Is renting out a topsoil-screening machine subject to sales tax, or exempt as production equipment?

Plain-English summary

A partnership rents out a portable "power screen" -- a machine that screens (sifts) topsoil, separating rocks, sticks, and debris from the dirt. Contractors take it to job sites, screen the soil, and then sell the finely sifted topsoil to landscapers and homeowners. The owner asked whether the rental receipts are exempt as production equipment under Tax Law 1115(a)(12).

The Department said it depends on how the contractor uses the machine:

• Renting equipment is normally taxable. A rental is a taxable retail sale (Tax Law 1101(b)(4), 1101(b)(5), 1105(a)).
• Exempt if used to mine topsoil for sale. The production exemption in Tax Law 1115(a)(12) (which covers machinery used directly and predominantly in mining or extracting for sale) applies if the contractor uses the machine more than 50% to dig up topsoil at the jobsite, screen it, and sell it for use elsewhere. Then the lessor's rental receipts are not taxable, and the lessor should get a Form ST-121 Exempt Use Certificate from the contractor.
• Taxable if the soil is used on-site. If more than 50% of the screened topsoil is used at the contractor's own jobsite (not sold for use elsewhere), the machine isn't being used for mining/extracting for sale, so the rental receipts are taxable under Tax Law 1105(a).

What this means for you

Equipment rental businesses

Whether your rental is taxable can hinge on how your customer uses the equipment. If the renter uses it directly and predominantly to produce a product for sale (here, mining and selling topsoil), the rental can be exempt -- but you must collect a Form ST-121 Exempt Use Certificate to support it. Without that certificate, charge tax.

Contractors renting production equipment

To claim the exemption, you need to actually be producing goods for sale with the machine more than half the time. Screening soil you then use on your own job is not "mining for sale" and doesn't qualify.

The "for sale" and "predominantly" requirements are strict

The exemption requires the produced item to be sold and the equipment to be used more than 50% directly in that production. Mixed use can tip a transaction into taxable territory.

Common questions

Q: I rent out screening equipment -- is the rental taxable?
A: Generally yes, unless the renter uses it predominantly to mine/extract topsoil for sale off-site, in which case it's exempt with a Form ST-121.

Q: What if the contractor uses most of the screened soil on the same job?
A: Then it isn't mining for sale, so the exemption doesn't apply and the rental is taxable.

Q: What documentation supports the exemption?
A: A properly completed Form ST-121 (Exempt Use Certificate) from the contractor.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner and the facts described. Treat it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(a) (sales tax on retail sales of tangible personal property)
• Tax Law section 1101(b)(4) and 1101(b)(5) (retail sale; rental/lease is a sale)
• Tax Law section 1115(a)(12) (exemption for machinery used directly and predominantly in production, including mining/extracting, for sale)
• 20 NYCRR 528.13 (production machinery exemption)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (30)S
Sales Tax
April 26, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930107A

On January 7, 1993 a Petition for Advisory Opinion was received from Thomas Crawford,
181 South Main Street, Canandaigua, New York 14424.
The issue raised by Petitioner, Thomas Crawford, is whether the receipts from the rental of
a "power screen", a top soil screening machine, is exempt from sales tax under the provisions of
Section 1115(a)(12) of the Tax Law.
The "power screen" is a portable machine which can be taken to construction job sites. The
owner of the "power screen", a partnership, rents the machine to contractors for use at the job site.
The contractors load dirt and other debris from the job site into the machine. The machine is then
used to sift the materials. The rocks, stones, sticks and other debris are separated from the dirt. The
contractor then sells the resulting finely sifted soil to landscapers, homeowners, etc.
Section 1101 of the New York Tax Law states, in part:
Definitions.- ­
(b) When used in this article for the purposes of the taxes
imposed by subdivisions (a), (b), (c) and (d) of section eleven
hundred five and by section eleven hundred ten, the following terms
shall mean:
(4) Retail sale. (i) A sale of tangible personal property to any
person for any purpose,
(5) Sale, selling or purchase. Any transfer of title or
possession or both, exchange or barter, rental, lease or license to use
or consume (including, with respect to computer software, merely the
right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for
a consideration or any agreement therefor.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.- - ... there is hereby imposed and there shall be paid
a tax ... upon:

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Sales Tax
April 26, 1993
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
Section 1115 of the Tax Law states, in part:
Exemptions from sales and use taxes. - - (a) Receipts from the following
shall be exempt from the tax on retail sales imposed under subdivision (a) of section
eleven hundred five and the compensating use tax imposed under section eleven
hundred ten:
(12) Machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property, ... for sale, by ...
mining or extracting, ...
Section 528.13 of the Sales and Use Tax Regulations states, in part:
Machinery and equipment used in production; telephone and telegraph
equipment; parts, tools and supplies. [Tax Law, §1115(a)(12)] (a) Exemption.
(1) Exemption from statewide tax. An exemption is allowed from the tax
imposed under subdivisions (a) and (c) of section 1005 [sic] of the Tax Law, and
from the compensating use tax imposed under section 1110 of the Tax Law, for
receipts from sales of the following:
(i) Machinery or equipment (including parts with a life of
more than one year) used or consumed directly and predominantly in
the production for sale of tangible personal property, ... by ... mining
or extracting ....
Generally, the rental or lease of a "power screen" will be considered to be a retail sale as
defined under Sections 1101(b)(4) and (5) of the Tax Law. However, in the instant matter the "power
screen" will qualify for the exemption from sales tax under the provisions of Section 1115(a)(12)
of the Tax Law and Section 528.13 of the Sales and Use Tax Regulations provided the lessee
(contractor) uses the machine predominantly (more than 50% of use) in a mining or extracting
operation to produce topsoil for sale. The contractor will be considered to be mining or extracting
when the topsoil at the contractor's jobsite is dug up, processed through the "power screen" and then
sold to landscapers, home owners or others by the contractor for removal and use by the purchaser
at a location or locations other than at the contractor's jobsite. In such an instance, the lessor's
receipts from the rental or lease of the "power screen" will not be subject to the tax imposed under
Section 1105(a) of the Tax Law. The lessor should obtain a properly completed form ST-121,
Exempt Use Certificate from the lessee (contractor) as substantiation that the lease or rental
transaction was exempt from sales and use tax.
In any instance where more than 50% of the topsoil produced by the "power screen" is used
by the contractor or purchaser for some purpose at the contractor's jobsite location, the contractor
will not be considered to have used the "power screen" for mining or extracting. Accordingly, the
rental or lease receipts in such an instance will not qualify for the exemption provided under

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Sales Tax
April 26, 1993
Section 1115(a)(12) of the Tax Law but will be subject to the tax imposed on a retail sale under
Section 1105(a) of the Tax Law.

DATED: April 26, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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