How do New York's production exemptions and the resale exclusion apply to a maker of lithographic plates and printer supplies — and when does the New York City tax still apply?

Plain-English summary

Polychrome Corporation, based in Yonkers, manufactures lithographic plates and film and a full range of other supplies used by printers. It asked two things: whether it must collect tax on its sales of chemicals, miscellaneous items, equipment and equipment parts to printers located outside New York City, and whether it must pay tax on items it buys for its own manufacturing operations.

The Department applied the production exemptions and the resale exclusion item-by-item — with a firm New York City carve-out.

• Production machinery, parts, tools and supplies are exempt statewide. Section § 1115(a)(12) exempts machinery or equipment used directly and predominantly in producing goods for sale, but excludes parts with a useful life of one year or less, tools, and supplies. Since March 1, 1981, § 1105-B exempts exactly those excluded parts, tools and supplies. Together they cover production machinery, machine parts (over one year under § 1115(a)(12); one year or less under § 1105-B), and production supplies.
• The New York City tax still applies. These exemptions do not apply to the New York City sales tax under § 1107(a). So if delivery of an otherwise-exempt item occurs within New York City, the city's 4% tax applies.
• Sales to printers need Exempt Use Certificates. Polychrome's sales of exempt-use items to its printer customers are exempt from State and local tax only if the customers give it properly completed Exempt Use Certificates (Form ST-121), and only where the sales are made outside New York City.
• Chemicals left in the product are purchased for resale. Chemicals transferred to the printers' customers as detectable traces in the printed product are purchased for resale, excluded from "retail sale" under § 1101(b)(4), and exempt from State, local and City taxes — supported by Resale Certificates (Form ST-120).
• Non-production items stay taxable. Sales of hand cleaner and aprons are supplies not used directly and predominantly in production, so they are taxable. Likewise, Polychrome's own purchases of electrical and janitorial supplies used for non-production purposes are taxable under § 1105(a).
• Polychrome's own manufacturing purchases follow the same lines. Electric motors, pumps, bearings, belts, filters and electrical supplies for production machines are exempt machine parts (over one year under § 1115(a)(12); one year or less under § 1105-B); steel for containers, tables, enclosures and safety devices is exempt production equipment; industrial wipers for cleaning plates and machines are exempt production supplies under § 1105-B — but in each case, if delivery occurs within New York City, the 4% city tax applies.

What this means for you

New York's production exemption comes in two pieces — use both. Section 1115(a)(12) covers production machinery and long-life parts; § 1105-B (since March 1, 1981) picks up the short-life parts, tools and supplies that § 1115(a)(12) leaves out. Read them together to cover a production line.

The exemptions don't reach the New York City tax. Even a fully exempt production item bears NYC's 4% if it's delivered in the city. Where delivery happens controls the city tax.

Collect the right certificate for the right theory. Exempt-use production sales need Form ST-121; resale sales (like chemicals that become detectable traces in the buyer's product) need Form ST-120. The certificate is what supports the exemption.

"Used in the business" is not the same as "used in production." Hand cleaner, aprons, and general electrical or janitorial supplies aren't used directly and predominantly in production, so they stay taxable.

Common questions

Q: Are my sales of production machinery and supplies to printers tax-free?
A: Outside New York City, yes — if the printer gives you a properly completed Exempt Use Certificate (Form ST-121) and the item is used directly and predominantly in production. Inside NYC, the 4% city tax still applies.

Q: What about chemicals that end up in the printed product?
A: Those are purchased for resale (they're transferred to the printer's customers as detectable traces), so they're exempt with a Resale Certificate (Form ST-120).

Q: Do the exemptions cover the New York City tax too?
A: No. Section 1107(a)'s city tax isn't reached by these exemptions, so items delivered in NYC bear the 4% tax.

Q: Are hand cleaner, aprons and janitorial supplies exempt as "production" items?
A: No. They aren't used directly and predominantly in production, so they remain taxable.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1115(a)(12) — production machinery/equipment exemption (excludes short-life parts, tools, supplies)
• Tax Law § 1105-B(a) — exemption (eff. March 1, 1981) for the parts, tools and supplies excluded from § 1115(a)(12)
• Tax Law § 1101(b)(4) — "retail sale"; resale exclusion
• Tax Law § 1107(a) — New York City sales tax (production exemptions do not apply)
• Tax Law § 1210(a)(1), § 1108 — local production exemption and tax

Forms:

• Form ST-121 (Exempt Use Certificate); Form ST-120 (Resale Certificate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(1)S
Sales Tax
January 11, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810526D

On May 26, 1981, a Petition for Advisory Opinion was received from Polychrome
Corporation, 137 Alexander Street, Yonkers, New York 10702.
The issues raised are whether Petitioner must collect sales tax on sales of chemicals,
miscellaneous items, equipment and equipment parts sold to printers located outside New York City,
and whether Petitioner must pay sales tax on purchases of certain items for use in Petitioner's
manufacturing operations in Yonkers.
Petitioner is a manufacturer of lithographic plates and film for the printing industry, and of
a full range of other supplies used by printers.
Section 1105(a) of the Tax Law imposes the State sales tax on the ". . . receipts from every
retail sale of tangible personal property, except as otherwise provided in this article." Section
1115(a)(12) of the Tax Law provides for an exemption from such tax with respect to "machinery or
equipment for use or consumption directly and predominantly in the production of tangible personal
property . . . for sale, by manufacturing, processing . . . but not including parts with a useful life of
one year of less or tools or supplies used in connection with such machinery, equipment or
apparatus." However, section 1105-B(a) of the Tax Law provides for an exemption, effective since
March 1, 1981, with respect to retail sales of those parts, tools and supplies excluded from the
operation of section 1115(a)(12) of the Tax Law. These exemptions do not apply to the New York
City sales tax imposed under section 1107(a) of the Tax Law. Local sales tax laws are required to
exempt "all sales of tangible personal property for use or consumption directly and predominantly
in the production of tangible personal property for sale, by manufacturing, processing . . ."Tax Law,
§1210(a)(1).
Sales of equipment, equipment parts and of the items listed below, where for use or
consumption directly and predominantly in the production of tangible personal property for sale by
manufacturing or processing, provided Petitioner's customers furnish it with properly completed
Exempt Use Certificates (Form ST-121), and further provided such sales are made outside New York
City, will be exempt from State and local sales taxes, pursuant to sections1105-B, 1115(a)(12), 1108
and 1210(a) of the Tax Law:
Chemicals
Benzol Alcohol
Dupli-Sol
Pro-Sol
Gum
Plate Cleaner
JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

Glaze Off Solution
Developer
Conditioner
Replenisher

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

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TSB-A-82(1)S
Sales Tax
January 11, 1982
Miscellaneous:
Chemical Applicator
Applicator Tray
Plastic Bottle
Putty Knife
Ruler
Razor Blades
Magnifier
Glass Cleaner
Sponge
Tapes
Electrostatic Mats
Electrostatic Solution
Universal Etch
Dupli Etch
Pencil Eraser
Correction Fluid
Blanket Fix
Clean-Up Sheets
Toner

Blanket Wash
Film Cleaner
Roller Wash
Type Wash
Letterplate Wash
Screen Tints
Photo Film Chemicals
Hose Dispenser
Brush Opaquing
Tape Dispenser
Film Trays
Lith-pad
Cheesecloth
Polywipes
Appli-Pads
Blankets
Chrome Guide
Molletons
Masking Sheets

It is to be noted that chemicals which are transferred to the printers' customers in the form
of detectable traces in the printers' products are considered to have been purchased for resale, and
are thus excluded from the definition of the term "retail sale" contained in section 1101(b)(4) of the
Tax Law and, accordingly, are exempt from State, local and New York City sales taxes. In order to
avail themselves of this exclusion Petitioner's customers must furnish it with properly completed
Resale Certificates (Form ST-120).
Petitioner's sales of hand cleaner and aprons constitute sales of supply items which are not
used directly and predominantly in the production of tangible personal property for sale.
Accordingly, these sales are subject to State and local sales taxes.
Petitioner's purchases of electric motors to run machines and assembly lines, pumps used in
conjunction with machinery in the production process, bearings for machines, belts used to drive
machines, filters used in chemical processes in production, and electrical supplies used for machine
motors on assembly lines are considered to be purchases of machine parts for use directly and
predominantly in the production of tangible personal property for sale by manufacturing. In those
cases where the parts have a useful life of more than one year, the purchases will be exempt from
state and local sales taxes under the provisions of section 1115(a)(12) of the Tax Law. In those cases
where the parts have a useful life of one year or less, the purchases will be exempt from state and
local sales taxes under the provisions of section 1105-B of the Tax Law. However, in either case,
if delivery occurs within New York City the transactions will be subject to the New York City tax
of 4% imposed pursuant to section 1107 of the Tax Law.
Petitioner also purchases steel to be used on its production line for chemical containers and
tanks (including covers therefor), cutting tables, machine enclosures, safety devices and maintenance

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TSB-A-82(1)S
Sales Tax
January 11, 1982
of manufacturing machinery and equipment. Steel used for such purposes constitutes production
equipment, the purchase of which is exempt from State and local sales and use taxes pursuant to
sections 1115(a)(12), 1108 and 1210(a) of the Tax Law. Purchases of industrial wipers by Petitioner
for use in cleaning plates and wiping down production machines and equipment are considered to
be purchases of supplies for use directly and predominantly in the production of tangible personal
property for sale within the meaning of section 1105-B of the Tax Law. These purchases are thus
exempt from State and local sales and use taxes. However, in both instances, if delivery of these
items occurs within New York City, the purchases will be subject to the New York City tax of 4%
imposed pursuant to section 1107 of the Tax Law.
Petitioner's purchases of electrical supplies and janitorial supplies which are used for
purposes other than direct and predominant use in the production process are subject to State and
local sales taxes pursuant to the provisions of section 1105(a) of the Tax Law.

DATED: December 22, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau