Are camera-ready mechanical drawings sold to garment and textile manufacturers -- used to make the silkscreens that print designs onto fabric -- exempt production equipment, or taxable tangible personal property?

Subject

, is whether mechanical drawings used in the textile industry are considered production equipment for purposes of the New York State and local sales and use taxes, and, therefore, exempt from sales tax.

What this means for you

A firm produced "mechanical drawings" -- camera-ready artwork -- for garment and textile manufacturers, who used them to make silkscreens for printing designs onto fabric (and also for hang tags, wrapping paper, and box/bag designs). The customer keeps and can reuse the mechanical drawing for future production runs.

New York exempts machinery and equipment used or consumed directly and predominantly (meaning over 50% of its use) in the production of tangible personal property for sale. The Department had already recognized, in its own guidance for printers (Publication 842), that artwork, illustrations, layouts, drawings, mechanicals, and similar items purchased by a printing company are treated as exempt "equipment" when used directly and predominantly to produce printed material for sale.

The twist here is that the customers weren't printing companies themselves -- they were garment and textile manufacturers using the drawings to produce their own printed fabric goods. The Department extended the same logic: as long as the manufacturer-customer uses the mechanical drawing directly and predominantly to produce printed tangible personal property for sale, the drawing counts as exempt production equipment regardless of whether the buyer is formally a "printer." The seller doesn't have to collect sales tax, provided it receives a properly completed Exempt Use Certificate from the customer.

Q&A

Q: We sell design artwork/mechanicals to manufacturers who use them to make printed products -- do we need our customer's business to be a "printing company" for the exemption to apply?
A: No. What matters is how the customer uses the mechanical drawing -- if it's used directly and predominantly (over 50% of its use) to produce tangible personal property for sale, it qualifies as exempt production equipment, regardless of whether the buyer is a printer, a garment manufacturer, or another kind of manufacturer.

Q: What paperwork do we need to sell these items tax-free?
A: A properly completed Exempt Use Certificate from the customer, documenting that the mechanical drawings will be used directly and predominantly in producing tangible personal property for sale.

Q: Does it matter that the customer can reuse the drawing for later production runs?
A: The opinion notes this as supporting evidence that the drawing functions as durable production equipment (an investment the customer keeps and reuses), not as a one-off consumable -- consistent with treating it as exempt "machinery or equipment" rather than a supply.

Citations

• Tax Law § 1115(a)(12) -- exempts machinery/equipment used directly and predominantly in producing tangible personal property for sale.
• 20 NYCRR 528.13 -- implements the production-equipment exemption, defining "directly" and "predominantly" (over 50% of use in the production phase).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_23s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-95 (23)S
Sales Tax
June 28, 1995

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941031E

On October 31, 1994, a Petition for Advisory Opinion was received from The Design Council
Ltd., 462 7th Avenue, New York, New York 10001.
The issue raised by Petitioner, The Design Council Ltd., is whether mechanical drawings
used in the textile industry are considered production equipment for purposes of the New York State
and local sales and use taxes, and, therefore, exempt from sales tax.
Petitioner is engaged in producing mechanical drawings for its customers, who are
predominately garment and textile manufacturers. The mechanical drawings, which are camera
ready artwork, are used to produce a silkscreen or other printing process. Using the silkscreen, by
a technique of producing an image on a printing surface, the mechanical drawing's image is printed
on fabric. Customers also use the mechanical drawings to produce hang tags, wrapping paper and
box and bag designs.
Petitioner states that in the textile industry, printing the fabric is the process by which
silkscreen, produced from the mechanical drawing, creates the desired effect on the printed material.
The mechanical drawing is not incidental or expendable to the creative process. Without the
mechanical drawing, the image cannot be printed onto the fabric. When the process started by the
active and causal role of the mechanical drawing is complete, tangible personal property is produced.
When purchased, the mechanical drawings are the customer's property and may be reused.
The mechanical drawings represent an investment by the customer. If their design is successful,
increased production runs will be required. The mechanical drawings permit the customer to begin
another production run, increasing the customer's ability to sell products which are tangible personal
property in nature.
Section 1115 of the Tax Law provides, in part, as follows:
Sec. 1115. 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:
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(12) Machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property, gas, electricity,
refrigeration or steam for sale, by manufacturing, processing, generating, assembling,

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TSB-A-95 (23)S
Sales Tax
June 28, 1995
refining, mining or extracting, or telephone central office equipment or station
apparatus or comparable telegraph equipment for use directly and predominantly in
receiving at destination or initiating and switching telephone or telegraph
communication, 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. This
exemption shall include all pipe, pipeline, drilling rigs, service rigs, vehicles and
associated equipment use in the drilling, production and operation of oil, gas, and
solution mining activities to the point of sale to the first commercial purchaser.
Section 528.13 of the Sales and Use Tax Regulations provides, in pertinent part, as follows:
Reg. Sec. 528.13. Machinery and equipment used in production; telephone and
telegraph equipment; parts, tools and supplies--(Tax Law, Sec. 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 1105 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, gas, electricity, refrigeration or steam, by
manufacturing, processing, generating, assembling, refining, mining or
extracting. (This exemption includes all pipe, pipeline, drilling rigs, service
rigs, vehicles and associated equipment used in the drilling, production and
operation of oil, gas and solution mining activities to the point of sale to the
first commercial purchaser.)
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(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 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
(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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TSB-A-95 (23)S
Sales Tax
June 28, 1995
(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 (12/93), New York
State and Local Sales Tax Information for Printers, at page 27 states that the purchases by a printing
company of "artwork, illustrations, layouts, drawings, paintings, mechanicals, overlays designs,
photographs, pasteups, and onionskin" are "equipment" and, therefore, are exempt from State and
local sales and use taxes if such equipment is used or consumed directly and predominantly to
produce printed material for sale. (emphasis added)
In the instant case Petitioner sells mechanical drawings to customers for their use in preparing
a silkscreen necessary for printing the designs on garments produced for sale. Customers may also
use the mechanical drawings to produce hang tags, wrapping paper and box and bag designs.
Pursuant to Publication 842, supra, the purchases of mechanicals by a printing company are exempt
from State and local sales and use taxes if such mechanicals are used or consumed directly and
predominantly to produce printed material for sale. Accordingly, provided the mechanicals are used
or consumed by Petitioner's customers, who are predominately garment and textile manufacturers
and not printing companies per se, directly and predominantly (over 50 percent of its use is directly
in the production phase) to produce the printing on tangible personal property produced for sale, such
mechanicals would be deemed production equipment pursuant to Section 1115(a)(12) of the Tax
Law and Section 528.13 of the Sales and Use Tax Regulations. Therefore, the sale by Petitioner of
such mechanicals would be exempt from the sales and use taxes imposed under Articles 28 and 29
of the Tax Law. Therefore Petitioner would not be required to collect sales tax provided it receives
a properly completed Exempt Use Certificate from its customers.

DATED: June 28, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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