Is cable sold to a wind farm developer exempt from New York sales tax as production machinery, or taxable as a contractor purchase?

Plain-English summary

General Cable Industries manufactures wire and cable products. It sold and delivered "T2 Osprey" cable in New York to an out-of-state customer building a wind farm — the cable is strung as an overhead conductor on wood poles, carrying electricity generated by the wind turbines to (and from) a substation where it may be stepped up or down before reaching end consumers. The customer gave General Cable a Contractor Exempt Purchase Certificate (Form ST-120.1), claiming the cable was exempt production machinery/equipment being incorporated into real property.

The Department rejected the exemption claim. First, because the customer is acting as a "contractor" constructing a structure (the wind farm) on real property, any sale of tangible personal property to it for that construction is automatically deemed a taxable "retail sale" under New York's contractor rule, regardless of resale intent. Second, and more specifically, New York's production-machinery exemption only covers equipment used directly in actually PRODUCING electricity for sale — and settled Department and court precedent holds that the production phase of generating electricity ENDS at the generator itself. This cable transports already-generated electricity from the turbines to a substation, which is DISTRIBUTION, not production — so it falls outside the exemption regardless of how integral it is to the wind farm's operation. Because General Cable already knows (from its own facts) exactly how the customer intends to use the cable, and that use doesn't qualify, the Department found General Cable cannot accept the customer's exemption certificate "in good faith" — meaning General Cable must collect the sales tax itself rather than relying on the certificate to shift the burden to the customer.

What this means for you

Wire, cable, and equipment manufacturers selling into renewable-energy projects

Know your customer's actual use before accepting an exemption certificate — the production-machinery exemption for a power project ends at the generator. Cable, wiring, or transmission equipment that moves already-generated electricity to a substation or the grid is distribution equipment, not exempt production machinery, no matter how central it is to a wind, solar, or other generation project.

Wind farm, solar farm, and generation-facility developers

Expect sales tax on transmission/distribution-stage materials (cable to substations, step-up/step-down equipment) even while true production-stage machinery (the turbine/generator components themselves) may separately qualify for the exemption — the line is drawn at the generator, not at the project's outer boundary.

Accountants and tax professionals

This is a useful, bright-line "production ends at the generator" precedent for any power-generation-related sales tax question — and a reminder that a vendor's own knowledge of the buyer's actual (non-qualifying) intended use can defeat good-faith reliance on an exemption certificate, shifting collection responsibility back onto the seller.

Common questions

Q: Is equipment used to build a wind farm automatically exempt as production machinery?
A: No — only equipment used directly in actually generating electricity qualifies; equipment that transports already-generated power (like this cable) is distribution equipment and is taxable.

Q: Can a seller always rely on a customer's exemption certificate?
A: No — a seller cannot accept a certificate in good faith if it already knows the customer's actual use doesn't qualify for the claimed exemption.

Q: Where does "production" of electricity end for this exemption?
A: At the generator itself — equipment beyond that point (transmission, distribution, stepping up/down voltage) is not production equipment.

Q: Can another cable manufacturer or wind farm developer rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another company's equipment and its actual use need to be evaluated on their own facts.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (contractor purchases deemed retail)
• Tax Law § 1105(a) (retail sale of tangible personal property)
• Tax Law §§ 1105-B(a), 1115(a)(12) (production machinery/equipment exemption)
• Tax Law § 1132(c)(1) (burden of proof; exemption certificates)
• 20 NYCRR 526.6(b), 532.4(b), 541.2(d)-(e)

Cases and prior rulings referenced:

• Niagara Mohawk Power Corporation v Wanamaker, 286 App Div 446, aff'd 2 NY2d 764
• ABB Power Transmission, Inc., TSB-A-90(34)S
• Conti Enterprises, Inc., TSB-A-05(35)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_25s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(25)S
Sales Tax
October 19, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S050815B

On August 15, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from General Cable Industries, 4 Tesseneer Drive, Highland Heights,
Kentucky 41076.
The issue raised by Petitioner, General Cable Industries, is whether the sale of cable for
the construction of a wind farm is subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a manufacturer of wire and cable products. Petitioner has a customer
(“Customer”) located outside of New York State who is building a wind farm in New York to
generate electricity. Petitioner sold and delivered T2 Osprey cable to Customer in New York.
Since the cable will be used as an overhead conductor, it will be attached to wood poles and will
be used to transport the electricity generated by the wind turbine to and from a substation. The
electricity may be stepped up or stepped down at the substation before being sold to the final
consumer.
Customer provided Petitioner with a Contractor Exempt Purchase Certificate, Form ST­
120.1, claiming that the cable qualifies as production machinery and equipment that will be
incorporated into real property.
Applicable law and regulations
Section 1101(b)(4)(i) of the Tax Law defines a retail sale, in part, as:
. . . a sale of any tangible personal property to a contractor, subcontractor or
repairman for use or consumption in erecting structures or buildings, or building on, or
otherwise adding to, altering, improving, maintaining, servicing or repairing real
property, property or land . . . is deemed to be a retail sale regardless of whether the
tangible personal property is to be resold as such before it is so used or consumed. . . .
(Emphasis added)
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. . . .there is hereby imposed and there shall be paid a
tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.

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Section 1105-B(a) of the Tax Law provides:
Receipts from the retail sales of parts with a useful life of one year or less, tools
and 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 shall be
exempt from the tax imposed by subdivision (a) of section eleven hundred five of this
article.
Section 1115 of the Tax Law provides, in part:
Exemptions from sales and use taxes. (a) 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, but not including parts with a useful life of one year or less or tools or supplies
used in connection with such machinery or equipment. . . .
Section 1132(c)(1) of the Tax Law provides, in part:
For the purpose of the proper administration of this article and to prevent evasion
of the tax hereby imposed, it shall be presumed that all receipts for property or services of
any type mentioned in subdivisions (a), (b), (c) and (d) of section eleven hundred five . . .
are subject to tax until the contrary is established, and the burden of proving that any
receipt . . . is not taxable hereunder shall be upon the person required to collect tax or
the customer. Except as provided in subdivision (h) or (k) of this section, unless (i) a
vendor, not later than ninety days after delivery of the property or the rendition of the
service, shall have taken from the purchaser a resale or exemption certificate in such form
as the commissioner may prescribe . . . to the effect that the property or service was
purchased for resale or for some use by reason of which the sale is exempt from tax under
the provisions of section eleven hundred fifteen . . . or (ii) the purchaser, not later than
ninety days after delivery of the property or the rendition of the service, furnishes to the
vendor: any affidavit, statement or additional evidence, documentary or otherwise, which
the commissioner may require demonstrating that the purchaser is an exempt
organization described in section eleven hundred sixteen, the sale shall be deemed a
taxable sale at retail. . . . Where such a resale or exemption certificate or such an
affidavit, statement or additional evidence has been furnished to the vendor, the burden of
proving that the receipt, amusement charge or rent is not taxable hereunder shall be solely

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upon the customer. The vendor shall not be required to collect tax from purchasers who
furnish a resale or exemption certificate, or such an affidavit, statement or additional
evidence in proper form, . . . (Emphasis added)
Section 526.6 of the Sales and Use Tax Regulations provides, in part:
(a) The term retail sale or sale at retail means the sale of tangible personal
property to any person for any purpose, except as specifically excluded.
(b) Special rule – sales specifically included as retail sales. (1) A sale of any
tangible personal property to a contractor, subcontractor or repairman for use or
consumption in erecting structures or buildings or adding to, altering, improving,
maintaining, servicing or repairing real property, property or land, is deemed to be a retail
sale, regardless of whether the tangible personal property is to be resold as such before it
is used or consumed. . . .
Section 532.4(b) of the Sales Tax Regulations provides, in part:
Burden of proof. (1) The burden of proving that any receipt, amusement charge,
or rent is not taxable shall be upon the person required to collect the tax and the customer.
(2) A vendor who in good faith accepts from a purchaser a properly completed
exemption certificate or, as authorized by the Department, other documentation
evidencing exemption from tax not later than 90 days after delivery of the property or the
rendition of the service is relieved of liability for failure to collect the sales tax with
respect to that transaction. The timely receipt of the certificate or documentation itself
will satisfy the vendor's burden of proving the nontaxability of the transaction and relieve
the vendor of responsibility for collecting tax from the customer.
(i) A certificate or other document is “accepted in good faith” when a vendor has
no knowledge that the exemption certificate or other document issued by the purchaser is
false or is fraudulently presented. If reasonable ordinary due care is exercised, knowledge
will not be imputed to the seller required to collect the tax.
*

*

*

(5) A vendor is not relieved of the burden of proof when it failed to obtain an
exemption certificate or accepted an improper certificate, or had knowledge that the
exemption certificate issued by the purchaser was false or fraudulently presented.
Section 541.2 of the Sales Tax Regulations provides, in part:

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(d) A construction contractor means any person who engages in erecting,
constructing, adding to, altering, improving, repairing, servicing, maintaining,
demolishing or excavating any building or other structure, property, development, or
other improvement on or to real property, property or land.
(e) Contractor means a construction contractor, subcontractor or repairman.
Opinion
Petitioner is a manufacturer of wire and cable products. A customer (“Customer”)
constructing a wind farm in New York State provided Petitioner with a Contractor Exempt
Purchase Certificate, Form ST-120.1, indicating that the cable it purchased is production
machinery and equipment that will be incorporated into real property.
Customer, in this case, is acting as a contractor when it engages in constructing a wind
farm. See section 541.2(d) and (e) of the Sales and Use Tax Regulations. Section 1101(b)(4)(i)
of the Tax Law and section 526.6 of the Sales and Use Tax Regulations provide that all sales of
tangible personal property to a contractor, subcontractor or repairman for use or consumption in
erecting structures or buildings are deemed to be retail sales subject to sales tax. Therefore,
Petitioner’s sales of cable to Customer that are delivered in New York State are subject to sales
tax under section 1105(a) of the Tax Law, unless otherwise exempt.
Machinery or equipment, as well as parts, tools and supplies, used directly and
predominantly in the production of tangible personal property, gas, electricity, refrigeration or
steam for sale are exempt from sales and use tax. See sections 1105-B(a) and 1115(a)(12) of the
Tax Law. While coiled wire in a generator used to create electricity for sale could qualify for the
production exemption, nothing in Petitioner’s statement of facts suggests that the cable in the
present case is used in this manner. In the present case, Customer is engaged in the construction
of a wind farm. The cable is described as being attached to wood poles to transport the
electricity created via the wind turbines to a substation where the electricity may be stepped up
or stepped down. With regard to electricity, the production phase of the manufacturing process
ends at the generator that produces the electricity. See Niagara Mohawk Power Corporation v
Wanamaker, 286 App Div 446, affd 2 NY2d 764; ABB Power Transmission, Inc., Adv Op
Comm T&F, July 17, 1990, TSB-A-90(34)S; Conti Enterprises, Inc., Adv Op Comm T&F,
September 27, 2005, TSB-A-05(35)S. Thus, it must be concluded that the cable Petitioner is
selling to Customer is used in the distribution, rather than the production, of electricity and is not
exempt from sales and use tax.
In order to foster the proper administration of the sales tax and to prevent tax evasion,
section 1132(c) of the Tax Law presumes that all receipts from the sale of property or services of
any type are subject to tax until the contrary is established. However, where the vendor, in good
faith, accepts from the purchaser a properly completed exemption certificate which states that the
property or service is either for resale, qualifies for one of the exemptions provided by section
1115 of the Tax Law, or that the purchaser is an exempt organization under section 1116 of the

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Tax Law, the vendor may sell the tangible personal property or service without collecting the tax
from the customer. The liability for the tax due in such case is solely upon the customer. An
exemption certificate or other document is accepted in good faith when a vendor has no
knowledge that the certificate or document presented by the purchaser is false or fraudulently
presented. See section 532.4(b)(2)(i) of the Sales and Use Tax Regulations.
Since it appears that Petitioner knows how Customer intends to use the cable for the wind
farm and, upon receipt of this Opinion, knows such use does not qualify for the production
exemption set forth in section 1115(a)(15) of the Tax Law, Petitioner cannot in good faith accept
a Contractor Exempt Purchase Certificate, Form ST-120.1, from Customer indicating that the
cable it purchased is exempt production machinery and equipment.

DATED: October 19, 2006

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.