Which freezing-plant machinery, equipment, and supplies qualify for Tennessee's industrial machinery exemption for a frozen-food manufacturer?

Plain-English summary

A frozen-food manufacturer asked Tennessee which items in its freezing plants are exempt from sales and use tax under the state's industrial machinery exemption. To qualify, three things must be true: the buyer is a manufacturer at that location (more than 50% of the location's revenue comes from making products for resale), and the item is (1) machinery/equipment — including parts, accessories, and repair parts and labor — (2) necessary to processing the product, and (3) primarily used for that processing. Tennessee treats turning fresh product into, and keeping it in, a frozen state as "processing" (the Beare Co. case), so the gear that does the freezing qualifies.

Applying that, the Department ruled:

• Exempt: the refrigeration system — freezers, compressors, motors, evaporators, coils, blowers, vessels, pumps, heat exchangers, condensers, the associated piping/controls/valves, the refrigerant (ammonia), and chillers — plus repair parts and repair labor (including parts a third-party service provider buys and bills back to the manufacturer). The special racking that creates the airflow needed to freeze evenly is exempt too.
• Exempt, with a catch: material handling — conveyors and forklifts that move product from the production line into final freezing are exempt (forklifts only if that is primarily what they do).
• Not exempt: forklifts that just move finished product to the loading dock for shipping — moving goods out for distribution is not part of processing (and a loading dock is not "storage").
• Not exempt as machinery, but reduced-rate: electricity and water. Because they do not come into direct contact with the product, they do not get the machinery exemption, but they qualify for Tennessee's reduced energy rate for manufacturers. (Energy is fully exempt only when it is separately metered and actually comes into direct contact with the product and is used up in that contact.)

What this means for you

Tennessee manufacturers (food and beyond)

The exemption is item-by-item and turns on function, not the kind of business. Map each machine to the three-part test — machinery/equipment, necessary, and primarily for processing — and confirm you clear the >50%-of-location-revenue manufacturer threshold at each plant. Don't overlook repair parts and repair labor, which are included — even when a third-party servicer buys the parts and bills them back to you. And remember the exemption reaches equipment that conveys product between steps of the process, including into final processing or storage.

Watch the edges: shipping and energy

Two recurring traps appear here. (1) Post-processing movement — equipment that just loads or hauls finished goods out to ship them is not industrial machinery, because it isn't part of making the product (and a loading dock isn't "storage"). (2) Utilities — electricity, gas, and water used in manufacturing don't get the machinery exemption unless they are separately metered and come into direct contact with the product; otherwise they get the reduced manufacturer rate, which is a meaningful saving but not a full exemption.

Accountants and advisors

The governing law is § 67-6-206(a) and the definition at § 67-6-102(46)(A)(i). Use Beare Co. for "processing" (freezing and maintaining a frozen state qualifies; "mere preservation of the prefrozen condition" does not), Eastman Chemical for in-process conveyance, and Shearin v. Woods / § 67-6-102(46)(D)(ii) for the loading-dock line. For utilities, run § 67-6-206(b) (reduced rate) and § 67-6-206(b)(3) (direct-contact full exemption), and note Rule 1320-05-01-.40's 25-day direct-contact provision.

Common questions

Q: Is freezing really "manufacturing" in Tennessee?
A: Yes. The Tennessee Supreme Court (Beare Co.) held that changing raw food to a frozen condition and maintaining that frozen state is "processing" for the industrial machinery exemption. (Merely preserving something already frozen is not.)

Q: Do repair parts and repair labor qualify?
A: Yes — they are part of the definition of industrial machinery. This ruling even treats freezer and material-handling repair parts a third-party servicer buys and bills back to the manufacturer as exempt.

Q: Are my forklifts exempt?
A: It depends on what they do. Forklifts (and conveyors) moving product from the production line into final freezing qualify, if that is primarily their use. Forklifts that move finished product to the loading dock for shipping do not qualify.

Q: What about my electricity and water bills?
A: Energy and water used by a manufacturer don't get the machinery exemption unless they are separately metered and come into direct contact with the product. Otherwise they qualify for Tennessee's reduced manufacturer rate.

Q: Can my business rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the taxpayer it was issued to and can't be relied on by anyone else; it can be revoked or modified. Use it to understand the Department's reasoning, then confirm your own facts.

Citations and references

Statutes (Tennessee Code Annotated):
- § 67-6-206(a) — exempts "industrial machinery"
- § 67-6-102(46)(A)(i) — definition of industrial machinery (necessary to, and primarily for, processing TPP for resale)
- § 67-6-102(46)(D)(ii) — includes equipment transporting raw materials/finished goods to and from storage
- § 67-6-206(b) — reduced rate for water, gas, electricity, and energy fuels used by manufacturers
- § 67-6-206(b)(3) — full exemption for separately metered energy/substances in direct contact with the product and expended in that contact
- § 67-6-206(b)(2) — manufacturer = more than 50% of a location's revenue from processing TPP for resale
- § 67-6-201 — imposition of sales and use tax
- §§ 67-6-101 to -907 — Tennessee Retailers' Sales Tax Act
- Tenn. Comp. R. & Regs. 1320-05-01-.40 — materials in direct contact and consumed within 25 days are not taxed

Cases:
- Beare Co. v. Tenn. Dept. of Revenue, 858 S.W.2d 906 (Tenn. 1993) — freezing and maintaining a frozen state is "processing"
- Eastman Chemical Co. v. Johnson, 151 S.W.3d 503 (Tenn. 2004) — devices conveying materials between steps qualify
- Shearin v. Woods, 597 S.W.2d 895 (Tenn. 1980) — equipment loading finished product for distribution is not industrial machinery

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/25-03.pdf

Original ruling text

Letter rulings are binding on the Department only with respect to the individual taxpayer being
addressed in the ruling. This ruling is based on the particular facts and circumstances
presented and is an interpretation of the law at a specific point in time. The law may have
changed since this ruling was issued, possibly rendering it obsolete. The presentation of this
ruling in a redacted form is provided solely for informational purposes and is not intended as
a statement of Departmental policy. Taxpayers should consult with a tax professional before
relying on any aspect of this ruling.

Applicability of Tennessee sales and use tax to machinery, equipment, and supplies used in frozen
food operations.

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.

[REDACTED] (the “Taxpayer”) is a frozen food products company headquartered in [REDACTED]. The
Taxpayer supplies products to [REDACTED].
The Taxpayer operates [REDACTED] manufacturing facilities in Tennessee at the following locations:

[REDACTED]
Each manufacturing plant has an onsite facility where final freezing and product maintenance occurs
(the “freezer facility”). The freezer facilities are owned and operated by the Taxpayer, excluding the
[REDACTED] freezer facilities, which are managed by a third-party service provider. Products
manufactured at each facility account for more than 51% of sales attributable to each facility.
The Taxpayer’s integrated manufacturing process includes: 1) the manufacturing of perishable
[REDACTED] products; 2) the transfer of partially frozen products from the manufacturing facility to
the onsite freezer facility; and 3) the reduction and maintenance of product temperatures to make
the products ready for sale and to prevent spoilage and contamination of the products prior to
ultimate sale at retail or wholesale.
Proper freezing of products is required for food safety. Food safety oversight is promulgated by the
Tennessee Department of Agriculture, the United States Food and Drug Administration (FDA), and the
United States Department of Agriculture (USDA).
When products from the Taxpayer’s manufacturing facilities are transferred to its freezer facilities, the
product is not yet ready for sale. The freezing process continues in the freezer facility. Various “hold
times” dictate how long product must remain in the freezer facility before being ready for sale. Hold
times range from 24 hours to several days (most commonly, three to seven days). The product
temperatures are reduced to -10, -20, -30 degrees Fahrenheit (depending on the product) before being
shipped to customers.
The machinery, equipment, and supplies described in this ruling are primarily purchased and used by
the Taxpayer for the final freezing of products and maintenance of the products in their frozen state
before they are shipped. The Taxpayer cannot sell products until after they have been held at a certain
temperature for a specified time.
Freezer Machinery and Equipment
Freezer machinery and equipment may be separated into the following three categories: 1)
Refrigeration System, 2) Racking, and 3) Material Handling.
Refrigeration System
Freezer machinery and equipment includes an industrial ammonia refrigeration system comprising
various refrigeration components, such as compressors, compressor motors, evaporators, coils,
blower units, vessels, pumps, heat exchangers, condensers, and associated piping, controls, and
valves. The refrigeration system also includes coolants (e.g., ammonia), which are necessary for the
system to function. Chillers and heat exchangers are used to cool refrigerant in the freezing process.
The refrigeration system also uses electricity and water in its operation.
The main components of the refrigeration system are within the engine room of the Taxpayer’s
freezer facility. In addition, numerous pipes, valves, controls, and control wiring connect through the
engine room but are located throughout the facility. The refrigeration system is custom designed to
the Taxpayer’s specification, purchased from multiple vendors, and assembled on-site at each facility.
The refrigeration system is used exclusively to reduce and maintain temperatures in the freezer facility
that contains perishable [REDACTED] products. The refrigeration system is not used for general

2

ventilation, cooling, or climate control, or in any other manner that is inconsistent with making the
Taxpayer’s products ready for sale. The machinery and equipment related to the ancillary commercial
heating and cooling are not included in the Taxpayer’s freezer machinery and equipment for purposes
of this letter ruling. The refrigeration system runs continuously, as there is a constant flow of
perishable products through the freezer facility so that the refrigeration system will not be idle.
Racking
The racking equipment in the Taxpayer’s freezer facility is specially designed to create space around
the sides of the pallets of product to ensure proper air flow and temperature reduction between
products. Without the racking equipment, airflow between the products would be restricted. The cold
air created by the refrigeration system would not effectively cool the products, and heat from
biological processes would spoil and contaminate the product.
Material Handling
Material handling equipment includes conveyors and forklifts. Material handling equipment conveys
partially frozen products from the production line to the freezer facility. Material handling equipment
related to other plant activities are not in the scope of this letter ruling.
The specific freezer machinery and equipment items related to the above categories are as follows:

Item Descriptions

Usage

Refrigeration System
Freezer (compressors, compressor motors,
evaporators, coils, blower units, vessels, pumps,
heat exchangers, condensers)

Freezer utilizes refrigerant to freeze product
to make product ready for sale.

Freezer accessories (associated piping, controls,
and valves)

Freezer utilizes refrigerant to freeze product
to make product ready for sale.

Refrigerant (ammonia)

Cools product during freezing process to
make product ready for sale; Required for the
freezer to operate (similar to hydraulic fluid
and lubricants).
Used to cool ammonia that is used as a
refrigerant used in the freezers.

Chillers and heat exchangers
Freezer repair parts--purchased by the Taxpayer

Freezer utilizes refrigerant to freeze product
to make product ready for sale.

Freezer repair parts--purchased by 3rd-party
service provider (subsequently billed back to the
Taxpayer)
Freezer repair labor (3rd party)--purchased by the
Taxpayer

Freezer utilizes refrigerant to freeze product
to make product ready for sale.
Freezer utilizes refrigerant to freeze product
to make product ready for sale.

3

Electricity

Power source for freezer; consumed in the
process of freezing product to make ready for
sale.
Used to cool ammonia in the condensers;
consumed in the process of freezing product
to make ready for sale.

Water

Racking
Racking (with required airflow)

Facilitates freezing of product to make ready
for sale; airflow ensures proper product
freezing.

Material Handling
Conveyors

Moves partially frozen product from the
production line to the final-freezing and cold
storage facilities process.

Forklifts--to transport product from the
production line to final freezing

Moves partially frozen product from the
production line to the final-freezing and cold
storage facilities process.

Forklifts--to transport product from final freezing
process to loading dock (shipping)

Moves finished product from the final
freezing process area to loading dock (to
shipping).
Moves partially frozen product from the
production line to the final-freezing and cold
storage facilities process.

Material handling equipment repair parts-purchased by the Taxpayer
Material handling equipment repair parts-purchased by 3rd-party service provider
(subsequently billed back to the Taxpayer)

Moves partially frozen product from the
production line to the final-freezing and cold
storage facilities process.

Material handling equipment repair labor-purchased by the Taxpayer

Moves partially frozen product from the
production line to the final-freezing and cold
storage facilities process.

1.

Which items listed in the above chart are exempt from Tennessee sales and use tax?
Ruling: See Chart below.

Item Descriptions

Usage

Exempt

Refrigeration System

4

Freezer (compressors, compressor
motors, evaporators, coils, blower
units, vessels, pumps, heat
exchangers, condensers)
Freezer accessories (associated
piping, controls, and valves)
Refrigerant (ammonia)

Chillers and heat exchangers

Freezer repair parts--purchased by
the Taxpayer
Freezer repair parts--purchased by
3rd-party service provider
(subsequently billed back to the
Taxpayer)
Freezer repair labor (3rd party)-purchased by the Taxpayer
Electricity

Water

Freezer utilizes refrigerant to
freeze product to make product
ready for sale.

Yes

Freezer utilizes refrigerant to
freeze product to make product
ready for sale.

Yes

Cools product during freezing
process to make product ready
for sale; Required for the freezer
to operate (similar to hydraulic
fluid and lubricants).
Used to cool ammonia that is
used as a refrigerant used in the
freezers.
Freezer utilizes refrigerant to
freeze product to make product
ready for sale.
Freezer utilizes refrigerant to
freeze product to make product
ready for sale.

Yes

Freezer utilizes refrigerant to
freeze product to make product
ready for sale.
Power source for freezer;
consumed in the process of
freezing product to make ready
for sale.
Used to cool ammonia in the
condensers; consumed in the
process of freezing product to
make ready for sale.

Yes

Yes

Yes- When billed to
the taxpayer.

Yes

No. Does not come
into direct contact
with product. Eligible
for reduced rate.
No. Does not come
into direct contact
with product. Eligible
for reduced rate.

Racking
Racking (with required airflow)

Facilitates freezing of product to
make ready for sale; airflow
ensures proper product freezing.

Yes

Moves partially frozen product
from the production line to the
final-freezing and cold storage
facilities process.
Moves partially frozen product
from the production line to the
final-freezing and cold storage
facilities process.

Yes

Material Handling
Conveyors

Forklifts--to transport product from
the production line to final freezing

Yes, provided that
they are primarily for
this purpose.

5

Forklifts--to transport product from
final freezing process to loading dock
(shipping)

Moves finished product from the
final freezing process area to
loading dock (to shipping).

Material handling equipment repair
parts--purchased by the Taxpayer

Moves partially frozen product
from the production line to the
final-freezing and cold storage
facilities process.
Moves partially frozen product
from the production line to the
final-freezing and cold storage
facilities process.
Moves partially frozen product
from the production line to the
final-freezing and cold storage
facilities process.

Material handling equipment repair
parts--purchased by 3rd-party service
provider (subsequently billed back to
the Taxpayer)
Material handling equipment repair
labor--purchased by the Taxpayer

No. Do not convey
products from one
part of
manufacturing or
fabricating process to
another or to
storage.
Yes

Yes

Yes

Under the Retailer’s Sales Tax Act,1 the retail sale in Tennessee of tangible personal property and
specifically enumerated services are subject to sales and use tax, unless an exemption applies. 2 TENN
CODE ANN. § 67-6-206(a) (2022) exempts “industrial machinery” from the sales and use tax. In general,
“industrial machinery” is defined 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
Manufacturing is a taxpayer’s principal business if more than fifty percent of its revenue at a given
location is derived from fabricating or processing tangible personal property for resale. 4
The Tennessee Supreme Court has provided some guidance as to the application of the industrial
machinery exemption. In Beare Co. v. Tenn. Dept. of Revenue, 858 S.W.2d 906 (Tenn. 1993), the Court
concluded that the change in form of raw food products to a frozen condition, and the maintenance
of such frozen condition, constituted processing for purposes of qualifying for the industrial
machinery exemption. The Court also held that “the mere preservation of the prefrozen condition”

1

Tennessee Retailer’s Sales Tax Act (codified at TENN. CODE ANN. §§ 67-6-101 to -907 (2022 and Supp. 2023)).

2

TENN. CODE ANN. § 67-6-201 (2022).

3

TENN. CODE ANN. § 67-6-102(46)(A)(i) (Supp. 2023).

4

Tenn. Farmer’s Coop v. State ex rel. Jackson, 736 S.W. 2d 87, 91-92 (Tenn. 1987); see also TENN. CODE ANN. § 67-6-206(b)(2).

6

did not constitute “processing.”5 Also in the context of analyzing industrial machinery, the Tennessee
Supreme Court consulted WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY (1976) to define “equipment”
as “the physical resources serving to equip a person, [such as] the implements . . . used in an operation
or activity.”6
The term “necessary” is not defined by the Tennessee Code or the Tennessee courts for Tennessee
sales and use tax purposes. A common definition of “necessary” is “absolutely needed: required.” 7 The
term “primarily” has been defined by the Tennessee Supreme Court for purposes of the industrial
machinery exemption as “first of all; principally; or fundamentally” and as “first in rank or importance,
chief, principal, basic or fundamental.” 8
Thus, for the Taxpayer’s freezer machinery and equipment to be exempt from Tennessee sales and
use tax as industrial machinery, the Taxpayer must be a manufacturer at each location, and the
property must be 1) machinery, apparatus, or equipment, including all parts, appurtenances and
accessories, or repair parts and labor; 2) necessary to the fabrication or processing of the products
sold by the Taxpayer; and 3) primarily for the fabrication of the products sold by the Taxpayer.
Refrigeration System
The freezer, freezer accessories, refrigerant, chillers and heat exchangers, and freezer repair parts
and labor meet all the above requirements. Each of the Taxpayer’s locations qualifies as a
manufacturer. The freezer, freezer accessories, and chillers and heat exchangers constitute
machinery, apparatus, and equipment. The refrigerant is an appurtenance or accessory, and the
freezer repair parts and repair labor are also included. All these items are necessary to process the
food products into a saleable frozen product because without all of them working together, the
freezing will not occur. Lastly, these items are primarily used to finish the freezing process for the
manufactured food products at each location. Thus, these items qualify for the industrial machinery
exemption from sales and use tax.
The electricity and water do not qualify for the industrial machinery exemption because they do not
come into direct contact with the product. Pursuant to TENN. CODE ANN. § 67-6-206(b), a reduced sales
and use tax rate applies to water, gas, electricity, fuel oil, coal and other energy fuels sold to or used
by manufacturers. TENN. CODE ANN. § 67-6-206(b)(3) further states that gas, electricity, and other
substances are exempt from sales and use tax whenever they are separately metered and come into
direct contact with whatever is being fabricated or processed by the manufacturer and are expended
in the course of such contact.9 Thus, the electricity and water used in the manufacturing operations
are not exempt, but they do qualify for a reduced rate under T ENN. CODE ANN. § 67-6-206(b).
Racking

5

Id. at 909.

6

Tibbals Flooring Co. v. Olsen, 698 S.W.2d 60, 62 (Tenn. 1985).

7

Merriam-Webster’s Collegiate Dictionary (11th ed. 2007).

8

Woods v. General Oils, Inc. 558 S.W. 2d 433, 436 (Tenn. 1977) (citing WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY (1961)).

See also TENN. COMP. R. & REGS. 1320-05-01-.40, which provides that materials and supplies coming in direct contact with and
which are consumed within twenty-five (25) consecutive days, in the processing of manufactured products are not subject to
sales and use tax.
9

7

The racking likewise qualifies for the industrial machinery exemption because it meets the
requirements examined above. Each Taxpayer location using the racking qualifies as a manufacturer.
The racking is equipment because it is a physical implement used in the freezing process. 10 It is
necessary for the products to properly freeze because without the racking, the products may freeze
unevenly, resulting in spoiled products. And lastly, the racking is primarily used to finish the freezing
process for the manufactured food. Thus, the racking qualifies for the industrial machinery
exemption.11
Material Handling
The locations at which the material handling equipment is used qualify as manufacturers. “Machinery,
apparatus, and equipment” has been held to include “the devices conveying the materials and
components from one part of the manufacturing or fabricating process to another.” Eastman Chemical
Co. v. Johnson, 151 S.W.3d 503, 509-10 (Tenn. 2004) (quoting Eastman Chemical Co. v. Chumley, 2004 WL
51822, *8 (Tenn. Ct. App., Jan. 12, 2012) (overruled on other grounds)).12 The material handling devices,
other than the forklifts used to transport the products to the loading dock, 13 all play a part in conveying
the products from one part of the manufacturing or fabricating process to another by directly
transporting them from the production line to final freezing and cold storage. Accordingly, they qualify
as equipment. The material handling equipment is necessary to transport the products from the
production line to the freezing operation. Since the conveyors are only used to transport the products,
the requirement that they be primarily for the fabrication of products sold by the Taxpayer is met. For
the forklifts, the answer depends on the extent to which they are used to convey the Taxpayer’s
products from one part of the manufacturing or fabricating process to another or to storage; if they
are primarily used for that purpose, they qualify for the exemption.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

February 27, 2025

See Tibbals Flooring Co. v. Olsen, 698 S.W.2d 60, 62 (Tenn. 1985) (using Webster’s Third New International Dictionary to define
“equipment” as the physical resources serving to equip a person, [such as] the implements . . . used in an operation or activity”)
(internal quotations omitted).
10

See Tenn. Dept. Rev. Ltr. Rul. 13-02 (Jan. 9, 2013) (concluding that freezing racks used by food products manufacturer qualified
for industrial machinery exemption).

11

See also TENN. CODE ANN. § 67-6-102(46)(D)(ii) (Industrial machinery includes “[e]quipment used in transporting raw materials
from storage to the manufacturing process, and transporting finished goods from the end of the manufacturing process to
storage.”).

12

See Shearin v. Woods, 1980, 597 S.W.2d 895, 896 (Tenn. 1980) (holding that front wheel loader used primarily to load finished
product onto truck for distribution to customers was not industrial machinery). Moreover, transportation to the loading dock
does not constitute transportation to storage under TENN. CODE ANN. § 67-6-102(46)(D)(ii). See also Tenn. Dept. Rev. Ltr. Rul. 9738 (Sep. 5, 1997) (ruling that pipeline that conveys water to a storage tank but also conveys water to consumers does not qualify
as taking a product to storage).
13

8