Are a foundry's machines that make its own sand molds and cores — and the energy to run them — exempt from New York sales tax as production equipment?

Plain-English summary

Frazer & Jones Co. manufactures mine roof supports (expansion supports — comparable to the plastic expanders homeowners use to anchor fixtures in sheetrock). It makes them in a foundry, pouring molten metal into sand molds. Because the sand molds and cores are fragile, must be handled carefully, and must be kept in ample supply, Frazer & Jones makes them in-house rather than buying them. It asked whether the mold-making machine and the energy to run it are exempt from sales tax.

The Department held both the machines and their energy are exempt (except within New York City).

• Production machinery is exempt. Section § 1115(a)(12) exempts machinery or equipment used directly and predominantly in producing tangible personal property for sale by manufacturing. Under 20 NYCRR 528.13(c)(1) "directly" includes acting on the material or having an active causal relationship in making the product, and § 528.13(c)(4) sets "predominantly" at over 50% of use in the production phase.
• Making the molds is part of production. The mold- and core-making machines are used directly and predominantly in producing the supports for sale, so they qualify under § 1115(a)(12).
• The energy is exempt too. Section § 1115(c) exempts fuel and utilities used directly and exclusively (100%, per § 528.22(c)) in production. The energy running the mold-making machines meets that test.
• Local tax follows — but not New York City. Under §§ 1107 and 1210(a) both exemptions extend to local sales tax except the tax imposed within New York City, where these purchases remain taxable.

What this means for you

Equipment that makes your production tooling can itself be exempt. You don't have to be pouring the metal for a machine to qualify — machinery that makes the molds, cores, or other tooling consumed in your production line can be "directly and predominantly" used in production. Making a necessary production input in-house is still production.

"Directly and predominantly" (machinery) vs. "directly and exclusively" (energy) are different standards. Machinery qualifies at over 50% production use; fuel and utilities must be used 100% in production to be exempt under § 1115(c). Match each purchase to the right test.

Remember the New York City carve-out. The statewide production exemptions flow through to local sales tax under §§ 1107 and 1210(a) except within New York City. A manufacturer inside the five boroughs still pays the NYC local tax on the same machinery and energy that would be fully exempt elsewhere in the state.

Common questions

Q: We make our own molds instead of buying them — does that in-house step still count as "production"?
A: Yes. The machines that make the sand molds and cores are used directly and predominantly in producing the product for sale, so they qualify under § 1115(a)(12).

Q: Is the electricity or fuel for the mold machines exempt too?
A: Yes — energy used directly and exclusively (100%) in production is exempt under § 1115(c). The energy running the qualifying mold-making machines meets that standard.

Q: Would this exemption apply if the foundry were in New York City?
A: The statewide exemption would still apply, but under §§ 1107 and 1210(a) the local exemption does not reach the New York City tax, so NYC sales tax would still be due.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(12) — machinery/equipment used directly and predominantly in production
• Tax Law § 1115(c) — fuel/utilities used directly and exclusively in production
• Tax Law §§ 1107, 1210(a) — local tax; exemption applies except within New York City
• 20 NYCRR 528.13(c)(1) ("directly"), 528.13(c)(4) ("predominantly" = over 50%), 528.13(b) ("production"), 528.22(c) ("directly and exclusively")

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81(43)S
Sales Tax
November 2, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810616B

On June 16, 1981 a Petition for Advisory Opinion was received from Frazer & Jones Co.,
Division of Eastern Co., 300 Milton Avenue, Syracuse, New York 13221.
The issue raised is whether or not a mold-making machine and the energy used to operate it
are exempt from sales tax.
Petitioner is a manufacturer of mine roof supports, also know as expansion supports. These
expansion supports are used to secure metal shields that support mine ceilings and may be
analogized to the small plastic expanders used by homeowners for securing fixtures in sheetrock.
The expansion supports are produced by a foundry process that involves the pouring of molten metal
into sand molds. The cores, and the molds they are used to produce, being made of sand are fragile
and must be handled with care. Also, since no products can be molded in Petitioner's foundry
without the use of these cores and molds and an ample supply must be assured, it is not feasible for
Petitioner to purchase these items from outside suppliers. Petitioner, therefore, contends that the
machinery to produce these cores and molds, as well as the utilities to operate this machinery are
exempt from sales tax pursuant to the provisions of section 1115(a)(12) of the Sales Tax Law.
Section 1115(a)(12) of the Tax Law exempts from tax: "Machinery or equipment for use or
consumption directly and predominantly in the production of tangible personal property . . . for sale,
by manufacturing . . .". The Tax Law also provides a similar exemption from local taxes, except the
tax imposed within New York City. Tax Law §§ 1107 and 1210(a).
The Sales and Use Tax Regulations provide that: "'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." 20 NYCRR 528.13(c)(1).

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81(43)S
Sales Tax
November 2, 1981

The Regulations further state that: "Machinery or equipment is used predominantly in
production, if over 50% of its use is directly in the production phase of a process." 20 NYCRR
528.13(c)(4).
Section 1115(c) of the Tax Law exempts from tax: "Fuel, gas, electricity, refrigeration and
steam, and gas, electric, refrigeration and steam service of whatever nature for use or consumption
directly and exclusively in the production of tangible personal property . . . by manufacturing . . .".
A similar exemption is also applicable to local taxes, except the tax imposed within New York City.
Tax Law §§ 1107 and 1210(a).
The terms "directly and exclusively" are defined in the Regulations as follows: "(1) 'Directly'
means the fuel, gas, electricity, refrigeration and steam and like services, must during the production
phase of a process, either:
(i)

operate exempt production machinery or equipment, or

(ii)

create conditions necessary for production, or

(iii) perform an actual part of the production process.
(3)(i) 'Exclusively' means that the fuel, gas, electricity, refrigeration and steam and the like
services are used in total (100%) in the production process." 20 NYCRR 528.22(c).
The Regulations further provide that: "'Production' includes the production line of the plant
starting with 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." 20 NYCRR 528.13(b).
Mold and core-making machines are machinery or equipment for use or consumption directly
and predominantly in the production of tangible personal property for sale within the meaning and
intent of section 1115(a)(12) of the Tax Law.
Accordingly, Petitioner's mold-making machines used to produce sand molds and cores for
the foundry operation are machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property for sale, by manufacturing, and
purchases of such machines are, therefore, exempt from statewide and local taxes, except the New
York City tax. Tax Law §§ 1115(a)(12), 1107 and 1210(a). Similarly, the energy used to operate the
mold-making machine is used directly and exclusively in production and the purchase of such energy
is also exempt from statewide and local taxes, except the New York City tax. Tax Law §§ 1115(c),
1107 and 1210(a).

DATED: October 14, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau