Can a printer buy its machinery, equipment, and supplies tax-free under the production exemption?

Plain-English summary

Penny Lane Printing, Inc. was considering moving an art/composition department into a company that would produce printed matter for sale. It asked whether that company's purchases of machinery, equipment, and supplies would be subject to sales tax.

The Department said it depends on how the equipment is used -- to make goods for sale, or to perform a printing service:

• Producing your own goods for sale = exempt. When the company uses machinery, equipment, and supplies directly and predominantly (more than 50% of use) to produce its own printed matter for sale -- property not furnished by a customer -- the purchases qualify for the production exemption under Tax Law 1115(a)(12) and 1105-B and 20 NYCRR 528.13. (Publication 842 confirms composition and typography equipment can be exempt production equipment.)
• Printing on customer-furnished property = taxable service. When the company uses the equipment and supplies to print or imprint on tangible personal property furnished by or on behalf of a customer, it is performing a taxable service under Tax Law 1105(c)(2) -- not producing property for sale. In that case the machinery, equipment, and supplies don't qualify for the exemption and are taxable under Tax Law 1105(a).

What this means for you

Printers and print shops

The production exemption turns on whose property you're printing on. If you're manufacturing your own product to sell (business cards you supply and sell, your own printed products), the equipment and supplies can be exempt. If you're providing a printing service on the customer's own stock (printing a form letter on the customer's letterhead), that's a taxable service, and equipment/supplies dedicated to it are taxable.

The "directly and predominantly" test

Exempt production equipment must be used more than 50% directly in the production phase. Administration and distribution uses don't count. Track how the equipment is actually used.

Use the right certificate

For exempt production purchases, give suppliers an exempt use certificate. Don't apply it to equipment used mainly to perform taxable printing services on customer property.

Common questions

Q: I run a print shop -- is all my equipment exempt?
A: No. It's exempt when used directly and predominantly to produce your own goods for sale, but taxable when used to print on property your customer furnishes (a taxable service under section 1105(c)(2)).

Q: What's the difference between "producing goods for sale" and a "printing service"?
A: If you supply and sell the finished item, you're producing goods for sale. If the customer furnishes the stock and you print on it, you're performing a taxable printing service.

Q: Does the exemption cover supplies and short-life parts too?
A: Yes -- section 1105-B and 20 NYCRR 528.13 extend the exemption to parts, tools, and supplies used directly and predominantly in production for sale.

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 1105(c)(2) (sales tax on printing/imprinting services on customer-furnished property)
• Tax Law section 1115(a)(12) (exemption for machinery/equipment used directly and predominantly in production for sale)
• Tax Law section 1105-B (exemption for parts, tools, and supplies used in production)
• 20 NYCRR 528.13 and 527.4 (production machinery/supplies; printing services)
• NYS Dept. of Taxation and Finance Publication 842 (sales tax information for printers)

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_35s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-93 (35)S
Sales Tax
May 26, 1993

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930202B

On February 2, 1993 a Petition for Advisory Opinion was received from Penny Lane Printing,
Inc., 1471 W. Henrietta Rd., Avon, N.Y. 14414.
The issue raised by Petitioner, Penny Lane Printing Inc., is whether purchases of supplies and
equipment are subject to State and local sales tax when such purchases are made by the
art/composition department of a printing corporation.
Presently, the art/composition department in question exists in another company that does
not produce a product for sale. Petitioner is considering transferring the art/composition department
to a company which will produce printed matter for sale.
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:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
(2) Producing, fabricating, processing, printing or imprinting tangible personal property,
performed for a person who directly or indirectly furnishes the tangible personal property, not
purchased by him for resale, upon which such services are performed."
Section 1105-B of the Tax law states, in part: "Reduced tax rates on certain parts, tools,
supplies and services relating to tangible personal property used or consumed in production.- - (a)
Notwithstanding any other provisions of this article, but not for purposes of the taxes imposed by
section eleven hundred seven or eleven hundred eight or authorized pursuant to the authority of
article twenty-nine of this chapter, the taxes imposed by subdivision (a) of section eleven hundred
five on the receipts from the retail sales of parts with a useful life of one year or less, tools and
supplies for use or consumption directly and predominantly in the production of tangible personal
property .... for sale by manufacturing, processing ... shall be paid at the rate of two percent for the
period commencing September first, nineteen hundred eighty and ending February twenty-eighth,
nineteen hundred eighty-one, and such retail sales shall be exempt from such tax on and after March
first, nineteen hundred eighty-one."

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Sales Tax
May 26, 1993
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
manufacturing, processing, .... but not including parts with a useful life of one year
or less or tools or supplies used in connection with such machinery, equipment or
apparatus."
Section 527.4 of the Sales and Use Tax Regulations states, in part: "Sale of
services of Producing, fabricating, processing. printing or imprinting. [Tax Law,
§1105(c)(2)]
(a) Imposition. (1) Section 1105(c)(2) of the Tax Law imposes on
the receipts from services of producing, fabricating, processing,
printing or imprinting tangible personal property, performed for a
person who directly or indirectly furnishes the property.
(2) The enumerated services are not taxable when:
(i) purchased for resale; or
(ii) performed on property intended for resale.
(3) Furnishing "indirectly" means that items of tangible
personal property are supplied to the person performing the
enumerated services by an agent or other person on behalf of the
customer; or when the items of tangible personal property are not
supplied by the person performing the enumerated services at the
direction of the customer.
(4) When such services are combined with the sale of
property by the person performing the services, the entire transaction
is subject to tax as a retail sale.
(e) Printing and imprinting. (1) The services of printing and imprinting tangible
personal property furnished by or on behalf of a customer of the printer are taxable
under section 1105(c)(2) of the Tax Law; the service of printing or imprinting
tangible personal property which is sold by the person performing the service in
conjunction with the sale is taxable as part of the sale under section 1105(a) of the
Tax Law.
Example 1:

A printer prints a form letter on letterhead stationery
furnished by his customer. The printer's services are
taxable.

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Sales Tax
May 26, 1993
Example 2:

A firm addresses envelopes furnished by its customer.
The addressing services are a taxable printing service.

Example 3:

A printer prints business calling cards for his
customer, supplying both the card and the service of
printing. This is the sale of tangible personal
property, the total amount being taxable as such.

Example 4:

A corporation has its bonds printed by a printer, and
has its supplier furnish the embossed paper to the
printer. The printer's services are taxable, whether or
not possession of the embossed paper has passed to
the corporation, and regardless of the fact that the
embossed paper has been supplied to the printer by a
third party, on behalf of the corporation.

(f) Resale. (1) When the services enumerated in this section are rendered on
property held for resale, the services are not taxable."
Section 528.13 of the Sales and Use Tax Regulations states, in part:
"Machinery and equipment used in production; ... 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 useful life of more than one year) used or
consumed directly and predominantly in the
production for sale of tangible personal property, ...
by manufacturing, processing, ....
(iii)(a) Parts with a useful life of one year or less,
tools or supplies for use or consumption directly and
predominantly in the production of tangible personal
property, ... for sale by manufacturing, processing ,
....
(2)

Exemption from taxes imposed by localities other than New York City.

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TSB-A-93 (35)S
Sales Tax
May 26, 1993
(i) There is an exemption from all local sales and use taxes, other than the
taxes imposed in New York City, for all sales and uses of:
(a) tangible personal property used or consumed directly and
predominantly in the production for sale of tangible personal
property, ... by manufacturing, processing, ...
(4) An exempt use certificate is used to claim the exemptions from the State
and local sales taxes described in this subdivision.
(b) Production. (1) The activities listed in paragraph (a)(1) of this section are
classified as administration, production or distribution.
(i)
Administration includes activities such as sales
promotions, general office work, credit and collection, purchasing,
maintenance, transporting, receiving and testing of raw materials and
clerical work in production such as preparation of work, production
and time records.
(ii) Production includes the production line of the plant
starting with the handling and storage of raw materials at the plant
site and continuing through the last step of production where the
product is finished and packaged for sale.
(iii) Distribution includes all operations subsequent to
production, such as storing, displaying, selling, loading and shipping
finished products.
(2) The exemption applies only to machinery and equipment used directly
and predominantly in the production phase ....
(c) Directly and predominantly. (1) 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 causal 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
(iv) be used to place the product to be sold in
the package in which it will enter the stream of
commerce.

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Sales Tax
May 26, 1993
(4) Machinery or equipment is used predominantly in production, if over 50 percent
of its use is directly in the production phase of a process."
New York State Department of Taxation and Finance Publication 842 (2/87), New York
State and Local Sales Tax Information for Printers, at page 18, states in part: " ... composition,
typography (including advertising typography), and progressive proofs are considered equipment and
will be exempt from the New York State 4% Sales and Use Tax and any sales and use tax imposed
by a locality outside of New York City, provided such equipment is used or consumed directly and
predominantly in the production of tangible personal property for sale."
In the instant matter, when Petitioner's company purchases machinery, equipment or supplies
for use in printing or imprinting tangible personal property, the machinery, equipment or supplies
may qualify for the exemption from tax provided under Sections 1115(a)(12) and 1105(B) of the Tax
Law and Section 528.13 of the Sales and Use Tax Regulations.
Where Petitioner's company performs the service of printing or imprinting on items of
tangible personal property which will be sold by it and which will not be furnished directly or
indirectly by a customer, it will be considered to be using the machinery, equipment and supplies for
the purpose of producing tangible personal property for sale. Where Petitioner's company uses the
machinery, equipment and supplies directly and predominantly (more than 50 percent of use) to
produce tangible personal property for sale, the machinery, equipment and supplies will qualify for
the exemption from tax provided under Sections 1115(a)(12) and 1105(B) of the Tax Law, and
Sections 528.13(a)(1)(i) and (2)(1)(i) of the Sales and Use Tax Regulations.
However, if Petitioner's company uses the machinery, equipment or supplies directly and
predominantly to perform the service of printing or imprinting tangible personal property furnished
by or on behalf of a customer, will be using the machinery or equipment to perform a printing service
taxable under Section 1105(c)(2) of the Tax Law and not to produce tangible personal property for
sale. (See Section 527.4 of the Sales and Use Tax Regulations) Accordingly, in this instance, its
purchase of the machinery, equipment or supplies would not qualify for the exemption provided
under Section 1115(a)(12) or Section 1105(B) of the Tax Law but would be subject to the tax
imposed under Section 1105(a) of the Tax Law.

DATED: May 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.