Is a machine that recycles foundry sand for reuse in manufacturing exempt as production equipment?

Plain-English summary

Buffalo Forge Company manufactures industrial equipment (centrifugal pumps, fans, drilling machines, bending rolls). Making that machinery requires pouring metal castings, which in turn requires molds and cores formed in core-making machines from sand mixed with catalyst oils. The sand forms wear out or become obsolete. Buffalo Forge's Sand Reclamation Unit breaks up the discarded molds and cores, extracts slag and dust, and restores the sand to reusable condition, saving storage space and cost. Buffalo Forge asked whether the unit is exempt production equipment under § 1115(a)(12).

The Department said the unit does not qualify under § 1115(a)(12), but is exempt under § 1105-B if bought on or after March 1, 1981.

• Section 1115(a)(12) exempts machinery used directly and predominantly in producing tangible personal property for sale. Under 20 NYCRR 528.13(c)(3), a machine that produces other machinery, equipment or parts for self-use in production counts as used directly in production.
• But the reclaimed sand is a supply, not a part — and isn't sold. The sand is a supply rather than machinery, equipment or parts, and Buffalo Forge does not sell the sand. So the unit cannot qualify under the "makes machinery/parts for self-use" theory, nor as machinery producing tangible personal property for sale (the sand is not sold). No § 1115(a)(12) exemption.
• Section 1105-B rescues it — with a date cutoff. Section 1105-B (added by Chapter 625 of the Laws of 1979) fully exempts from statewide tax supplies used or consumed directly and predominantly in production when the supplies are purchased on or after March 1, 1981. Accordingly, machinery used to produce supplies for self-use in producing goods for sale is treated as used directly in production — but only if the machinery is purchased on or after March 1, 1981.
• Result: The Sand Reclamation Unit is exempt from statewide tax if purchased on or after March 1, 1981; if purchased before that date, it does not qualify and is subject to applicable state and local sales and use taxes.

What this means for you

Machinery that makes a consumable supply sits in a special lane. The core production exemption (§ 1115(a)(12)) reaches machines that make your product or make machinery/parts for self-use — not machines that make a supply you consume and don't sell. That gap is filled by § 1105-B, but only for post-March 1981 purchases.

The purchase date is decisive here. A supply-making machine bought before March 1, 1981 is taxable; the same machine bought on or after that date is exempt from statewide tax. Check when the equipment was acquired.

Reusing an input isn't producing a product for sale. Reclaiming foundry sand for your own reuse doesn't make the sand a "product," because you don't sell it. That's why the general production exemption didn't apply.

Common questions

Q: Our machine is essential to production. Why isn't it exempt under § 1115(a)(12)?
A: Because what it makes — reclaimed sand — is a supply you consume, not machinery, parts, or a product you sell. The § 1115(a)(12) exemption doesn't reach machinery that only makes a self-used supply.

Q: Is there any exemption for it?
A: Yes, under § 1105-B. Machinery that makes supplies used directly and predominantly in production for sale is treated as used directly in production and is exempt from statewide tax — but only if purchased on or after March 1, 1981.

Q: We bought ours before March 1981. What then?
A: It does not qualify and is subject to applicable state and local sales and use taxes.

Citations and references

Statute:

• Tax Law § 1115(a)(12) — exemption for machinery and equipment used directly and predominantly in production for sale
• Tax Law § 1105-B — exemption for supplies used directly and predominantly in production, purchased on or after March 1, 1981

Regulation:

• 20 NYCRR 528.13(c)(3) — machinery producing machinery, equipment or parts for self-use is used directly in production (but the reclaimed sand is a supply, not a part)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_59s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(59)S
Sales Tax
December 4, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S840625B

On June 25, 1984, a Petition for Advisory Opinion was received from Buffalo Forge
Company, 490 Broadway, Buffalo, New York 14204.
The issue raised is whether a machine called a Sand Reclamation Unit qualifies for the
exemption from sales tax available under Tax Law 1115(a)(12), applicable to machinery or
equipment for use or consumption directly and predominantly in the production of tangible personal
property for sale. Petitioner states the equipment has a useful life of more than one year.
Petitioner is engaged in the manufacture and sale of industrial equipment, such as centrifugal
pumps, fans, drilling machines and bending rolls. An essential operation in the production of this
machinery is the pouring of metal castings. In this process it is necessary first to make molds and
cores which are formed in core-making machines from sand mixed with special catalyst oils. These
sand forms frequently become worn from use or obsolete because of design changes.
The Sand Reclamation Unit breaks up the discarded molds and cores and extracts slag and
dust until the sand is re-usable in the manufacturing process. Since the fabrication of molds and cores
requires large quantities of specialty sand, the reclamation of sand saves both storage space and
production cost.
Petitioner contends the Sand Reclamation Unit is machinery or equipment used directly and
predominantly in the manufacturing process and is therefore exempt from New York State sales and
use taxes.
Section 1115(a)(12) of the Tax Law provides for an exemption from sales tax with respect
to machinery and equipment purchased for use "directly and predominantly" in the production of
tangible personal property. . . for sale by manufacturing, processing. . . .
Regulation section 528.13(c)(3) provides that "machinery used to produce other machinery
or equipment or parts for self use in production is considered to be used directly in production." The
sand produced by the reclamation unit is a supply rather than machinery or equipment or parts.
Furthermore, such sand is not produced for sale. Accordingly, the sand reclamation unit cannot
qualify for exemption under the theory that it is machinery used to produce other machinery or
equipment or parts. Nor can it qualify for exemption as machinery used in the production of tangible
personal property for sale inasmuch as the sand is not sold.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-85(59)S
Sales Tax
December 4, 1985

However, section 1105-B of the Tax Law (as added by Chapter 625 of the Laws of 1979)
provides for a full exemption from statewide tax with respect to supplies used or consumed directly
and predominantly in the production of tangible personal property, where such supplies are
purchased on or after March 1, 1981. Accordingly, machinery and equipment used to produce
supplies for self use in production of tangible personal property for sale will be considered to be used
directly in production but only if such machinery is purchased on or after March 1, 1981.
Such machinery or equipment purchased prior to March 1, 1981 does not qualify for
exemption and is subject to applicable state and local sales and use taxes.

DATED: November 7, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.