Do reusable, part-specific protective containers that move components from storage to a factory's assembly line qualify for Tennessee's industrial machinery sales tax exemption?

Plain-English summary

A manufacturer protects component parts during a short trip across its plant: before loading parts onto a conveyance dolly to move them from a parts-storage area to the production and assembly line, workers place each part into a reusable specialty container designed specifically for that part. The containers shield the parts from damage in transit, hold them anywhere from a short time to a longer stretch until they're pulled out for production, and then go back to storage for reuse. None of the containers are ever used to move parts the other way, into storage. The manufacturer — which already holds a Department industrial-machinery exemption authorization and is principally in the business of fabricating products for resale — asked whether these containers qualify for Tennessee's industrial machinery exemption. The Department said yes.

The exemption and its transport carve-out. Tennessee exempts "industrial machinery" from sales and use tax entirely (Tenn. Code Ann. § 67-6-206(a)). The general definition covers machinery/equipment necessary to and primarily for manufacturing — but the statute goes further and specifically includes "equipment used in transporting raw materials from storage to the manufacturing process" (§ 67-6-102(46)(D)(ii)). That transport-equipment language is exactly what the containers satisfy here.

Why the containers qualify. First, the company is a "manufacturer" — its principal business is fabricating products for resale, and the Department had already issued it an industrial-machinery authorization confirming that status. Second, the containers do precisely what § 67-6-102(46)(D)(ii) describes: they transport parts from the storage facility to the manufacturing/assembly process. The Department specifically noted that the containers are never used to move parts the other direction (into storage), which kept the fact pattern squarely within the one-directional "storage to manufacturing process" language of the statute.

What this means for you

Manufacturers with multi-step or multi-building production processes

Equipment whose only job is to move raw materials or in-process parts from a storage area to the production line can qualify for the industrial machinery exemption — even something as simple as part-specific protective containers, not just conveyors or forklifts. Keep usage one-directional (storage → production) and document that the equipment is dedicated to that function and nothing else.

Facilities and supply-chain teams designing materials-handling systems

If you're specifying reusable totes, dollies, or custom containers for moving parts internally, document the storage-to-production flow clearly — this ruling shows the Department reads the transport exemption literally, tracking the direction of movement described in the statute.

Accountants and tax professionals

This reinforces Tennessee's industrial-machinery cluster (see also RR 12-02's treatment of conveying devices and freight elevators) and confirms that the § 67-6-102(46)(D)(ii) transport carve-out reaches container/handling equipment, not just larger transport machinery — provided the manufacturer-status and exclusive-use facts are clean.

Common questions

Q: Do parts-handling containers qualify for Tennessee's industrial machinery exemption?
A: Yes, under these facts — reusable, part-specific containers used to move components from storage to the production line qualify as "equipment used in transporting raw materials from storage to the manufacturing process" (§ 67-6-102(46)(D)(ii)).

Q: Does it matter that the containers are reused rather than consumed?
A: No — the exemption covers qualifying equipment regardless of whether it's a single-use material or reusable transport equipment, as long as it meets the statutory transport-equipment definition.

Q: Would it matter if the containers were also used to move parts back into storage?
A: The Department's analysis turned in part on the containers being used exclusively to move parts FROM storage TO the manufacturing process, tracking the statute's specific wording — a different (round-trip) use pattern wasn't addressed here.

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified. Confirm your own situation with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; 2011 codification):

• §§ 67-6-101 to -907 (Retailers' Sales Tax Act)
• § 67-6-206(a) (industrial machinery exemption — "after June 30, 1983, no tax is due with respect to industrial machinery")
• § 67-6-102(46)(A)(i) (definition of "industrial machinery"); § 67-6-102(46)(D)(ii) (industrial machinery includes equipment used in transporting raw materials from storage to the manufacturing process)
• § 67-6-102(78) (definition of "retail sale"); § 67-6-102(80)(A) (definition of "sale"); § 67-6-102(91)(A) (definition of "tangible personal property")

Cases cited by the ruling:

• Tenn. Farmers' Coop. v. State ex rel. Jackson, 736 S.W.2d 87 (Tenn. 1987); Beare Co. v. Tenn. Dep't of Revenue, 858 S.W.2d 906 (Tenn. 1993) (manufacturer = principal business is fabrication/processing for resale)
• Steele v. Indus. Dev. Bd. of the Metro. Gov't of Nashville & Davidson Cnty., 950 S.W.2d 345 (Tenn. 1997); Am. Airlines, Inc. v. Johnson, 56 S.W.3d 502 (Tenn. Ct. App. 2000); Rogers Grp., Inc. v. Huddleston, 900 S.W.2d 34 (Tenn. Ct. App. 1995); Tibbals Flooring Co. v. Huddleston, 891 S.W.2d 196 (Tenn. 1994); United Canners, Inc. v. King, 696 S.W.2d 525 (Tenn. 1985) (exemptions strictly construed against the taxpayer, who bears the burden of proof)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/12-16.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 12-16
WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
The application of the Tennessee sales and use tax industrial machinery exemption found under
TENN. CODE ANN. § 67-6-206(a) (2011) to [REUSABLE SPECIALTY CONTAINERS].
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.
FACTS
[TAXPAYER] and its affiliates (collectively, the “Taxpayer”) have a [MANUFACTURING]
facility (the “Facility”) [REDACTED] in [LOCATION], Tennessee (the “Project Site”). The
Facility has several facilities, including [REDACTED] (the “[PARTS STORAGE FACILITY]”).
[REDACTED].
The [PARTS STORAGE FACILITY] forms part of the Taxpayer’s Facility for the production of
[PRODUCTS]. [REDACTED].

1

Parts are transported by the Taxpayer from the [PARTS STORAGE FACILITY] to other parts of
the Facility by a conveyance dolly. Before loading the parts on the conveyance dolly, the
Taxpayer protects the parts by [PLACING] the parts in [REUSABLE SPECIALTY
CONTAINERS]. The containers protect the parts from damage during transportation from
storage at the [PARTS STORAGE FACILITY] to the production and assembly line. Each part is
transported in a container that has been specifically designed for that part.
[REDACTED].
The containers may hold parts anywhere from [TIME DURATION] to [TIME DURATION]
before the parts are removed from the container during production or assembly. [REDACTED].
After the parts are removed from the containers, the containers are returned to the [PARTS
STORAGE FACILITY] for reuse. None of the containers are used [REDACTED] to transport
parts to the [PARTS STORAGE FACILITY].
[REDACTED].
The Taxpayer is principally engaged in the fabrication of [PRODUCTS] for resale to others for
use and consumption off the Project Site’s premises; the Taxpayer possesses a valid industrial
machinery authorization number issued by the Department. The [REUSABLE SPECIALTY
CONTAINERS] are used exclusively for manufacturing and assembling [PRODUCTS] at the
Facility.
RULING
Do the [REUSABLE SPECIALTY CONTAINERS] utilized at the Project Site qualify for the
Tennessee sales and use tax industrial machinery exemption under TENN. CODE ANN. § 67-6206(a) (2011)?
Ruling: Yes. The Taxpayer’s [REUSABLE SPECIALTY CONTAINERS] used at the
Project Site qualify for the industrial machinery exemption from Tennessee sales and use
tax under TENN. CODE ANN. § 67-6-206(a).
ANALYSIS
Under the Retailers’ Sales Tax Act, TENN. CODE ANN. §§ 67-6-101 to -907 (2011), the retail sale
of tangible personal property is generally subject to the Tennessee sales and use tax, unless an
exemption applies.1 One exemption from the sales and use tax is found in TENN. CODE ANN.

1

TENN. CODE ANN. § 67-6-102(78) (2011) defines a “retail sale” as “any sale, lease, or rental for any purpose other
than for resale, sublease, or subrent.” The term “sale” is defined under the Tennessee sales and use tax laws in
pertinent part as “any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or
otherwise, in any manner or by any means whatsoever of tangible personal property for a consideration.” TENN.
CODE ANN. § 67-6-102(80)(A). Additionally, TENN. CODE ANN. § 67-6-102(91)(A) defines “tangible personal
property” in pertinent part as “personal property that can be seen, weighed, measured, felt, or touched.”
2

§ 67-6-206(a) (2011), which provides that “[a]fter June 30, 1983, no tax is due with respect to
industrial machinery.”2
“Industrial machinery” is generally defined in pertinent part as
[m]achinery, apparatus and equipment with all associated parts, appurtenances
and accessories, including hydraulic fluids, lubricating oils, and greases necessary
for operation and maintenance, repair parts and any necessary repair or taxable
installation labor therefor, that is necessary to, and primarily for, the fabrication or
processing of tangible personal property for resale and consumption off the
premises . . . where the use of such machinery, equipment or facilities is by one
who engages in such fabrication or processing as one’s principal business.3
Moreover, the definition of “industrial machinery” specifically includes “[e]quipment used in
transporting raw materials from storage to the manufacturing process.” TENN. CODE ANN. § 676-102(46)(D)(ii).
In order for the [REUSABLE SPECIALTY CONTAINERS] to qualify as industrial machinery,
the Taxpayer must first qualify as a manufacturer.
A manufacturer, for purposes of the industrial machinery exemption from sales and use taxation,
is “one who engages in . . . fabrication or processing as one’s principal business.” TENN. CODE
ANN. § 67-6-102(46)(A)(i); cf. TENN. CODE ANN. § 67-6-206(b)(2). Manufacturing is a
taxpayer’s principal business if more than fifty percent of its revenues at a given location are
derived from fabricating or processing tangible personal property for resale. Tenn. Farmers’
Coop. v. State ex rel. Jackson, 736 S.W.2d 87, 91-92 (Tenn. 1987); see also Beare Co. v. Tenn.
Dep’t of Revenue, 858 S.W.2d 906, 908 (Tenn. 1993).
The Taxpayer has indicated that it is principally engaged in the fabrication of [PRODUCTS] for
resale to others for use and consumption off the Project Site’s premises. Consistent with these
facts, the Department has issued an industrial machinery authorization that permits the exempt
purchase of industrial machinery by the Taxpayer. The Taxpayer is therefore a manufacturer for
purposes of the industrial machinery exemption.
As noted above, TENN. CODE ANN. § 67-6-102(46)(D)(ii) includes as part of the definition of
“industrial machinery” any equipment that is used for “transporting raw materials from storage
2

The burden is on the taxpayer to establish entitlement to an exemption from taxation. The Tennessee Supreme
Court has stated that “exemptions are strictly construed against the taxpayer, who has the burden of proving
entitlement to the exemption.” Steele v. Indus. Dev. Bd. of the Metro. Gov’t of Nashville & Davidson Cnty., 950
S.W.2d 345, 348 (Tenn. 1997); see also Am. Airlines, Inc. v. Johnson, 56 S.W.3d 502, 506 (Tenn. Ct. App. 2000)
(quoting Rogers Grp., Inc. v. Huddleston, 900 S.W.2d 34, 36 (Tenn. Ct. App. 1995)) (“Although the rule is wellestablished that taxing legislation should be liberally construed in favor of the taxpayer and strictly construed against
the taxing authority, it is an equally important principle of Tennessee tax law that ‘exemptions from taxation are
construed against the taxpayer who must shoulder the heavy and exacting burden of proving the exemption.’”). The
Tennessee Supreme Court has also recognized that any well-founded doubt is sufficient to defeat a claimed
exemption from taxation. See Tibbals Flooring Co. v. Huddleston, 891 S.W.2d 196, 198 (Tenn. 1994); United
Canners, Inc. v. King, 696 S.W.2d 525, 527 (Tenn. 1985)).
3

3

TENN. CODE ANN. § 67-6-102(46)(A)(i) (2011).

to the manufacturing process.” The Taxpayer utilizes the [PARTS STORAGE FACILITY] for
storing component parts. [REDACTED]. Most importantly, the Taxpayer has indicated that at no
time are the [REUSABLE SPECIALTY CONTAINERS] used for storing raw materials or for
moving raw materials around the [PARTS STORAGE FACILITY]. The [REUSABLE
SPECIALTY CONTAINERS] are clearly equipment that meets the requirements of TENN. CODE
ANN. § 67-6-102(46)(D)(ii), and thus qualify as industrial machinery for Tennessee sales and use
tax purposes.

R. John Grubb II
Tax Counsel

4

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

8-2-12