Does machinery a recycler uses to process construction debris into new products qualify for New York's production exemption?

Plain-English summary

Vigliotti Recycling Corp. takes in mixed construction and demolition material for a fee and converts about 80–85% of it into salable or usable products: wood chips, agricultural soil, concrete and rock, metals, and cardboard. It asked whether the machinery it uses qualifies for the production-machinery exemption in Tax Law § 1115(a)(12), which exempts "machinery or equipment for use or consumption directly and predominantly in the production of tangible personal property... for sale... by manufacturing, processing..."

The Department gave a two-part answer:

1. Recycling counts as "processing." Following Lindemann Recycling Equipment, Inc., TSB-A-89(3)S, processing scrap material for sale is "processing" within § 1115(a)(12). Machinery used directly (acting on the material, or handling/conveying/packaging it) and predominantly — the regulation, § 528.13(c), sets predominance at more than 50% of use — in that production qualifies.

2. But only for products actually sold. The exemption reaches only machinery producing property "for sale." Vigliotti sells its metals and cardboard to secondary recyclers, but it supplies wood chips to the Town of Islip and donates soil to the Town of North Hempstead — those products are given away, not sold. So only the machinery used more than 50% of the time to produce the cardboard and metal for sale qualifies for the exemption.

What this means for you

"For sale" is the dividing line

The production exemption isn't about how much you transform the material — it's about whether the resulting product is sold. Vigliotti clearly "processed" everything it took in, but the machinery making its give-away outputs (wood chips supplied under a town agreement, soil donated for landfill cover) fell outside the exemption because those outputs weren't sold. If some of your output is sold and some is given away or self-consumed, the exemption tracks only the salable-product machinery.

Recyclers can be "processors" for the exemption

This opinion confirms that a recycler breaking down and converting scrap into salable commodities is engaged in "processing," not merely disposal. That opens the § 1115(a)(12) exemption to recycling equipment — subject to the "for sale" and "more than 50%" limits.

Track machinery use by output

Because the exemption applies machine-by-machine and turns on more-than-50% use in producing salable product, keep records of what each machine does and what share of its use goes to sold-product lines versus other outputs. Mixed-use equipment needs a defensible predominance calculation.

Common questions

Q: Is a recycler's processing equipment exempt from sales tax?
A: It can be. Recycling scrap for sale is "processing" under § 1115(a)(12), so machinery used more than 50% of the time directly in producing salable product qualifies.

Q: Why didn't Vigliotti's wood-chip and soil machinery qualify?
A: Those products were supplied to a town and donated, not sold. The exemption is limited to machinery producing property "for sale," so only the cardboard- and metal-producing machinery qualified.

Q: What counts as "predominantly"?
A: Under 20 NYCRR § 528.13(c), machinery is used predominantly in production if more than 50% of its use is directly in the production phase.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(12) — exemption for machinery used directly and predominantly in producing tangible personal property for sale
• 20 NYCRR § 528.13(c) — definitions of "directly" and "predominantly" (over 50% of use)

Cited authority:

• Lindemann Recycling Equipment, Inc., TSB-A-89(3)S (Jan. 31, 1989) (scrap processing is "processing")

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(58)S
Sales Tax
December 24, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900823B

On August 23, 1990 a Petition for Advisory Opinion was received from Vigliotti Recycling
Corp., 50 Hopper Street, Westbury, N.Y. 11590.
The issue raised by Petitioner, Vigliotti Recycling Corp., is whether machinery and
equipment used to recycle tangible personal property qualifies for exemption from sales tax under
Section 1115(a)(12) of the Tax Law.
For a fee Petitioner accepts, at its facility, mixed construction and demolition material which
it converts into various products. The products produced include wood chips, agricultural soil,
concrete and rock, and metals and cardboard. This in total accounts for approximately 80% to 85%
of the mixed material, leaving the rest as waste product for Petitioner to dispose of at a local landfill.
The following is the composition of its manufactured products line. Wood accounts for 30%
of its materials flow. Soil accounts for 20% of its materials flow. Metal accounts for 15% of its
materials flow. Cardboard accounts for 5% of its materials flow. Rock and concrete account for 10%
of its materials flow.
Of Petitioner's products, metals and cardboard are sold directly to secondary recyclers.
Petitioner has an agreement with the Town of Islip where it provides them with wood chips. It
donates the soil to the Town of North Hempstead for use as cover for its landfill.
Section 1115(a)(12) of the Tax Law exempts "[m]achinery or equipment for use or
consumption directly and predominantly in the production of tangible personal property, . . . for sale
. . .by manufacturing, processing. . . ." (Emphasis supplied).
Regulation section 528.13(c) provides 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 casual 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

-2­
TSB-A-90(58)S
Sales Tax
December 24, 1990

(iv)

be used to place the product to be sold in the package in which it will enter the stream
of commerce.

Machinery or equipment is used predominantly in production, if over 50 percent of its use
is directly in the production phase of a process.
In Lindemann Recycling Equipment, Inc., Adv Op Comm T & F, January 31, 1989, TSB-A­
89(3)S it was held that a person engaged in the processing of scrap material for sale was engaged in
"processing" within the meaning of section 1115(a)(12) of the Tax Law. Hydraulic guillotines,
alligator sheers, baling presses, turnings crushers and special devices for breaking scrap to change
its condition from unusable to usable materials for remelting purposes were held to qualify as being
used directly in production. Petitioner's activities in the instant case are similar to those for which
an exemption was allowed in the aforesaid opinion.
Accordingly, if machinery and equipment is used by Petitioner directly and predominantly
(more than 50%) to process wood, paper, cardboard and metal which will be sold, such machinery
and equipment will qualify for exemption under section 1115(a)(12) of the Tax Law.
Because Section 1115(a)(12) is limited only to machinery and equipment used to produce
a product for sale, only that machinery and equipment used by Petitioner more than 50% of the time
to produce cardboard and metal for sale qualifies for the exemption.

DATED: December 24, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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