Is the equipment and supplies a Tennessee manufacturer uses to treat its incoming process water and its wastewater exempt from sales tax as pollution control facilities?

Plain-English summary

A frozen-food manufacturer asked Tennessee whether the equipment and supplies it uses to handle water at its plants qualify for the state's industrial machinery exemption — specifically, the part of that exemption that covers pollution control facilities. Tennessee treats a "pollution control facility" as industrial machinery (and therefore exempt) when it is primarily used to eliminate, prevent, or reduce air or water pollution that is created as a result of the manufacturing process, used by someone whose principal business (more than 50% of a location's revenue) is making products for resale.

The Department split the items by where in the water cycle they sit:

• Water coming INTO the process (to make steam) — mostly NOT exempt as pollution control. The plant cleans incoming water so its boilers can turn it into steam. The Department found the primary purpose of that cleanup is generating steam, not reducing pollution, and the contaminants in the incoming water are not "created" by manufacturing. So the filters, pH treatment, chemicals, and salt pellets used there are taxable. The pumps and valves that move water to the boilers, however, are exempt — not as pollution control, but as accessories to the boilers, which are themselves exempt machines that "generate, produce, and distribute steam."
• Wastewater going OUT of the process — exempt as pollution control. The plant must strip "high-strength" and then "low-strength" waste out of its wastewater before sending it to the municipal sewer. That equipment — equalization tanks, pumps, circulators, feed pumps, instrumentation, and grease traps — has the primary purpose of reducing water pollution that the manufacturing process created, so it is exempt as a pollution control facility. The filters and chemicals (supplies) consumed in that wastewater treatment are exempt under a separate provision for supplies used in pollution control facilities.

What this means for you

Tennessee manufacturers (food and beyond)

The pollution-control branch of the industrial machinery exemption turns on a specific four-part test: you are a manufacturer at the location, and the item's primary purpose is to eliminate/prevent/reduce air or water pollution that is created by your fabricating or processing, which would be harmful to the public if released untreated. Equipment that cleans your discharge to meet environmental limits fits squarely. Equipment that cleans your inputs so a machine can run usually does not — its primary purpose is making the input usable, not reducing pollution.

Watch the "primary purpose" and "created by" lines

Two distinctions did the work here. (1) Primary purpose: the same kind of hardware (pumps, filters, chemicals) can be exempt on the wastewater side and taxable on the intake side, because the reason it is used differs. (2) Created by the process: pollution the process itself generates qualifies; contaminants that were already in the source water do not. And note the rescue valve — intake pumps and valves still came out exempt because they are accessories to the exempt boilers/steam machinery, a separate hook from pollution control.

Accountants and advisors

The governing law is § 67-6-206(a) and the definition of "industrial machinery" at § 67-6-102(46)(A)(i), which folds in "pollution control facilities." The "pollution control facility" definition and its primary-purpose requirement are at § 67-6-102(46)(A)(ii); steam-generating machines (and their accessories) are exempt under § 67-6-102(46)(D)(i); and supplies used in pollution control facilities are exempt under § 67-6-329(a)(9). Confirm the >50%-of-location-revenue manufacturer threshold (§ 67-6-206(b)(2); Tenn. Farmer's Coop), and remember Woods v. General Oils defines "primarily."

Common questions

Q: Is all of a manufacturer's water-handling equipment exempt?
A: No. Equipment that treats the wastewater you discharge (to remove pollution your process created) is exempt as a pollution control facility, and the supplies used in it are exempt too. Equipment and supplies that treat water entering your process so a machine can use it generally are not — unless they qualify under a different hook.

Q: Why were the intake pumps and valves exempt but the intake filters and chemicals taxable?
A: The pumps and valves move water to the boilers, which are exempt machines that generate steam, so they ride along as accessories. The filters, pH treatment, chemicals, and salt pellets are not part of a functioning machine and their purpose there is making the water boiler-ready, not reducing manufacturing pollution — so they are taxable.

Q: What makes something a "pollution control facility"?
A: Its primary purpose must be to eliminate, prevent, or reduce air or water pollution that is created as a result of your fabricating or processing and that would be harmful or offensive to the public if released untreated, used by a manufacturer as its principal business.

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 cannot 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) — industrial machinery includes pollution control facilities primarily used for air/water pollution control by a manufacturer
- § 67-6-102(46)(A)(ii) — definition of "pollution control facility" (primary purpose: eliminate/prevent/reduce pollution created by fabricating or processing)
- § 67-6-102(46)(D)(i) — machines that generate, produce, and distribute steam are industrial machinery
- § 67-6-329(a)(9) — supplies used in air or water pollution control facilities for pollution control purposes are exempt
- § 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

Cases:
- Tenn. Farmer's Coop v. State ex rel. Jackson, 736 S.W.2d 87 (Tenn. 1987) — manufacturer = more than 50% of a location's revenue from processing for resale
- Woods v. General Oils, Inc., 558 S.W.2d 433 (Tenn. 1977) — "primarily" means first of all, principally, fundamentally

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/25-05.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 industrial machinery exemption to water treatment
equipment and supplies.

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 frozen food products to [REDACTED].
The Taxpayer operates [REDACTED] manufacturing facilities in Tennessee at the following locations:

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[REDACTED]
The Taxpayer uses pollution control and wastewater treatment equipment and supplies in the process
of manufacturing [PRODUCTS].
The Taxpayer’s Tennessee manufacturing facilities use a significant amount of water in their
manufacturing processes. For example, the [REDACTED] plant produces approximately 200,000
gallons of wastewater per day. Wastewater is ultimately returned to municipalities. Local authorities
(municipal utilities) routinely test wastewater. If wastewater is not within specifications, penalties are
imposed.
Water treatment includes both treatment of water entering the process and water discharged from
the process (i.e., wastewater). Wastewater treatment encompasses treatment of both low-strength
waste and high-strength waste. These processes are described in more detail below.
Water Treatment (Water Entering the Manufacturing Process)
The Taxpayer uses steam as a heat source in the manufacturing process. Steam is created by boilers
(i.e., steam-generators). When water is heated at high temperatures, steam is produced. This steam
is clean, leaving behind any contaminants in the boiler. For the boilers to properly function, buildup
of contaminants must be minimized—otherwise, boiler failure may result. Filters, chemicals, and salt
pellets are used to extract contaminants from water entering the boilers. Chemicals and salt pellets
are used to facilitate ionization, which separates contaminants from water entering the boilers.
Wastewater Treatment (Water Discharged from the Manufacturing Process)—High-strength
High-strength wastewater cannot be discharged to the sewer system unless the high-strength waste
is removed. The wastewater treatment plant removes high-strength waste from wastewater. Highstrength wastewater treatment enables the Taxpayer’s manufacturing process to comply with
environmental laws and regulations.
The wastewater treatment plant uses various pumps and tanks in this process. This equipment
captures coagulants to be skimmed (high-strength waste). Water then goes to the DAF (dissolved air
flotation) process, which is a water treatment process that clarifies wastewater by removing
suspended solids (oils, greases, BOD, COD, and metals). Surface coagulants are sent to an outside
party along with other high-strength waste from the plant. The waste hauler is [REDACTED].
[REDACTED] treats or contains high-strength waste. Filters and chemicals are also used in the process
of removing high-strength waste from wastewater.
Wastewater Treatment (Water Discharged from the Manufacturing Process)—Low-strength
After high-strength waste is removed from wastewater, the resultant wastewater qualifies as lowstrength wastewater. Low-strength waste involves a level of contamination lower (from a pollution
standpoint) than high-strength waste. Municipalities accept low-strength wastewater back into their
systems (i.e., municipal sewer system).
The low-strength wastewater treatment system is comprised of grease traps, screens, floor drains,
and piping underground. [REDACTED] solids and other contaminants must be removed from lowstrength wastewater before the water can be discharged into the sewer system. The Taxpayer utilizes

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grease traps to collect [REDACTED] solids and other contaminants. The resultant wastewater may
then be discharged into the municipal sewer systems.
Low-strength wastewater treatment enables the Taxpayer’s manufacturing process to comply with
environmental laws and regulations.
Item Descriptions

Usage

Water treatment (water entering the process)
Equipment:
Pumps, valves

Equipment used to pump water to boilers,
chillers and heat exchangers.

Supplies:
Filters

Supplies used to filter water entering the
boilers.

PH treatment

Supplies used to treat water entering boilers
and other equipment.

Chemicals [REDACTED]

Supplies used to treat boilers and other
equipment to ensure clean use.

Salt pellets--for boilers

Supplies used to treat boilers and other
equipment to ensure clean use.

Wastewater treatment (water discharged
from the manufacturing process)
High-strength waste
Equipment:

Equalization tanks

Equipment used to treat water and capture
coagulants to be skimmed (high-strength
waste). Water then goes to the DAF process.
Surface coagulants are sent to an outside
party along with other high-strength waste
from the plant. ([REDACTED] is the hauler;
disposal is performed by [REDACTED].)

Pumps, circulators, feed pumps [REDACTED]

Equipment that pumps water throughout
wastewater treatment systems.

Instrumentation [REDACTED]

Equipment used to monitor and control the
wastewater treatment system.

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Low-strength waste
Equipment:

Grease traps

Equipment (floor drain screens, etc.) used to
strain [REDACTED] and solids from lowstrength wastewater. Low-strength
wastewater can enter the sewer.

Supplies:

Filters [REDACTED]

Filters used to remove high-strength waste
from wastewater.

Chemicals [REDACTED]

Chemicals used to clean wastewater.
Hydrochloric acid lowers PH, to free up
particles from liquid. Caustic soda, flocculant
(long-chain polymer) and coagulants pull
solids out of the solution.

Are the above-described items exempt from Tennessee sales and use tax?
Ruling: See chart below.

Item Descriptions

Exempt?

Water treatment (water entering the process)
Equipment:
Pumps, valves

Yes, as accessories to machines that generate
steam under TENN. CODE ANN. § 67-6102(46)(D)(i).

Supplies:
Filters
PH treatment

Not exempt as pollution control facilities
under TENN. CODE ANN. § 67-6-102(46).
Not exempt as pollution control facilities
under TENN. CODE ANN. § 67-6-102(46).

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Chemicals [REDACTED]

Not exempt as pollution control facilities
under TENN. CODE ANN. § 67-6-102(46).

Salt pellets--for boilers

Not exempt as pollution control facilities
under TENN. CODE ANN. § 67-6-102(46).

Wastewater treatment (water discharged
from the manufacturing process)
High-strength waste
Equipment:
Equalization tanks

Yes, as pollution control facilities under TENN.
CODE ANN. § 67-6-102(46).

Pumps, circulators, feed pumps [REDACTED]

Yes, as pollution control facilities under TENN.
CODE ANN. § 67-6-102(46).

Instrumentation [REDACTED]

Yes, as pollution control facilities under TENN.
CODE ANN. § 67-6-102(46).

Low-strength waste
Equipment:

Grease traps

Yes, as pollution control facilities under TENN.
CODE ANN. § 67-6-102(46).

Supplies:

Filters [REDACTED]

Chemicals [REDACTED]

Yes, as supplies used in pollution control
facilities under TENN. CODE ANN. § 67-6329(a)(9).
Yes, as supplies used in pollution control
facilities under TENN. CODE ANN. § 67-6-329
(a)(9).

Under the Retailer’s Sales Tax Act,1 the retail sale in Tennessee of tangible personal property and
specifically enumerated services is subject to sales and use tax, unless an exemption applies. 2 Under
TENN. CODE ANN. § 67-6-206(a) (2022), “no tax is due with respect to industrial machinery.”

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).

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Industrial machinery includes “pollution control facilities primarily used for air pollution control or
water pollution control, where the use of such . . . facilities is by one who engages in” the fabrication
or processing of tangible personal property for resale and consumption off the premises “as one's
principal business.”3 The Taxpayer has asked if certain items of equipment and supplies are exempt
from tax as pollution control facilities.
Pollution control facility means
any system, method, improvement, structure, device or appliance appurtenant
thereto used or intended for the primary purpose of eliminating, preventing or
reducing air or water pollution . . . when such pollutants are created as a result of
fabricating or processing by one who engages in fabricating or processing as such
person's principal business activity, which, if released without such treatment,
pretreatment, modification or disposal, might be harmful, detrimental or offensive to
the public and the public interest.4
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. 5 To qualify as
a pollution control facility, a system, method, improvement, structure, device, or appliance must have
as its “primary” purpose eliminating, preventing, or reducing air or water pollution. 6 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.” 7
Thus, the Taxpayer’s items will be exempt from Tennessee sales and use tax as pollution control
facilities (i.e., industrial machinery) if (1) the Taxpayer is a manufacturer at each location and (2) the
items are used or intended for the primary purpose of eliminating, preventing, or reducing air or water
pollution that is (3) created as a result of the manufacturing process and that (4) if released without
treatment, might be harmful to the public and the public interest.
As a preliminary matter, each of the Taxpayer’s locations qualifies as a manufacturer. A manufacturer
is an entity that fabricates or processes tangible personal property for resale. Thus, the first
requirement is met for all the items discussed below.
Water Treatment for Water Entering the Process
Equipment: Pumps, Valves
The Taxpayer states that water is treated before being used to create steam as a heat source for
manufacturing. The Taxpayer identifies pumps and valves, which are used to pump water to boilers,
chillers and heat exchangers in the process of generating steam. Furthermore, the Taxpayer uses

3

TENN. CODE ANN. § 67-6-102(46)(A)(i).

4

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

5

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

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

7

Woods v. General Oils, Inc. 558 S.W. 2d 433, 436 (Tenn. 1977) (citing Webster’s Third New International Dictionary (1961)).

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filters, chemicals, and salt pellets to extract contaminants from water entering the boilers used to
create steam.
The pumps and valves described above are not used or intended for the “primary purpose of
eliminating, preventing, or reducing . . . water pollution . . . when such pollutants are created as a result
of fabricating or processing” (emphases added).8 The purpose of these components is to pump water
through the system to generate steam used as a heat source in the manufacturing process. Build-up
of contaminants may affect boiler operation, but the primary purpose of these components is not
pollution reduction. Their primary purpose is the generation of steam. Furthermore, it is not clear
how the waste present in the water before it enters the boiler is “created” by the manufacturing
process. For these reasons, the pumps and valves are not pollution control facilities under T ENN. CODE
ANN. § 67-6-206.
The boilers themselves qualify as exempt industrial machinery because they are “[m]achines used for
generating, producing, and distributing . . . steam.” T ENN. CODE ANN. § 67-6-102(46)(D)(i). Because the
primary purpose of the pumps and valves appears to be to pump water to the boilers for steam
generation, they are likewise exempt as accessories to the boilers.
Supplies: Filters, PH Treatment, Chemicals, Salt Pellets
The filters, PH treatments, chemicals, and salt pellets used to extract contaminants from water
entering the boilers are likewise not exempt pollution control facilities. These items do not constitute
a “system, method, improvement, structure, device or appliance appurtenant thereto.” 9 Rather, they
are chemicals and supplies, which would be exempt under T ENN. CODE ANN. § 67-6-329(a)(9) if they
were “used in air or water pollution control facilities for pollution control purposes.” However, as
discussed above, this portion of the process is not primarily for reduction of pollution created by the
manufacturing process, and therefore these chemicals and supplies are not used in a pollution control
facility. These chemicals and supplies are thus not exempt from the tax.
Wastewater Treatment for Water Discharged from the Manufacturing Process
High-Strength Waste—Equipment:
Instrumentation

Equalization

Tanks,

Pumps,

Circulators,

Feed

Pumps,

The Taxpayer describes these items as being used to remove high-strength waste from water used in
its manufacturing process. After the high-strength waste is removed, the wastewater can be
discharged into the sewer system. From the Taxpayer’s description, the equalization tanks, pumps,
circulators, feed pumps, and instrumentation are used for the primary purpose of eliminating,
preventing, or reducing water pollution. The waste is created as a result of the manufacturing process.
Furthermore, the removal of high-strength waste before discharge into the municipal sewer system
makes the wastewater suitable for release to avoid detriment to the public and the public interest.
Therefore, these items are exempt from tax as pollution control facilities.
Low-Strength Waste—Equipment: Grease Traps

8

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

9

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

7

The same analysis above with respect to high-strength waste equipment applies to the grease traps
that the Taxpayer uses to collect [REDACTED]solids and other contaminants before wastewater is
discharged. Therefore, this item is exempt as a pollution control facility.
Low-Strength Waste—Supplies: Filters, Chemicals
The Taxpayer states that these supplies are used to remove [REDACTED] solids and other
contaminants that must be removed from low-strength wastewater before the water can be
discharged into the sewer system. These supplies are used primarily to eliminate or reduce this waste,
which is created as a result of the manufacturing process, and they reduce waste that would be
otherwise harmful or offensive to the public interest if released without such pollution controls.
Therefore, these items are exempt from tax under TENN. CODE ANN. § 67-6-329(a)(9) as supplies used
in water pollution control facilities for pollution control purposes.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

May 20, 2025

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