Do a cheese plant's motor control centers, motor starters, and frequency inverters qualify for the manufacturing-equipment sales tax exemption?

Subject

Whether Petitioner's motor control centers qualify for the exemption for machinery or equipment for use or consumption directly and predominantly in the production of tangible personal property for sale provided under Section 1115(a)(12) of the Tax Law.

What this means for you

A cheese manufacturer's New York plant receives high-voltage electric service that's stepped down through a main distribution system and fed to "motor control centers" (MCCs) throughout the facility. Each MCC houses motor starters and frequency inverters wired to specific pieces of production equipment -- for example, controlling the speed of dicing blades used to shred cheese to each customer's exact size specifications. Without that speed control, the plant's cheese wouldn't meet spec and wouldn't be saleable. The MCC starters also function as the last on/off safety switch to individual equipment (separate downstream switches exist too, but only the starters count as an OSHA-acceptable disconnect from the main power feed).

New York exempts machinery and equipment used "directly and predominantly" in producing goods for sale -- but by regulation, only equipment that acts on the product, has an active causal role in production, or is used in handling/packaging the product itself qualifies; equipment used only collaterally to production doesn't. The Department's own manufacturing-tax guidance (Publication 852) says electrical parts actually wired to a qualifying piece of production machinery are treated as taking on that machinery's own identity for exemption purposes, while OTHER electrical components (not tied to specific equipment) don't qualify. Because these motor starters and frequency inverters are specifically designed for, and wired directly to, individual production machines -- controlling functions integral to making a saleable product, not just a generic safety or distribution function -- they (and the motor control centers housing them) get the same exemption as the production equipment itself, as long as that equipment is used directly and predominantly (over 50%) in production.

Q&A

Q: We have specialized electrical components (starters, inverters, control panels) wired specifically to individual production machines -- do those qualify for the manufacturing exemption along with the machines themselves?
A: Yes, per this opinion -- components designed and wired specifically to an individual piece of qualifying production equipment "assume the identity" of that machinery for exemption purposes under Tax Law § 1115(a)(12) and 20 NYCRR § 528.13(c).

Q: What about our general electrical distribution equipment (transformers, main switchgear) that feeds power throughout the plant generally, not to one specific machine?
A: This opinion draws the line at equipment tied to a SPECIFIC piece of production machinery -- general distribution components not dedicated to individual production equipment are described in the Department's own guidance (Publication 852) as NOT qualifying, since they aren't used directly in production.

Q: Does it matter if some of these components also serve a safety function (like an emergency shutoff)?
A: This opinion doesn't treat the safety function as disqualifying -- the starters here serve both a production-control role (enabling speed/process adjustments essential to a saleable product) and a safety role, and still qualify because of their direct wiring to and integration with the production equipment.

Citations

• Tax Law § 1115(a)(12) -- exempts machinery and equipment used or consumed directly and predominantly in producing tangible personal property for sale, excluding short-lived parts, tools, or supplies.
• 20 NYCRR § 528.13(c) -- defines "directly" (acting on the product, having an active causal role in production, or handling/packaging the product) and excludes equipment used only collaterally to production.
• New York State and Local Sales Tax Information for Manufacturers, Publication 852 (9/86) -- states that electrical parts actually attached to qualifying production machinery assume that machinery's exempt identity, while other electrical components don't qualify.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (17)S
Sales Tax
April 28, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940215A

On February 15, 1994 a Petition for Advisory Opinion was received from Leprino Foods
Company, 1830 W. 38th Avenue, Denver, CO 80211-2200.
The issue raised by Petitioner, Leprino Foods Company, is whether Petitioner's motor control
centers qualify for the exemption for machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property for sale provided under Section
1115(a)(12) of the Tax Law.
The electrical distribution system at Petitioner's Waverly, New York plant begins with a
34,500 volt service delivered to the facility by means of air switches and transformers located at the
facility. The power, supplied by Penn Electric, enters the building through large conduit runs and
goes directly to the main distribution system.
This distribution center is where the power is broken down to "usable" electric. The area is
broken down into two sections, north and south. Main electric from these areas enter various
"buckets" each assigned to feed specific areas of the facility. Power feeds are then distributed
throughout the facility and feed various motor control centers (MCC's).
The MCC's house motor starters and frequency inverters designed to be used specifically for
individual pieces of equipment. These components vary to conform to production equipment
requirements and are an integral and direct part of the equipments' ability to produce to standards
required. These units are also required to insure a safe means of operation. The MCC starters are
the last positive on/off switch from the main power source to the equipment without shutting down
either the entire north or south power feeds.
A motor starter is an electrical unit, which is designed solely and used exclusively for
controlling the operation of a specific piece of equipment. Starters are available in various sizes and
must be specifically designed to supply proper voltage to the process equipment, which will in turn
assure proper operation and protection.
Frequency inverters are at times housed in MCC units and are required to ensure that variable
speed control is available for specifics of the operation. Typical items that need control from
systems like these are liquid flows, pump speeds, agitator speeds, etc. For example, Petitioner uses
different dicing blades on the dicers. These blades enable Petitioner to produce shredded cheese to
customer's specifications (different sizes of shredded cheese). The speed of the dicer must be
modified according to which blade is being used. The frequency inverters enable Petitioner's
production workers to control this. Without this ability, Petitioner's cheese would not be saleable.

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TSB-A-94 (17)S
Sales Tax
April 28, 1994
Even though the inverters supply a more exacting or variable process control, both are
integral to Petitioner's ability to not only produce a product but also process, package and maintain
that product as a saleable commodity. Also, as equipment is modified, upgraded or replaced, the
starters and inverters must be resized.
Continuing the electric flow, conduits are run directly to the individual pieces of equipment
from either the starters or inverters. In this conduit line is an on/off switch or box in close proximity
to the user piece of equipment. The sole intent of this switch is safety. It affords in emergency
situations to shut down the equipment rapidly. This switch is not an acceptable break from the main
power source per OSHA regulations. Only the starters are acceptable options.
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,
generating,..., 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 528.13(c) of the Sales and Use Tax Regulations states, in part:
(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,

(ii)
be sold, or

have an active casual relationship in the production of the product to

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.
(2)
Usage in activities collateral to the actual production process is not
deemed to be used directly in production.
All electrical parts actually attached to a qualifying piece of production machinery or
equipment are deemed to assume the identity of such machinery and equipment and are therefore
entitled to the same exemption as the machinery and equipment. All other electrical components are
not used directly in production and therefore are not entitled to the exemption contained in Section

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TSB-A-94 (17)S
Sales Tax
April 28, 1994
1115(a)(12) of the Tax Law. (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).
In the instant matter, the motor starters and the frequency inverters which are designed to be
used specifically with individual pieces of machinery and equipment and which are directly wired
to the individual pieces of machinery or equipment are considered to assume the identity of such
machinery or equipment and are entitled to the same exemption afforded the machinery or
equipment. Accordingly, where the machinery or equipment is used directly and predominantly
(more than 50 %) in Petitioner's process of producing tangible personal property consisting of food
for sale, Petitioner's purchases of such motor starters and frequency inverters will qualify for the
exemption from tax provided under Section 1115(a)(12) of the Tax Law and Section 528.13(c) of
the Sales and Use Tax Regulations. Petitioner's purchase of the motor control centers which house
the motor starters and frequency inverters will also qualify for the exemption provided under Section
1115(a)(12) of the Tax Law and Section 528.13(c) of the Sales and Use Tax Regulations.

DATED: April 28, 1994

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

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