they are, production starts only once they leave storage (and the unloading itself is a merely administrative activity); if they're not, production is considered to begin right at unloading. Because Henry & Henry's dock crew only visually checks for damage and counts packages — activities the Department held don't rise to the level of "weighing, inspecting, measuring or testing" required to make unloading administrative — production legally begins the moment the raw materials are unloaded. That means the fork trucks and other unloading/moving equipment qualify as exempt production equipment (as long as more than 50% of their use is for this purpose), and the storage racking in the raw-material warehouse likewise qualifies as exempt production equipment, since it's used to store materials that are already, legally, "in production."

What this means for you

Manufacturers claiming the production equipment exemption

The line between exempt "production" equipment and taxable "administrative" equipment often comes down to exactly what happens to raw materials the moment they arrive. A simple visual damage check and package count, without weighing, testing, or measuring, isn't enough to push the start of production past the unloading dock — meaning unloading equipment and any storage racking used afterward can both qualify as exempt, provided each is used predominantly (more than 50%) for that purpose.

Businesses that DO test, weigh, or measure incoming materials

If your receiving process includes weighing, measuring, or testing raw materials before they're put into storage, the analysis flips: production begins only when materials leave storage, and your unloading/receiving equipment would instead be treated as administrative (taxable) rather than production equipment.

Accountants and tax professionals

This is a clean application of the bright-line unloading test in 20 NYCRR § 528.13(b)(3), directly analogous to the regulation's own Example 1 (a crane unloading materials straight into storage without testing counts as production equipment). Remember the paperwork requirement too: an Exempt Use Certificate (Form ST-121) must be furnished to the equipment supplier within 90 days of purchase to buy the equipment tax-free.

Common questions

Q: Does visually checking raw materials for damage count as "testing" that would make unloading an administrative activity?
A: No — the Department held that visual damage checks and package-count verification don't rise to the level of weighing, inspecting, measuring, or testing needed to make unloading merely administrative.

Q: Does storage racking for raw materials qualify for the manufacturing exemption?
A: Yes, when production is considered to begin at unloading (as here), racking used predominantly to store those in-production raw materials is itself exempt production equipment.

Q: What percentage of use is required to qualify equipment as "predominantly" used in production?
A: More than 50% of the equipment's use must be directly in the production phase.

Q: What paperwork does a manufacturer need to buy this equipment tax-free?
A: A properly completed Exempt Use Certificate (Form ST-121), furnished to the supplier within 90 days of the purchase date.

Q: Can another manufacturer rely on this exact unloading/racking analysis?
A: No. This opinion binds the Department only for this specific petitioner's receiving process and can't be relied on by another taxpayer, though it illustrates the Department's general test.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (imposition on retail sales)
• Tax Law § 1115(a)(12) (manufacturing exemption)
• Tax Law § 1132(c) (exempt use certificate)
• 20 NYCRR § 528.13 (machinery and equipment used in production, incl. Example 1 and Example 11)
• 20 NYCRR § 532.4 (exempt use certificate procedure)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(17)S
Sales Tax
June 26, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000907A

On September 7, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Henry & Henry Inc., 3765 Walden Avenue, Lancaster, New York
14086-1494.
The issues raised by Petitioner are:
(1) Whether the equipment used in the unloading of raw materials at Petitioner’s plant site
qualifies for the manufacturing exemption as equipment used in the production process.
(2) Whether the racking used exclusively to store raw materials in a raw material warehouse
at the plant site qualifies for the manufacturing exemption as equipment used in the
production process.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a manufacturer producing a number of bakery ingredients, soda fountain
toppings and syrups, which are sold primarily to distributors.
Raw materials are received by Petitioner at two dedicated docks at the production facility.
The materials are visually checked for damage and a package count is verified before the shipping
documents are signed and the driver released. The materials are not subjected to further checking,
testing, weighing or measurement at this point in time.
Petitioner’s personnel then use fork trucks to move the raw materials to the appropriate
location. This may be the production area if there is an immediate need. However, the more
common practice would be to store the materials for a short period of time on steel racking located
in the raw material warehouse until the production department requisitions them. The raw materials
are placed on the steel racks which are capable of holding either cartons or pallets of cartons. The
racking is bolted to the concrete floor of the raw material warehouse to prevent the racking from
moving when raw materials are loaded onto it. Once the production department requisitions raw
materials, personnel would relocate the raw materials from the steel racks in the raw material
warehouse to the production area for processing.
Applicable Law and Regulations
Section 1105 of the Tax Law provides, in part:

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Imposition of sales tax. On and after June first, nineteen hundred
seventy-one, there is hereby imposed and there shall be paid a tax of four percent
upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
Section 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
*

*

*

(12) Machinery or equipment 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 . . . .
Section 528.13 of the Sales and Use Tax Regulations provides, in part:
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 . . . .
*

*

*

(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

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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. (Emphasis added)
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.
*

*

*

(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.

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(2) Usage in activities collateral to the actual production process is not
deemed to be 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.
Opinion
Petitioner states that raw materials are received at two dedicated docks at the production
facility. The materials are visually checked for damage and the package count is verified before the
shipping documents are signed and the driver making the delivery is released. The materials are
then moved to storage prior to being moved to the production area, or directly to the production area
if there is an immediate need. Section 528.13(b)(3) of the Sales and Use Tax Regulations provides
that, “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.” (Emphasis added.) The activities of weighing, measuring and testing
of raw materials clearly require that the raw materials be subjected to activities that require the
actual handling of the raw materials and the use of external devices such as scales, rulers, meters and
other administrative equipment. In this context, the term “inspects” also implies the handling of the
raw materials in some inspection process and the use of some administrative equipment to determine
the suitability of the raw materials for use in the production process.
Issue 1
The acts of visually checking and verifying package counts do not ascend to the level of
handling required by Section 528.13(b)(3) of the Sales and Use Tax Regulations to make the
unloading of raw materials an administrative activity. Accordingly, Petitioner’s use of equipment
in unloading raw materials at its plant is considered to be a use directly in production as described
in Section 1115(a)(12) of the Tax Law and Sections 528.13(b)(1)(ii) and 528.13(b)(3) of the Sales
and Use Tax Regulations. If the fork trucks and other equipment are used predominantly (more than
50% of use) to unload raw materials as described above, or to move materials to storage or other
areas of the production process, such equipment may be purchased exempt from tax as production
equipment.

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Issue 2
Since production begins with the unloading of raw materials at Petitioner’s plant site, racking
used to store the raw materials subsequent to the unloading process is considered to be used directly
in production. If such racking is used predominantly to store raw materials, or materials that are in
the production process, the racking may be purchased tax exempt as production equipment.
It should be noted that an Exempt Use Certificate (Form ST-121) should be furnished to the
supplier in order to purchase the fork trucks, racking and other equipment exempt from tax. A
properly completed certificate should be furnished to the vendor within ninety days of the date of
sale. See Section 1132(c) of the Tax Law and Section 532.4 of the Sales and Use Tax Regulations.

DATED: June 26, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.