Which equipment a produce-packing facility buys -- wash lines, chillers, sanitizers, ice machines, racking, office equipment -- qualifies for Tennessee's qualified-farmer sales tax exemption?

Plain-English summary

A produce grower/packer is building a Tennessee facility to wash, sanitize, package, and ice fresh produce grown at multiple locations before it's shipped to customers. The company already holds a Tennessee Agricultural Sales and Use Tax Certificate of Exemption. It's buying seven categories of equipment for the facility: Stainless Steel Wash Lines, Water Chillers, Pulse Sanitizing Instrumentation (all attached to the wash lines), Ice Machines, an Ice Storage and Distribution System, Racking, and Office Equipment. The company asked which of these qualify for Tennessee's sales tax exemption for qualified farmers and nurserymen (§ 67-6-207). The Department split the list: three items exempt, four items taxable.

The standard: directly and principally used in PRODUCING the agricultural product. Tennessee exempts "any appliance used directly and principally for the purpose of producing agricultural products... for sale and use or consumption off the premises" (§ 67-6-207(a)(1)) — but excludes vehicles, household appliances, and items that become real property. "Directly and principally" means more than 50% of the item's use goes toward production (Tenn. Farmers' Coop. v. State ex rel. Jackson). And "producing" isn't limited to planting or harvesting — it means bringing forth, creating, or transforming the product (Tenn. Op. Att'y Gen. No. 09-57; Essary v. Huddleston, where a tractor used to prevent soil erosion around growing trees still counted as "production"). But crucially, transportation to market or to storage before sale is NOT part of production — by then, the product is already finished.

Why the wash/chill/sanitize equipment is exempt. The Wash Lines, Water Chillers, and Pulse Sanitizing Instrumentation are used 100% of the time to wash, cool, and disinfect the produce — a transformative step that turns raw harvested produce into a market-ready, food-safe product. That's squarely "producing" the agricultural product, so this equipment qualifies.

Why the ice/storage/office equipment isn't exempt. By the time produce reaches the Ice Machines and Ice Storage and Distribution System, the produce has already been washed and packed into boxes — the production process is already complete, and the ice simply maintains the product's temperature (a cold chain) rather than transforming it further. The Racking holds boxed produce in cold storage before shipping, and the Office Equipment supports general administrative work — neither is part of producing the product either. None of these four items has a transformative effect on the produce, so none qualifies for the exemption.

Claiming the exemption. A qualifying farmer or nurseryman must present its vendor with a Tennessee Agricultural Sales and Use Tax Certificate of Exemption (or the wallet-sized exemption card) or a properly completed Streamlined Sales Tax Certificate of Exemption that includes that exemption number (§ 67-6-207(c)).

What this means for you

Farmers, growers, and packers buying processing equipment

Draw the line at where your product stops being transformed and starts being handled, packaged, or stored. Washing, chilling, and sanitizing equipment that's actively changing the product into a sellable form is likely exempt; icing, racking, cold storage, and office equipment used after that point generally is not, even in the same facility and the same continuous operation.

Nurseries and other qualified-farmer-exemption claimants

The same "directly and principally used in production" test applies broadly under § 67-6-207(a)(1) — track usage percentages for equipment with mixed uses, since the bar is more than 50% of use in production, and remember production ends once the item is essentially finished (before transport to storage or market).

Accountants and tax professionals

This is the qualified-farmer/nurseryman exemption (§ 67-6-207) — distinct from, but conceptually parallel to, the manufacturer's industrial machinery exemption (§ 67-6-206) and its "necessary to and primarily for" fabrication test. Note the exemption requires both farmer/nurseryman status (§ 67-6-207(e), five alternative qualifying criteria) AND the equipment-use test; this ruling assumed taxpayer status and focused entirely on the equipment-use question.

Common questions

Q: Does washing and sanitizing equipment used to clean produce qualify for Tennessee's farmer exemption?
A: Yes, if it's used more than 50% of the time (here, 100%) to wash, chill, or sanitize the produce — that's considered production.

Q: Is equipment used to ice, package, or store produce after it's washed and boxed exempt?
A: No. By that point the production process is complete; icing, racking, and storage equipment are post-production handling, not production itself.

Q: Is office equipment used by a qualified farm operation exempt?
A: No. General administrative equipment isn't used directly and principally in producing agricultural products.

Q: How does a qualified farmer or nurseryman actually claim the exemption at purchase?
A: By presenting the vendor with a Tennessee Agricultural Sales and Use Tax Certificate of Exemption (or wallet card) or a completed Streamlined Sales Tax Certificate of Exemption including that exemption number (§ 67-6-207(c)).

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)
• § 67-6-207(a)(1) (exemption for appliances used directly and principally to produce agricultural/nursery products for sale and use or consumption off the premises; excludes automobiles, trucks, household appliances, and real property); § 67-6-207(e) (definition of "qualified farmer or nurseryman" — five alternative qualifying criteria); § 67-6-207(c) (exemption certificate requirement)
• § 67-6-301(c)(2) (definition of "agricultural commodities," cross-referenced)

Other authority cited by the ruling:

• Tenn. Op. Att'y Gen. No. 09-57 (Apr. 16, 2009) (interpreting "produce"/"production" for purposes of the exemption; transportation to market or storage is not part of production)

Cases cited by the ruling:

• Essary v. Huddleston, 1995 WL 384985 (Tenn. Ct. App. June 29, 1995) (production not limited to planting/harvesting — a tractor preventing soil erosion around growing trees qualified)
• Tenn. Farmers' Coop. v. State ex rel. Jackson, 736 S.W.2d 87 (Tenn. 1987) ("directly and principally" means more than 50% of use)

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/12-22.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 12-22

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 applicability of the Tennessee sales and use tax to purchases of equipment by a qualified
farmer or nurseryman.
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] (the “Taxpayer”), a [NON-TENNESSEE] corporation, grows and packs
[PRODUCE]. The Taxpayer is constructing and equipping a facility (the “Facility”) in
Tennessee to process and pack [PRODUCE] grown in multiple locations throughout the state.
The Taxpayer currently holds a Tennessee Agricultural Sales and Use Tax Certificate of
Exemption.

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The Facility will be equipped with special machinery used to process and pack the harvested
[PRODUCE]. The processing of [PRODUCE] is as follows: [PRODUCE is dumped from the
totes in which it was placed at harvest] into one of two stainless steel wash lines. Water chillers
and pulse sanitizing instrumentation that are connected to the wash lines maintain the cool
temperature of the water and ensure the produce is not contaminated in the process. From the
wash lines, the produce is placed upon one of two conveyor belts and then packed into boxes.
Once packed, the boxes run along a conveyor belt and through the ice distribution system, which
drops a pre-determined amount of ice into each box. The process concludes when the boxes are
conveyed through a box closing machine that seals the boxes before they are palletized and
placed in cold storage to await pickup and delivery.
Among the items that the Taxpayer will purchase for use in the Facility are: Stainless Steel Wash
Lines; Water Chillers; Pulse Sanitizing Instrumentation; Ice Machines; Ice Storage and
Distribution System; Racking; and Office Equipment.
The Stainless Steel Wash Lines contain water that is maintained at a temperature between 34 to
36 degrees Fahrenheit by the water chillers. Essentially stainless steel tubes filled with water, the
wash lines allow [PRODUCE] to pass through the system prior to being placed in boxes for
shipment to customers. Each [PRODUCE] passes through two such wash lines. In all, there are
four Stainless Steel Wash Lines. The Stainless Steel Wash Lines are used 100% of the time in
the process of readying the [PRODUCE] for market.
The Water Chillers coupled to the Stainless Steel Wash Lines immerse the produce in water
chilled to an exact temperature for a specific period of time. Cold water acts as a cleansing agent,
washing the product clean of any dirt and debris contained within the [PRODUCE].
Additionally, maintaining the water at a temperature between 34 to 36 degrees Fahrenheit is
necessary to remove field heat from the produce to prevent the [PRODUCE] from spoiling. The
Water Chillers are used 100% of the time in the process of readying the [PRODUCE] for market.
Pulse Sanitizing Instrumentation is attached to the Stainless Steel Wash Line. The system
consists of a pH and ORP control system, chlorine and acid pumps, pressure switch, electrodes,
and recirculation pump. Designed to use the water that runs through the wash lines as a
disinfecting agent against pathogens and harmful micro-organisms that may contaminate the
produce, the Pulse Sanitizing Instrumentation monitors oxidation reduction potential, the pH of
the water, and the parts per million of chlorine and other disinfectants. This oxidation reduction
potential is the only practical method available to electronically monitor sanitizer effectiveness.
The Pulse Sanitizing Instrumentation is used 100% of the time in the process of readying the
[PRODUCE] for market.
The Ice Machines produce approximately five tons of ice each day. Ice is accumulated in a
sanitary storage facility, which is made of metal panels. These panels snap together using a cam
locking system, making the storage facility modular in design. A modular Racking System
within the storage facility makes up the distribution system and conveys the ice to two case ice
dispensers, one for each of the two packing lines. The case ice dispensers place ice on the top of
each box as it passes on the conveyor belt. The Ice Machines and Ice Storage and Distribution
System are used 100% of the time in the process of readying the [PRODUCE] for market.

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RULING
Is the following equipment, when purchased by the Taxpayer and installed in the Facility,
exempt for Tennessee sales and use tax purposes pursuant to TENN. CODE ANN. § 67-6-207
(2011)?

1. Stainless Steel Wash Lines;
2. Water Chillers;
3. Pulse Sanitizing Instrumentation;
4. Ice Machines;
5. Ice Storage and Distribution System;
6. Racking System;
7. Office Equipment.
   Ruling:
   The following items, when purchased by the Taxpayer and installed in the Facility, are
   exempt for Tennessee sales and use tax purposes pursuant to TENN. CODE ANN. § 67-6207 (2011): Stainless Steel Wash Lines; Water Chillers; and Pulse Sanitizing
   Instrumentation.
   The following items, when purchased by the Taxpayer and installed in the Facility, are
   not exempt for Tennessee sales and use tax purposes pursuant to TENN. CODE ANN. § 676-207 (2011): Ice Machines; Ice Storage and Distribution System; Racking; and Office
   Equipment.
   Note that, in order to make tax-exempt purchases as a qualified farmer or nurseryman, a
   taxpayer must present its vendor with either a Tennessee Agricultural Sales and Use Tax
   Certificate of Exemption (or a copy of the wallet-sized exemption card provided by the
   Department) or a fully completed Streamlined Sales Tax Certificate of Exemption, which
   must include the exemption number appearing on the Agricultural Sales and Use Tax
   Certificate of Exemption.
   ANALYSIS
   Under the Retailers’ Sales Tax Act, TENN. CODE ANN. §§ 67-6-101 to -907 (2011), the retail sale
   of tangible personal property in Tennessee is generally subject to the sales and use tax, unless an
   exemption applies. TENN. CODE ANN. § 67-6-207 (2011) provides various exemptions for sales

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to qualified farmers or nurserymen1 of certain farm equipment, machinery, and other agricultural
items.
In particular, TENN. CODE ANN. § 67-6-207(a)(1) exempts “[a]ny appliance used directly and
principally for the purpose of producing agricultural products, including nursery products, for
sale and use or consumption off the premises, but excluding an automobile, truck, household
appliances or property that becomes real property when erected or installed.”
The terms “produce” and “production” are not statutorily defined for purposes of TENN. CODE
ANN. § 67-6-207(a)(1). However, Tenn. Op. Att’y Gen. No. 09-57 (April 16, 2009) states that
these terms, for purposes of the exemption, are properly considered to mean “to bring forth;” “to
create by physical or mental effort;” “to manufacture;” or “to give rise to,” and the “act or
process of producing.” Notably, the production of agricultural products is not limited to planting
or harvesting. See, e.g., Essary v. Huddleston, No. 02A01-9408-CH-00179, 1995 WL 384985 at
3 (Tenn. Ct. App. June 29, 1995) (unpublished) (holding that a tractor was used directly and
principally for the purpose of producing timber products where the farmer’s primary use of the
tractor was to prevent soil erosion around growing trees). However, transportation of farm
commodities to market for sale is not part of the production process because, by the time the
products are transported to market for sale, the process of “bringing forth,” “creating,”
“manufacturing,” or “giving rise to” the product is already complete. Tenn. Op. Att’y Gen. No.
09-57 at 6. Transportation of farm commodities to storage prior to sale is likewise not part of
the production process. Id.
Thus, for the Taxpayer’s purchase of a particular piece of equipment to be exempt under TENN.
CODE ANN. § 67-6-207(a)(1), the following requirements must be met: 1) the Taxpayer is a
qualified farmer or nurseryman; and 2) the equipment is an appliance that is directly and
principally used for the purpose of producing agricultural and nursery products for sale and use

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TENN. CODE ANN. § 67-6-207(e) provides that the term “qualified farmer or nurseryman” means a person who
meets one (1) or more of the following criteria:
(1) The person is the owner or lessee of agricultural land from which one thousand
dollars ($1,000) or more of agricultural products were produced and sold during the year,
including payments from government sources;
(2) The person is in the business of providing for-hire custom agricultural services for the
plowing, planting, harvesting, growing, raising or processing of agricultural products or for the
maintenance of agricultural land;
(3) The person is the owner of land that qualifies for taxation under the Agricultural
Forest and Open Space Land Act of 1976, compiled in chapter 5, part 10 of this title;
(4) The person's federal income tax return contains one (1) or more of the following:
(A) Business activity on IRS schedule F, profit or loss from farming; and
(B) Farm rental activity on IRS form 4835, farm rental income and expenses or schedule
E, supplemental income and loss; and
(5) The person otherwise establishes to the satisfaction of the commissioner that the
person is actively engaged in the business of raising, harvesting or otherwise producing
agricultural commodities as defined in § 67-6-301(c)(2).
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or consumption off the premises. Additionally, the particular piece of equipment in question
must not be an item that is specifically excluded from the scope of the exemption.
It is assumed for purposes of this letter ruling that the Taxpayer will qualify under TENN. CODE ANN.
§ 67-6-207(e) as a qualified farmer or nurseryman during the tax period(s) in which it makes its
purchases.

1.

Exempt items

The Taxpayer may purchase the Stainless Steel Wash Lines, Water Chillers, and Pulse Sanitizing
Instrumentation exempt from the Tennessee sales and use tax under TENN. CODE ANN. § 67-6207(a)(1), provided that the Taxpayer presents the required documentation described.
The Stainless Steel Wash Lines, Water Chillers, and Pulse Sanitizing Instrumentation meet the
requirement that the item in question be an appliance “used directly and principally for the
purpose of producing agricultural products . . . for sale and use or consumption off the premises.”
An item is considered to be “used directly and principally” for the purpose of producing
agricultural products if it is used more than 50% of the time by a farmer in the production of
agricultural products.2
The Stainless Steel Wash Lines contain water that is maintained at a temperature between 34 to
36 degrees Fahrenheit by the water chillers. As stated above, the Wash Lines are essentially
stainless steel tubes filled with water, which allow [PRODUCE] to pass through the system prior
to being placed in boxes for shipment to customers. [PRODUCE] passes through two such wash
lines. In all, there are four Stainless Steel Wash Lines. The Stainless Steel Wash Lines are used
100% of the time in the process of readying the [PRODUCE] for market.
The Water Chillers coupled to the Stainless Steel Wash Lines provide the necessary function of
immersing the produce in water chilled to an exact temperature for a specific period of time.
Cold water acts as a cleansing agent, washing the product clean of any dirt and debris contained
within the [PRODUCE]. Additionally, maintaining the water at a temperature between 34 to 36
degrees Fahrenheit is necessary to remove field heat from the produce to prevent the
[PRODUCE] from spoiling. The Water Chillers are used 100% of the time in the process of
readying the [PRODUCE] for market.
Pulse Sanitizing Instrumentation is attached to the Stainless Steel Wash Line. The system
consists of a pH and ORP control system, chlorine and acid pumps, pressure switch, electrodes,
and recirculation pump. Designed to use the water that runs through the wash lines as a
disinfecting agent against pathogens and harmful micro-organisms that may contaminate the
produce, the Pulse Sanitizing Instrumentation monitors oxidation reduction potential, the pH of
the water, and the parts per million of chlorine and other disinfectants. This oxidation reduction
potential is the only practical method available to electronically monitor sanitizer effectiveness.
The Pulse Sanitizing Instrumentation is used 100% of the time in the process of readying the
[PRODUCE] for market.
2

See Tennessee Farmers’ Coop. v. State ex rel. Jackson, 736 S.W.2d 87, 90-92 (Tenn. 1987); Op. Tenn. Att’y Gen.
No. 09-57 (Apr. 16, 2009).
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The facts indicate that the Stainless Steel Wash Lines, Water Chillers, and Pulse Sanitizing
Instrumentation are each used in the production of [PRODUCE]. In the process described above,
each appliance provides a transformative function in the creation of an agricultural product fit for
human consumption.
Accordingly, the Taxpayer may purchase the Stainless Steel Wash Lines, Water Chillers, and
Pulse Sanitizing Instrumentation exempt from the Tennessee sales and use tax. Note that in order
to make tax-exempt purchases as a qualified farmer, the Taxpayer must present to its vendor
either a Tennessee Agricultural Sales and Use Tax Certificate of Exemption (or a copy of the
wallet-sized exemption card also provided by the Department) or a fully completed Streamlined
Sales Tax Certificate of Exemption, which must include the exemption number appearing on the
Agricultural Sales and Use Tax Certificate of Exemption.3 See TENN. CODE ANN. § 67-6-207(c).
2.

Non-exempt items

The Taxpayer’s purchases of the Ice Machines, Ice Storage and Distribution System, Racking,
and Office Equipment are subject to the Tennessee sales and use tax, and are not exempt under
TENN. CODE ANN. § 67-6-207(a)(1).
The Taxpayer’s use of the Ice Machines, Ice Storage and Distribution System, Racking and
Office Equipment does not meet the requirement that the item in question be an appliance “used
directly and principally for the purpose of producing agricultural products . . . for sale and use or
consumption off the premises.”
The facts indicate that once the [PRODUCE] is cleaned and packed into boxes, the boxes run
along a conveyor belt and through the ice distribution system, which drops a pre-determined
amount of ice into each box. The Ice Machines produce approximately five tons of ice each day.
Ice is accumulated in a sanitary storage facility. A modular racking system within the storage
facility makes up the distribution system and conveys the ice to two case ice dispensers, one for
each of the two packing lines. The case ice dispensers place ice on the top of each box as it
passes on the conveyor belt. The process concludes when the boxes are conveyed through a box
closing machine that seals the boxes before they are palletized and placed in cold storage to
await pickup and delivery.
While the Ice Machines and the Ice Storage and Distribution System are necessary for the postproduction packaging of the [PRODUCE], they are not used directly in the production of the
produce. Rather, production of the [PRODUCE] is completed before the ice is placed on the
product: at that point, the produce has been washed and the cold chain created. The ice is simply
used to maintain the cleaned [PRODUCE] at its ideal temperature.
Furthermore, the Ice Machines and Ice Storage and Distribution system provide no
transformative effect upon the produce. In other words, by the time it is transported to the Ice
Distribution System, the process of bringing forth, creating, manufacturing, or giving rise to the
agricultural product is already complete. See Tenn. Op. Att’y Gen. No. 09-57. Such equipment,
3

For forms and additional information, visit the Department’s website at:

http://state.tn.us/revenue/tntaxes/sales/farmerexemption.shtml.
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therefore, is not used directly and principally for the purpose of producing the Taxpayer’s
agricultural products.
The Racking Equipment is for holding the boxed [PRODUCE] in cold storage prior to shipping.
The Office Equipment, which consists of office furniture and other items, is used for general
administrative activities. For the same reasons explained above, such equipment is not used
directly and principally for the purpose of producing the Taxpayer’s agricultural products.
Accordingly, the Taxpayer’s purchase of the Ice Machines, Ice Storage and Distribution System,
Racking, and Office Equipment does not qualify for the exemption under TENN. CODE ANN.
§ 67-6-207(a)(1).

Garrett E. Guillory
Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

10-17-012

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