Does a company's mobile filter press that refines industrial wastewater qualify for New York's manufacturing-machinery exemption?

Plain-English summary

Central New York Industrial Services, Inc. operates mobile filter presses — assemblies of pumps, compressors, and screens — used solely to refine liquid industrial waste. The processing happens on the client's premises; the filtered water is pumped back into the client's system for reuse, and the residue ("filter cakes") is normally discarded because it has no market value. The company argued the presses are machinery used directly and predominantly in manufacturing and so exempt under § 1115(a)(12).

The Department held the presses are not exempt.

• The exemption requires producing property "for sale." § 1115(a)(12) exempts machinery and equipment used directly and predominantly in the production of tangible personal property for sale by manufacturing or processing.
• Nothing here is produced for sale. Neither the processed water nor the filter cakes are sold by the company or by the manufacturers it serves. So the presses do not produce tangible personal property for sale.
• The waste-treatment exemption requires a manufacturer-buyer. The regulation allowing an exemption for certain waste-treatment equipment (20 NYCRR 528.13(d)) applies only if the equipment is purchased by a manufacturer and used to treat waste from a production process. Because Central New York Industrial Services bought the presses and is not a manufacturer, it can't qualify.
• Result: the filter presses are subject to state and local sales and use tax.

What this means for you

The production-machinery exemption tracks making something you sell. Equipment that cleans, refines, or disposes of waste — where the output (clean water, residue) isn't sold — is not "production of tangible personal property for sale," so it falls outside § 1115(a)(12).

Who owns the waste-treatment equipment matters. New York's special allowance for waste-treatment equipment is written for manufacturers treating waste from their own production. A third-party service company that owns the equipment and isn't a manufacturer cannot claim it.

Providing a service on a client's premises doesn't inherit the client's exemptions. Doing the work at a manufacturer's site does not make the service provider a manufacturer or transfer any production-exemption status to its equipment.

Common questions

Q: Our equipment refines a manufacturer's wastewater. Is it exempt production machinery?
A: No. Because neither the cleaned water nor the residue is produced for sale, the equipment isn't used in producing tangible personal property for sale under § 1115(a)(12).

Q: Isn't there a waste-treatment equipment exemption?
A: Yes, but it requires the equipment to be purchased by a manufacturer and used to treat waste from a production process. A non-manufacturer service company that owns the equipment doesn't qualify.

Q: We operate at the client's factory — does that help?
A: No. Performing the service at a manufacturer's site doesn't make you a manufacturer or give your equipment the production exemption.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(12) — exempts machinery/equipment used directly and predominantly in the production of tangible personal property for sale by manufacturing/processing
• 20 NYCRR 528.13(d) — treats certain waste-disposal equipment as used in production, but only if purchased by a manufacturer and used to treat waste from a production process

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_44s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(44)S
Sales Tax
October 24, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860916A

On September 16, 1986, a Petition for Advisory Opinion was received from Central New
York Industrial Services, Inc., Box 218, Hannibal, New York 13074.
The issue raised is whether a mobile filter press designed to extract solids from liquid waste
qualifies for the exemption from sales tax available under Tax Law 1115(a)(12).
Petitioner's mobile filter presses - composed of various pumps, compressors, and screens ­
are used for the sole purpose of refining liquid industrial waste. The processing is accomplished on
the client's premises and the filtered water is then pumped back into the system for reuse. The
residue, known as "filter cakes," is normally disposed of as it has no market value. Petitioner
contends that the mobile filter presses are machinery or equipment used directly and predominantly
in the manufacturing process and are therefore exempt from New York sales and use taxes.
Section 1115(a)(12) provides for an exemption from sales tax with respect to "machinery and
equipment for use or consumption directly and predominantly in the production of tangible personal
property. . . for sale, by manufacturing, processing. . . ."
However, neither the water processed by Petitioner nor the resultant "filter cakes" are sold
by either Petitioner or the manufacturers for whom it performs services. Therefore, the mobile filter
presses do not produce tangible personal property for sale.
Regulation Section 528.13(d), which allows an exemption for certain waste treatment
equipment, provides in pertinent part:
Machinery and equipment used for disposing of industrial waste, as
part of a process for preventing water or air pollution will be
considered as being used directly and predominantly in production by
manufacturing. . .if
(i) the machinery and equipment is purchased by a manufacturer and
used predominantly to actually treat, bury, or store waste materials
from a production process. . . .20 NYCRR 528.13.

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

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

-2­
TSB-A-86(44)S
Sales Tax
October 24, 1986
Because the machinery in question was purchased by Petitioner, who is not a manufacturer, it cannot
qualify as exempt waste treatment equipment.
Accordingly, such machinery does not qualify for the exemption under section 1115(a)(12)
of the Tax Law and is subject to applicable state and local sales and use tax.

DATED: October 24, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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