Which pieces of a salt mine's equipment — conveyors, elevators, screening, mining machinery, roof bolts, and power-distribution gear — qualify for New York's production-machinery sales tax exemption?

Plain-English summary

A company (Akzo Salt) operates a sub-surface salt mine, selling the salt it extracts. It asked which parts of its operation qualify for New York's production-machinery exemption under Tax Law § 1115(a)(12), which exempts machinery or equipment used directly and predominantly in producing tangible personal property for sale by manufacturing, processing, mining, or extracting. Salt mining counts as production, so the question is which specific items are "directly and predominantly" in that process.

The Department drew these lines:

• Conveyor belt systems, elevators, and screening systems — EXEMPT. These move mined salt from the mining area to the elevators, lift it to the surface, and screen it for sizing — all part of producing salt for sale. They qualify under § 1115(a)(12). (Installation labor would be subject to local sales tax unless the installation is a capital improvement.)
• Roof bolts — TAXABLE. Bolts that reinforce the mine's ceiling ("roof") reinforce the realty, not the production process, so they don't qualify.
• Electrical wiring/switches attached to exempt machinery — EXEMPT (to a point). Electrical parts actually attached to a qualifying machine, and the wire running from that machine back to the power source (panel box) — including switches — take on the identity of the exempt machinery and share its exemption. Components before the power source are not used directly in production and don't qualify (though installing them may be a nontaxable capital improvement to real property).
• Power-distribution equipment (stations, substations, relay units, wiring/cable, transformers, switches) — generally TAXABLE. These transmit electricity throughout the mine rather than being used directly and predominantly in production, so they generally don't qualify (citing Gernatt Asphalt Products, Inc., TSB-A-85(64)S).
• Salt-mining machinery — EXEMPT. Machinery (purchased or leased) used to mine salt and to prepare the mine for normal mining operations is used directly and predominantly to produce salt for sale by mining, and qualifies under § 1115(a)(12).

What this means for you

Miners, quarries, and manufacturers claiming the production exemption

The exemption tracks the material through production. Equipment that acts on, handles, conveys, or processes the product being sold — here, the mining machines, conveyors, elevators, and screens — qualifies. Equipment that supports the facility or distributes utilities — roof bolts reinforcing the rock, and the substations/transformers/cabling that carry power around the site — generally does not, because it isn't used directly and predominantly in production.

The electrical dividing line to remember

New York draws the line at the power source (panel box) serving a qualifying machine. Wiring and switches from the machine back to its panel box ride the machine's exemption; the broader distribution network feeding those panels does not. And when non-qualifying electrical work is a capital improvement to real property, its installation charge isn't taxed even though the components themselves aren't exempt.

Accountants and tax professionals

This is a textbook § 1115(a)(12) "directly and predominantly" application in a mining context, and a useful map of the exempt/taxable boundary: production line (conveyors, elevators, screening, mining machinery) exempt; structural reinforcement (roof bolts) and general power distribution (substations, transformers, feeder cable) taxable; attached-to-machine wiring exempt; and installation labor separately analyzed under the capital-improvement rules.

Common questions

Q: Do a salt mine's conveyors, elevators, and screening equipment qualify for the production exemption?
A: Yes. The Department held they're used directly and predominantly in producing salt for sale by mining, so they qualify under § 1115(a)(12).

Q: Are roof bolts exempt?
A: No. Roof bolts reinforce the mine's ceiling — the realty — rather than being used directly in production, so they're taxable.

Q: Is the mine's electrical equipment exempt?
A: It depends where it sits. Wiring and switches attached to a qualifying machine and running back to its power source (panel box) share the machine's exemption. General power-distribution gear — substations, transformers, relay units, feeder cable — is taxable because it transmits electricity rather than being used directly in production.

Q: What about installation labor?
A: Installation of exempt machinery is subject to local sales tax unless the installation is a capital improvement. A charge for an installation that becomes a capital improvement to real property is not subject to sales or use tax.

Q: Does the mining machinery itself qualify?
A: Yes. Machinery used to mine the salt and to prepare the mine for normal mining operations is used directly and predominantly in production and qualifies under § 1115(a)(12), whether purchased or leased.

Q: Can another mining company rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Tax Law § 1115(a)(12) (exemption for machinery or equipment used directly and predominantly in production for sale by manufacturing, processing, mining, or extracting)
• Gernatt Asphalt Products, Inc., Adv Op, St Tx Comm, TSB-A-85(64)S (power-distribution equipment not used directly in production)
• New York State Department of Taxation and Finance Publication 852 (9/86) (sales tax information for manufacturers)

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_8s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (8) S
Sales Tax
January 25, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920831C

On August 31, 1992 a Petition for Advisory Opinion was received from Akzo Salt, Inc., P.O.
Box 352, Clarks Summit, Pa. 18411.
The issues raised by Petitioner, Akzo Salt, Inc., are:

1. Whether conveyor belt systems, elevator shafts, screening systems, other related
   equipment and accessories such as roof bolts, electrical wiring and switches qualify for the
   exemption provided under Section 1115(a)(12) of the Tax Law.
2. Whether items of power equipment such as stations, substations, relay units, wiring and
   cables, transformers and switches qualify for the exemption provided under Section 1115(a)(12) of
   the Tax Law.
3. Whether machinery which is used to mine salt qualifies for the exemption provided under
   Section 1115(a)(12) of the Tax Law.
   Petitioner operates a sub-surface mine for the purpose of extracting salt for sale. Petitioner's
   operations require the use of machinery and equipment for the actual mining of the salt and conveyor
   belt systems for transporting the salt from newly mined locations to elevators which transport the
   salt to the surface. After the salt is brought to the surface it is processed through Petitioner's
   screening system prior to being graded. During the mining process electric power is delivered to a
   substation which in turn delivers the power to various locations throughout the mine. As the mine
   is constantly expanding Petitioner is required to extend the cabling, transformers and power units
   on a regular or as needed basis.
   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
   ... mining or extracting ....

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TSB-A-93 (8) S
Sales Tax
January 25, 1993
(c) Fuel, gas, electricity, .... and steam, and gas, electric ... and steam service of
whatever nature for use or consumption directly and exclusively in the production of
tangible personal property ... for sale by manufacturing, processing ... mining,
extracting ... shall be exempt from the taxes imposed under subdivisions (a) and (b)
of section eleven hundred five and the compensating use tax imposed under section
eleven hundred ten.
Petitioner's conveyor belt system is located within the mine and is used for the purpose of
transporting mined salt from the mining area to the elevators. The elevators transport the salt from
the subsurface mine to the surface where the salt is subject to a screening process for sizing purposes.
Accordingly, as the conveyor belt system, the elevators and the screening system are all used directly
and predominantly by Petitioner in the production of salt for sale the purchases of these items of
machinery and equipment qualify for the sales tax exemption provided under Section 1115(a)(12)
of the Tax Law. The labor to install the system would be subject to local sales tax unless such
installation constituted a capital improvement.
Petitioner uses the roof bolts for the purpose of reinforcing the ceiling or "roof" of areas
which are being or have been mined. As the roof bolts are not being used directly and predominantly
in Petitioner's production process but are used to reinforce the realty, Petitioner's purchases of the
bolts does not qualify for the sales tax exemption provided under Section 1115(a)(12) of the Tax
Law.
All electrical parts actually attached to a qualifying piece of production machinery or
equipment and the electrical wire from the production machinery and equipment to the power source
(panel box), including any switches, are deemed to assume the identity of the machinery and
equipment and are therefore eligible for the same exemption as the machinery and equipment. All
other electrical components used prior to the power source are not used directly in production and
are therefore not eligible for the production exemption. However, the installation of these materials
may constitute a capital improvement to real property. A charge for an installation which becomes
a capital improvement to real property is not subject to sales or use tax. (See, New York State and
Local Sales Tax Information for Manufacturers, New York State Department of Taxation and
Finance Publication 852 (9/86) at page 11). Accordingly, any electrical wiring attached directly to
the mining machinery or equipment and extending from the mining machinery and equipment to the
power source, including any switches, are considered to be part of such machinery and equipment
and qualify for the exemption from sales tax provided under Section 1115(a)(12) of the Tax Law.
Items of power equipment such as stations, substations, relay units, wiring and cable,
transformers and switches generally will not qualify for the exemption from sales tax provided under
Section 1115(a)(12) of the Tax Law as such items are considered to be used for the purpose of
transmitting electricity throughout Petitioner's mine and are not-considered to be used directly and
predominantly for the production of tangible personal property for sale by mining. Gernatt Asphalt
Products, Inc., Adv Op, St Tx Comm, December 5, 1985, TSB-A-85(64)S.

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TSB-A-93 (8) S
Sales Tax
January 25, 1993
Petitioner's machinery, whether purchased or leased, which is used to mine salt and to prepare
the mine for normal mining operations is considered to be used directly and predominantly to
produce tangible personal property for sale by mining and qualifies for the exemption from sales tax
provided under Section 1115(a)(12) of the Tax Law.

DATED: January 25, 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.