Does a construction-debris recycler's rock-crushing machine qualify for New York's production-machinery sales tax exemption?

Plain-English summary

R.L. Materials runs a construction-debris recycling facility, charging contractors to drop off sand, gravel, rock, asphalt, concrete, and similar debris. A rock-crushing machine grinds this material into reclaimed concrete aggregate (for use in new concrete or as fill) and topsoil, which R.L. Materials then sells to contractors — though when stockpiles get too big, some material is given away free or disposed of instead of sold.

New York exempts machinery and equipment used "directly and predominantly" (over 50% of the time) in producing tangible personal property for sale. The Department confirmed the rock crusher does "process" the debris — changing its nature, shape, and form — so it's engaged in a genuine production activity. But because R.L. Materials sometimes sells the output and sometimes gives it away or disposes of it, the exemption doesn't automatically apply to the whole machine. The company has to actually demonstrate that more than half of the rock crusher's use goes toward producing material that ends up sold, not discarded — a factual, use-based test the taxpayer bears the burden of proving.

Separately, and regardless of how the exemption question comes out, R.L. Materials' own sales of the reclaimed aggregate and topsoil to contractors are ordinary taxable retail sales — and any transportation or delivery charge tacked onto those sales is part of the taxable receipt too, not a deductible add-on, unless the customer provides a valid exemption certificate.

What this means for you

Recyclers and processors with mixed sold/discarded output

If your processing equipment sometimes creates product you sell and sometimes creates scrap you give away or dump, you need to actually track and be able to substantiate that more than 50% of the equipment's use goes toward the "for sale" output to claim the production-machinery exemption — a "some of it gets sold" showing isn't enough on its own.

Contractors and businesses buying recycled aggregate or topsoil

Expect sales tax on your purchase, including any delivery charge, unless you have a proper exemption certificate to give the seller (e.g., if you're buying for resale or for an exempt use).

Accountants and tax professionals

This is a clean template for any equipment (crushers, grinders, sorters) used in a business with a mixed sold/non-sold output stream — the 50%-of-use test applies to the equipment's actual usage pattern, not merely to whether the business is "in the business of" selling the output.

Common questions

Q: Is a rock crusher automatically exempt production equipment?
A: No — it must be used more than 50% of the time to process material that is actually sold, not given away or disposed of, and the taxpayer bears the burden of proving that usage split.

Q: Do I have to collect sales tax on delivered material, including the delivery charge?
A: Yes. The transportation charge is part of the taxable receipt and isn't deductible, unless the customer furnishes a valid exemption certificate.

Q: Can other recyclers rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and the specific facts described; other businesses need to verify their own usage split and facts.

Citations and references

Statutes and regulations:

• Tax Law §§ 1101(b)(3), (b)(4) (receipt; retail sale)
• Tax Law § 1105(a) (retail sale of tangible personal property)
• Tax Law § 1115(a)(12) (production machinery/equipment exemption)
• Tax Law § 1132(c)(1) (presumption of taxability)
• 20 NYCRR 527.4(d) (processing)
• 20 NYCRR 528.13 (directly and predominantly test)

Prior rulings referenced:

• Ray's Transportation, Inc., TSB-A-06(34)S
• Vigliotti Recycling Corp., TSB-A-90(58)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a07_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(3)S
Sales Tax
February 8, 2007

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

PETITION NO. S060105B

On January 5, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from R. L. Materials, Inc., 930A Old Medford Avenue, Medford, New York
11791. Petitioner, R. L. Materials, Inc., provided additional information pertaining to the
Petition on May 5, 2006.
The issues raised by Petitioner are:

1. Whether Petitioner’s rock crusher qualifies as machinery or equipment used in
   the production of tangible personal property for sales tax purposes.
2. Whether Petitioner is required to collect sales tax on its receipts from sales of
   recycled construction materials including transportation charges.
   Petitioner submits the following facts as the basis for this Advisory Opinion.
   Petitioner operates a facility that accepts construction debris to be recycled. Petitioner’s
   facility accepts sand, gravel, rock, asphalt, concrete, grass, brick, and wood and charges
   contractors and others to deposit their construction debris at Petitioner’s site. Petitioner owns a
   rock-crushing machine that crushes and grinds these materials into reclaimed concrete
   aggregates for use in concrete and as fill or into topsoil depending on the composition of the
   debris sent through the rock crusher. Petitioner sells the resultant materials to construction
   contractors and others. However, at times, Petitioner's stockpiles of these materials become too
   large and the materials are given away free of charge or disposed of otherwise. With respect to
   its sales of reclaimed concrete aggregates and topsoil, Petitioner may deliver the materials in its
   own trucks, may engage third party trucks to deliver the materials, or Petitioner’s customer may
   pick up the materials at Petitioner’s site.
   Applicable law and regulations
   Section 1101(b) of the Tax Law provides, in part:
   When used in this article for the purposes of the taxes imposed by subdivisions
   (a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
   following terms shall mean:
   *

*

*

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TSB-A-07(3)S
Sales Tax
February 8, 2007

(3) Receipt. The amount of the sale price of any property and the charge for any
service taxable under this article, including gas and gas service and electricity and electric
service of whatever nature, valued in money, whether received in money or otherwise,
including any amount for which credit is allowed by the vendor to the purchaser, without
any deduction for expenses or early payment discounts and also including any charges
by the vendor to the purchaser for shipping or delivery . . . regardless of whether such
charges are separately stated in the written contract, if any, or on the bill rendered to
such purchaser and regardless of whether such shipping or delivery . . . is provided by
such vendor or a third party . . . .
(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component part of the
property upon which the services are performed or where the property so sold is later
actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax. Notwithstanding the preceding provisions of
this subparagraph, 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, as the terms real property, property or land are defined in
the real property tax law, 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 . . . .
Section 1105 of the Tax Law provides, in part:
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:
*

*

*

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TSB-A-07(3)S
Sales Tax
February 8, 2007

(12) Machinery or equipment for use or consumption directly and predominantly
in the production of tangible personal property . . . for sale, by manufacturing, processing,
generating, assembling, refining, mining or extracting . . . .
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, amusement charge or rent 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. . . .
Section 527.4(d) of the Sales and Use Tax Regulations provides, in part:
Processing. Processing is the performance of any service on tangible personal
property for the owner which effects a change in the nature, shape, or form of the
property.
Section 528.13 of the Sales and Use Tax Regulations provides, in part:
(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 . . . by manufacturing, processing, generating,
assembling, refining, mining or extracting . . . .
*

*

*

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TSB-A-07(3)S
Sales Tax
February 8, 2007

(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.
*

*

*

(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.
Opinion
Petitioner charges contractors and others to deposit their construction debris at
Petitioner’s site. The construction debris accepted by Petitioner is ultimately recycled and sold
or disposed of otherwise by Petitioner. Petitioner owns a rock-crushing machine that crushes
and grinds rock, asphalt, concrete, and other construction debris into usable reclaimed concrete
aggregates and topsoil. Petitioner sells these resultant materials. However, if Petitioner's
stockpiles of materials become excessive, Petitioner gives the materials away free of charge or
disposes of the material otherwise.
In order to qualify for the exemption from sales tax granted under section 1115(a)(12) of
the Tax Law, machinery and equipment must be directly and predominantly engaged in the
production of tangible personal property for sale. Petitioner's rock crusher is used to effect a
change in the nature, shape, or form of the construction debris received by Petitioner, crushing
and grinding the debris into usable concrete aggregates and topsoil. Petitioner's rock crusher,
therefore, processes construction debris into reclaimed concrete aggregates and topsoil within the
meaning of section 527.4(d) of the Sales and Use Tax Regulations. Thus, Petitioner's rock
crusher is used directly in an activity which may qualify as a production activity as contemplated
in section 1115(a)(12) of the Tax Law and section 528.13(c)(1) of the Sales and Use Tax

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TSB-A-07(3)S
Sales Tax
February 8, 2007

Regulations. See Ray’s Transportation, Inc., Adv Op Comm T&F, December 29, 2006,
TSB-A-06(34)S. However, since the materials processed by Petitioner's rock-crushing machine
are sometimes sold and sometimes given away free of charge or disposed of otherwise, it is
necessary to determine whether the rock-crushing machine is used predominantly (over 50%) to
process tangible personal property for sale as required in section 1115(a)(12) of the Tax Law and
section 528.13(c)(4) of the Sales and Use Tax Regulations. See Vigliotti Recycling Corp., Adv
Op Comm T & F, December 24, 1990, TSB-A-90(58)S.
Accordingly, if Petitioner can substantiate that more than 50% of the rock crusher’s use is
to process tangible personal property for sale, the rock crusher will qualify for exemption under
section 1115(a)(12) of the Tax Law as machinery or equipment used directly and predominantly
in the production of tangible personal property for sale.
When Petitioner sells reclaimed concrete aggregates or topsoil to contractors or others, it
is making a retail sale of tangible personal property that is presumed to be subject to sales tax
unless otherwise exempt. See sections 1101(b)(4) and 1105(a) of the Tax Law. Any charge
made by Petitioner to its customer for transportation of its product is not deductible from the
taxable receipt. See section 1101(b)(3) of the Tax Law. Accordingly, Petitioner is required to
collect sales tax on receipts from its sales of topsoil and reclaimed concrete aggregates including
any charge for transportation unless its customer provides Petitioner with a properly completed
sales tax exemption document. See section 1132(c) of the Tax Law.

DATED: February 8, 2007

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.