Are specialized roll-off containers a waste hauler buys to collect hot ash for a manufacturer's landfill-capping-material production exempt from sales tax as production equipment?

Plain-English summary

Jet Sanitation Service Corp., a waste-removal contractor, purchased specially customized roll-off containers designed to collect and drain hot ash -- standard open containers wouldn't work for this material and would violate regulations. Jet Sanitation uses the containers to collect hot ash generated by one company (jointly owned by a municipality and a private corporation) and hauls it to a third-party manufacturer that uses the ash exclusively to produce landfill capping material. Jet Sanitation bills the ash generator for collection, hauling, dump fees, and related services. It asked whether the specialized containers qualify for New York's sales tax exemption for production equipment.

The Department said no. To qualify for the manufacturing/production exemption, equipment must be used directly in the production phase of a process -- acting on the material to help form the finished product, not just gathering or transporting raw material to the plant where production will happen. Jet Sanitation's containers only collect the ash at the generator's site and haul it to the manufacturer's facility; the containers themselves don't act on or change the ash in any way that contributes to making landfill capping material. Equipment used to transport raw material to a plant for later processing isn't "directly" involved in production under New York law, even though the collected material is genuinely destined for a manufacturing process once it arrives. So the containers are specialized collection and transport equipment, not exempt production machinery, and their purchase is fully taxable.

What this means for you

Waste haulers and material-collection contractors serving manufacturers

Even highly specialized, custom-built equipment doesn't qualify for the production exemption just because the material you collect ultimately feeds into someone else's manufacturing process. The exemption is limited to equipment that acts on the material within the actual production phase -- collection and transportation to the plant doesn't count, no matter how customized the equipment is for that specific material.

Manufacturers relying on third-party haulers to supply raw material

If you want your own equipment used in receiving and handling raw material at your own plant site to qualify for the production exemption, that's a separate analysis from your hauler's collection equipment -- your hauler's containers used at the generator's site, before the material reaches your facility, generally won't qualify regardless of your own production exemption status.

Accountants and tax professionals

This ruling applies the same 20 NYCRR § 528.13(b)(1)(ii)/(c) framework and the St. Joe Resources v. State Tax Commission precedent as its companion ruling, TSB-A-98(19)S (the same petitioner's cardboard compactors) -- confirming that collection/transport equipment used by a waste hauler, even where the collected material is destined for a buyer's manufacturing process, categorically falls outside the production exemption regardless of the specific material or industry involved.

Common questions

Q: Does custom-designing equipment for a specific raw material make it exempt production equipment?
A: No. What matters is whether the equipment acts directly on the material during the actual production phase, not how specialized or customized it is for handling that material.

Q: Would the ash-generating company's own on-site handling equipment be treated differently?
A: Possibly -- this ruling addresses only the hauler's collection containers used to transport ash off the generator's site; equipment used directly within a manufacturer's own production line is a separate, fact-specific question.

Q: Is this the same issue as the compactor ruling for the same company?
A: Yes -- this ruling and TSB-A-98(19)S, issued to the same petitioner, both apply the identical collection-versus-production distinction to different equipment (roll-off containers here, cardboard compactors there).

Q: Does this ruling apply to my collection or hauling equipment?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Whether specific equipment is used "directly" in production depends on your own operations.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(11)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
PETITION NO. S970811A

ADVISORY OPINION

On August 11, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Jet Sanitation Service Corp., 228 Blydenburgh
Road, Central Islip, New York 11722-5006.
The issue raised by Petitioner, Jet Sanitation Service Corp., is whether
roll-off containers purchased for the exclusive use of the collection of hot ash
used in manufacturing are exempt from sales and compensating use tax.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner purchased containers specifically designed for the collection
of hot ash. Containers were customized for the specific job of collecting and
draining hot ash. Standard open containers would not suffice for this purpose
and would result in violation of the law. Petitioner collects hot ash generated
by Company A (a company jointly owned by a municipality and a private
corporation) which is used by a third party, Company B, exclusively for the
production of landfill capping material. Petitioner invoices Company A for the
collection and haulage of the ash, and provided copies of such invoices with the
Petition.
These invoices include charges for collection of ash, garbage
transfer, dump fees, holiday service, waiting time, and container repair.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes a tax on the receipts from every
retail sale of tangible personal property, except as otherwise provided.
Section 1115 of the Tax Law provides, in part:
(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, assembling,
refining, mining or extracting, ... 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....

-2­
TSB-A-98(11)S
Sales Tax

Section 528.13 of the Sales and Use Tax Regulations provides, in part:
(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, ...
*

*

*

(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
promotion, 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.
*

*

*

(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.
*

*

*

(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.

-3­
TSB-A-98(11)S
Sales Tax

Opinion
Petitioner is a waste removal contractor.
The invoices provided by
Petitioner show that Petitioner is receiving fees from Company A for the hauling
and dumping of ash. Company B purchases the ash for the production of the
landfill capping material.
To qualify for the manufacturing exemption, the
containers must be directly involved in the production phase of a process. Under
Section 528.13(b)(1)(ii) of the Sales and Use Tax Regulations, production
includes the production line of the plant starting with the handling and storage
of raw materials at the plant site. Petitioner picks up and transports the raw
material to Company B’s manufacturing facility. The containers do not act upon
or effect a change in the ash to form the product being sold. Equipment used to
transport raw material to a plant for processing is not directly involved in
production. (See Matter of St. Joe Resources v State Tax Commn., 72 NY2d 943)
Petitioner is merely collecting and hauling incinerator ash from Company A to
Company B’s facility which subsequently begins production of the landfill capping
material.
Petitioner's purchases of roll-off containers are not considered to be
purchases of machinery or equipment used directly in the manufacturing process,
but are merely specialized equipment used in the collection and transport of ash.
Therefore, these containers are not exempt from sales and compensating use tax
when purchased by Petitioner.

DATED: February 25, 1998

Note:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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