Are the computers, software, and related equipment a Tennessee manufacturer uses to run its production lines exempt from sales tax as industrial machinery?

Plain-English summary

A frozen-food manufacturer has automated much of its plant: computers, servers, tablets, sensors, scales, and software now do work that production machinery and workers used to do. It asked Tennessee whether that computer hardware and software qualifies for the industrial machinery exemption. The catch is that prewritten computer software is normally taxable in Tennessee — its sale, lease, license, or use is taxed no matter how it's delivered — so the question was whether these production systems instead fit the exemption.

The Department applied the usual four-part industrial-machinery test (a manufacturer at the location; the item is machinery/apparatus/equipment; it is necessary to processing; and it is used primarily for processing), treating hardware as "equipment" and software as "apparatus." What controlled each answer was whether the system directly runs or controls the making of the product:

• Exempt — the systems that run the lines. MLO (line optimization), SCADA (monitors line/product specs), and QDMS (in-process quality testing) — their PCs, servers, tablets, the production scales, the software, and the PLCs (programmable logic controllers that bridge the systems and execute actions) all qualify, because they monitor production and correct issues on the line in real time.
• Exempt — packaging printers. The case printers and pallet printers both print and apply labels as the final step of packaging the product, so they are "machinery used to package manufactured items." (This distinguishes a prior ruling where the printers only printed labels that another machine applied — too far removed.)
• Not exempt. The Strongarm steel enclosures just protect the hardware (not necessary to, or primarily for, manufacturing). REMS (refrigeration/energy management) only optimizes electricity, gas, and water use — not directly connected to making the product. The standalone label-creation software is too far removed from the act of affixing labels. And the PLM module of the company's ERP platform manages the business across R&D, QA, and production; it isn't primarily for manufacturing, and because its use is mixed it can't be shown to be primarily for R&D either.

What this means for you

Tennessee manufacturers running automated plants

Software's default status in Tennessee is taxable, so a manufacturer has to affirmatively fit each computer system into the industrial-machinery exemption. The winning theme: hardware and software that monitor and control the production line itself (and the PLCs/scales tied into them) are exempt; systems one step away — protecting equipment, managing energy, running the back office — are not. Map each system to what it does to the product, and confirm the >50%-of-location-revenue manufacturer threshold at each plant.

Where the line falls

Three boundaries recur. (1) Enclosures/accessories that only protect the gear (the Strongarms) are not "necessary to" or "primarily for" manufacturing. (2) Resource-optimization systems like REMS save electricity but don't make the product, so they fail the test. (3) Packaging machinery is exempt — but only the machine that actually packages/affixes; software that merely creates a label, and printers that only print labels for another machine to apply, are too far removed.

The ERP / R&D trap

A product-lifecycle (PLM) module inside an ERP system straddles R&D, QA, and production. Tennessee has a separate R&D branch of the exemption, but it requires the item to be used primarily for R&D — and a mixed-use module flunks that. (The R&D branch also has its own authorization process under Rule 128.) If you want the R&D treatment, watch for mixed use and the Rule 128 procedure.

Accountants and advisors

Software is taxable by default under § 67-6-231(a) (and prewritten software is TPP under § 67-1-102(97)(A)). The industrial-machinery test is § 67-6-102(46)(A)(i); packaging machinery is § 67-6-102(46)(E)(i); the R&D branch is § 67-6-102(46)(M) with Rule 1320-05-01-.128. Use Tibbals Flooring for "equipment" and Woods v. General Oils for "primarily," and confirm the manufacturer threshold (§ 67-6-206(b)(2); Tenn. Farmer's Coop).

Common questions

Q: Isn't software always taxable in Tennessee?
A: As a default, yes — the sale, lease, license, or use of computer software is taxable regardless of how it's delivered. But software that qualifies as industrial machinery (here, the "apparatus" that runs and controls the production line) is exempt. The exemption, not the software's medium, is what matters.

Q: Which of my production computers qualify?
A: Those that monitor and control the making of the product — line optimization, spec monitoring, in-process quality testing — along with their PCs, servers, tablets, production scales, and the PLCs that link them. Systems that only protect hardware, manage energy, or run the back office do not.

Q: Are my labeling printers exempt?
A: If a printer both prints and applies the label as part of packaging the product, it's exempt packaging machinery. A printer that only prints labels for another machine to apply — and software that only creates the label — are too far removed and are taxable.

Q: Why didn't the ERP/PLM module qualify?
A: It manages the business across research, quality, and production rather than directly making the product, so it isn't "primarily for" manufacturing. The separate R&D exemption requires primarily-for-R&D use, which a mixed-use module can't establish (and it has its own Rule 128 authorization process).

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) — definition of industrial machinery (necessary to, and primarily for, processing TPP for resale)
- § 67-6-102(46)(E)(i) — machinery used to package manufactured items is industrial machinery
- § 67-6-102(46)(M) — industrial machinery includes machinery necessary to, and primarily for, research and development
- § 67-6-231(a) — sale, lease, licensing, or use of computer software is taxable regardless of delivery method
- § 67-1-102(97)(A) — "tangible personal property" includes prewritten computer software
- § 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

Rules (Tenn. Comp. R. & Regs.):
- 1320-05-01-.128 (Rule 128) — research and development machinery authorization

Cases:
- Tibbals Flooring Co. v. Olsen, 698 S.W.2d 60 (Tenn. 1985) — "equipment" = physical resources used in an operation or activity
- Woods v. General Oils, Inc., 558 S.W.2d 433 (Tenn. 1977) — "primarily" means first of all, principally, fundamentally
- Tenn. Farmer's Coop v. State ex rel. Jackson, 736 S.W.2d 87 (Tenn. 1987) — manufacturer threshold

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/25-07.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 computer hardware
and software used in manufacturing.

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:

1

[REDACTED]
The Taxpayer’s integrated manufacturing process includes the usage of computer hardware and
software. For food product safety purposes, strict production methods and processes must be
followed. Food product safety oversight regulations are promulgated by the Tennessee Department
of Agriculture, the United States Food and Drug Administration, and the United States Department of
Agriculture. Furthermore, strict customer-specific criteria and metrics must be maintained. Computer
hardware and software are utilized to complete many tasks that were historically completed by
traditional production machinery and production workers. Products manufactured at each facility
account for more than 51% of sales attributable to each facility.
Hardware used in the Taxpayer’s production process includes servers, PCs, tablets, routers, wireless
devices, sensors, and [REDACTED] scan guns. Various software platforms are used in conjunction with
this hardware. The diagram below shows how the software modules are interrelated within the
production process.
[REDACTED]
Item Descriptions (vendor)

Usage

Manufacturing Line Optimization
(MLO)
MLO hardware maximizes production line process
efficiency. Data is collected by sensors on the production
lines. MLO data (inputs/ingredients, production rate,
outputs) is used to correct issues in the production line.

MLO Hardware (PCs/Servers)

[REDACTED] software maximizes production line
process efficiency. Data is collected by sensors on the
production lines. MLO data (inputs/ingredients,
production rate, outputs) is used to correct issues in the
production line.

[REDACTED] Software

Scales are interfaced with the MLO system. Scales
measure ingredients within the production process and
electronically provide data to the MLO system.

Production Scales

Strongarms
(boxes)—Stainless
steel
enclosure
for
monitor,
PC,
etc.
([REDACTED],
subsequent
parts:
[REDACTED])

PLC—programable
([REDACTED])

logic

controller

Strongarms are used to house & protect thin client
hardware (centrally managed computer--i.e., not
network) that is used for MLO (monitoring and collecting
data); if needed, a production associate may redirect a
production process and/or attribute.
PLC is a bridge (link) between SCADA, REMS, etc. (all
systems) and Monitoring and Evaluation (M&E) (e.g.,
valve). PLC has a long-life but requires maintenance. PLC
costs also include the annual license fee paid by the
manufacturing plants.

2

Supervisory
Control
Acquisition (SCADA)

and

Data
SCADA hardware is used to monitor production line
specifications and product output specifications. SCADA
data (freezer temperatures, product specifications, etc.)
is then used to correct issues in the production process.

SCADA Hardware (PCs/Servers)

[REDACTED] software is used to monitor production line
specifications and product output specifications.
[REDACTED] data (freezer temperatures, product
specifications, etc.) is then used to correct issues in the
production process.

[REDACTED] Software

Strongarms
(boxes)--Stainless
steel
enclosure
for
monitor,
PC,
etc.
([REDACTED],
subsequent
parts:
[REDACTED])

Strongarms are used to house & protect thin client
hardware (centrally managed computer--i.e., not
network) that is used for MLO (monitoring and collecting
data); if needed, a production associate may redirect a
production process and/or attribute.

PLC--programable
([REDACTED])

PLC is a bridge (link) between SCADA, REMS, etc. (all
systems) and M&E (e.g., valves, controllers).
PLC
executes actions as directed by the software systems.

logic

controller

Quality Data Management System
(QDMS)
Tablets are used to manually input data into QDMS
system. Tablets are not assigned to specific workers;
they are allocated to various functions.

Tablets

QDMS software is used in the process of measuring
ingredients/products to make sure everything is within
proper product specifications.

QDMS Software ([REDACTED])

PLC--programable
([REDACTED])

logic

Refrigeration Energy
System (REMS)

controller

PLC is a bridge (link) between SCADA, REMS, etc. (all
systems) and M&E (e.g., valves, controllers).
PLC
executes actions as directed by the software systems.

Management

REMS Hardware (Refrigeration Energy
Management System) ([REDACTED])

REMS Software (Refrigeration Energy
Management System) ([REDACTED])

REMS hardware is integrated with compressors, spiral
freezers, and other production equipment. It allows
certain equipment to be cycled on/off depending on
demand to save electricity and increase production
efficiency.
REMS software is integrated with compressors, spiral
freezers, and other production equipment. It allows
certain equipment to be cycled on/off depending on

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demand to save electricity and increase production
efficiency.

PLC--programable
([REDACTED])

logic

controller

PLC is a bridge (link) between SCADA, REMS, etc. (all
systems) and M&E (e.g., valves, controllers).
PLC
executes actions as directed by systems.

Packaging/Case Labelling Software
Case printers ([REDACTED])

Pallet printers ([REDACTED])

[REDACTED] Software ([REDACTED])

Case printers print labels on product packaging. The
printed information is for both [the Taxpayer] and for
customers (to meet customer requirements—e.g.,
[REDACTED] has special requirements).
Pallet printers print labels on product pallets. The
printed information is for both [the Taxpayer] and for
customers (to meet customer requirements—e.g.,
[REDACTED] has special requirements).
[REDACTED] software is used to create case labelling
(customer labelling). It manages data elements such as
ingredients, order #, and SKUs.

Product Lifecycle Management (PLM)
PLM Module within [REDACTED] ERP
System ([REDACTED])

PLM is a production-focused module within [the
Taxpayer’s] enterprise resource planning (ERP) platform
provided by [REDACTED]. Data is collected and used for
both research and development (R&D) and quality
assurance purposes. Like the QDMS system, this
information is used in [the Taxpayer’s] Critical to Quality
(CTQ) product criteria. Ingredients, packaging, and
process/product data are utilized to ensure quality and
for future product development (or improved product
development) purposes.

The following is an overview of primary systems and manufacturing initiatives.
Manufacturing Line Optimization (MLO)
The primary objective of the MLO system is to maximize production line efficiency. Other objectives
might include increased production output per inputs, waste reduction, and less production
downtime. Sensors on production equipment collect data (inputs, ingredients, production rate,
outputs) continuously in certain parts of the production process. MLO data is then used to correct
issues on the production line in real time. Without the MLO system, the Taxpayer’s current
manufacturing processes could not be properly completed—line stoppages would be required to
implement corrections to processes, machinery, or ingredients.

4

MLO software and hardware are primarily purchased from [REDACTED]. The related software is
[REDACTED] (formerly [REDACTED]). [REDACTED] is used to automate production processes and is
[REDACTED] designed to be used with the [REDACTED] operating system.
Supervisory Control and Data Acquisition (SCADA)
SCADA is a system that helps ensure products meet certain specifications. Regarding objective, SCADA
is like MLO in several ways; however, SCADA is more focused on product attributes than
manufacturing process attributes. SCADA monitors and collects data such as oven and freezer
temperatures and product specifications. SCADA data is then used to correct issues in the production
process. Without the SCADA system, the Taxpayer’s current manufacturing processes could not be
properly completed—line stoppages would be required to implement corrections to processes or
machinery.
SCADA hardware and software are primarily purchased from [REDACTED]. [REDACTED] software is
also used in SCADA activities.
Quality Data Management System (QDMS)
The primary objective of QDMS software (purchased from [REDACTED]) is to ensure that
manufactured product output meets prescribed product specifications. Thus, QDMS is more quality
assurance (QA) focused. For example, product samples may be tested for specific criteria (e.g.,
moisture content, viscosity, dimensions). This information is used in the Taxpayer’s Critical to Quality
(CTQ) product criteria. QDMS data is entered into the system manually by production workers. If
criteria are not within specifications, the production process is corrected accordingly. Without the
QDMS system, the Taxpayer’s product would not be manufactured to required specifications. Line
stoppages would be required to implement corrections to processes, machinery, or ingredients to
make products within CTQ product criteria.
Refrigeration Energy Management System (REMS)
The REMS (primarily purchased from [REDACTED]) consists of both hardware and software. The
primary objective of REMS is to maximize production line efficiency with respect to natural resources
(i.e., electricity, gas, water). Sensors and switches on compressors, spiral freezers, etc., monitor the
input and usage of these resources and are used to turn machinery on or off as needed. These
processes were historically completed by exempt production machinery accessories (e.g., thermostats
and manual controllers). Without the REMS system, the Taxpayer’s current manufacturing processes
could not be properly completed with existing energy inputs—line stoppages would be required to
implement corrections to processes, machinery, or ingredients to facilitate ongoing production.
Packaging Labeling Software
The Taxpayer uses packaging labeling software to manage product data such as ingredient lists and
SKU numbers which are then provided to on-site industrial printers that create packaging labels. The
labeling is transferred to the customer as part of product packaging.
The Taxpayer uses onsite industrial printers to print and apply two types of labels: (1) case labels and
(2) pallet labels. Case labels are applied to the case box and include the information that is common
on individual product labeling, such as ingredients, nutrition information, and expiration date.

5

Pallet labels are applied to the pallet and include less detailed information related to the pallet
contents. This information is sometimes specified by the customer. For example, one of the
Taxpayer’s customers requires a “Global Label” on pallets, which contains the pallet ID, the product
code, the batch ID/number, the number of units (e.g., number of cases), and the product shelf life.
The information on pallet labels is somewhat administrative in nature (to facilitate proper shipping of
proper product) and is primarily used in the distribution system (supply chain).
The case labels are applied after product cases are sealed but before the cases are palletized. The
pallet labels are applied after the cases are palletized. Both activities occur before final freezing of
the product in the adjacent freezer facility.
Product Lifecycle Management (PLM)
PLM is a production-focused software module within [REDACTED] software, the Taxpayer’s enterprise
resource planning (ERP) platform. Data is collected and used for both research and development
(R&D) and QA purposes. Like the QDMS system, this information is used in the Taxpayer’s CTQ product
criteria. Ingredients, packaging, and process/product data is utilized to ensure quality and for future
product development (or improved product development) purposes. Without the PLM software, the
Taxpayer’s current manufacturing processes could not be properly completed—line stoppages would
be required to implement corrections to processes, machinery, or ingredients to facilitate ongoing
production.

Are the computer hardware and software used in the Taxpayer’s manufacturing facilities
exempt from Tennessee sales and use tax?
Ruling: See chart below.

Item Descriptions (vendor)

Exempt?

Manufacturing Line Optimization (MLO)
MLO Hardware (PCs/Servers)

Yes

[REDACTED] Software

Yes

Production Scales

Yes

Strongarms (boxes)--Stainless steel enclosure for monitor,
PC, etc. ([REDACTED], subsequent parts: [REDACTED])

No

6

PLC--programable logic controller ([REDACTED])

Yes

Supervisory Control and Data Acquisition (SCADA)
SCADA Hardware (PCs/Servers)

Yes

[REDACTED] Software

Yes

Strongarms (boxes)--Stainless steel enclosure for monitor,
PC, etc. ([REDACTED], subsequent parts: [REDACTED])

No

PLC--programable logic controller ([REDACTED])

Yes

Quality Data Management System (QDMS)
Tablets

Yes

QDMS Software ([REDACTED])

Yes

PLC--programable logic controller ([REDACTED])

Yes

Refrigeration Energy Management System (REMS)
REMS Hardware (Refrigeration
System) ([REDACTED])

Energy

Management

No

REMS Software (Refrigeration Energy Management System)
([REDACTED])

No

PLC--programable logic controller ([REDACTED])

No

Packaging/Case Labelling Software
Case printers ([REDACTED])

Yes

7

Pallet printers (REDACTED])

Yes

[REDACTED] Software ([REDACTED])

No

Product Lifecycle Management (PLM)
PLM Module within [REDACTED] ERP System ([REDACTED])

No

Under the Retailer’s Sales Tax Act,1 the retail sale in Tennessee of tangible personal property is subject
to sales and use tax, unless an exemption applies.2 “Tangible personal property” includes prewritten
computer software.3 Additionally, TENN. CODE ANN. § 67-6-231(a) provides that the retail sale, lease,
licensing, or use of computer software is subject to sales and use tax regardless of how the software
is delivered. 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.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
In the context of analyzing industrial machinery, the Tennessee Supreme Court in Tibbals Flooring Co.
v. Olsen, 698 S.W.2d 60, 62 (Tenn. 1985), 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.”
The term “apparatus” has not been defined by the Tennessee Code or by Tennessee courts for
purposes of the industrial machinery exemption. When a statute does not define a term, the
Tennessee Supreme Court has stated that it is proper to look to common usage to determine the
term’s meaning.6 MERRIAM WEBSTER’S COLLEGIATE DICTIONARY, 11TH edition (2003) defines “apparatus” as “a
set of materials or equipment designed for a particular use” or “an instrument or appliance designed
for a specific operation.”
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. § 67-1-102(97)(A) (Supp. 2023).

4

TENN. CODE ANN. § 67-6-102(46)(A)(i).

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

See, e.g., Beare Co. v. Tenn. Dept. of Revenue, 858 S.W.2d 906, 908 (Tenn. 1993).

8

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.” Woods v. General Oils, Inc. 558 S.W. 2d 433, 436 (Tenn. 1977)
(citing WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY (1961)).
Thus, computer hardware and software will be exempt from Tennessee sales and use tax as industrial
machinery if four requirements are met. First, the Taxpayer must be a manufacturer at each location.
Second, the computer hardware and software must be machinery, apparatus, and equipment,
including all parts, appurtenances and accessories, or repair parts and labor. Third, the computer
hardware and software must be necessary to the fabrication or processing of the products sold by
the Taxpayer. Fourth, the computer hardware and software must be primarily for the fabrication of
the products sold by the Taxpayer.
As a preliminary matter, each of the Taxpayer’s locations qualifies as a manufacturer. Thus, the first
requirement is met for all the computer hardware and software discussed below.
Manufacturing Line Optimization (MLO)
The MLO hardware qualifies as equipment because servers and PCs are physical resources that allow
a person to use software in manufacturing activities. The MLO hardware is necessary because without
it there would be no way to manage the inputs and outputs related to the production line. Without
the hardware, the MLO system will not function, and the Taxpayer’s current manufacturing processes
could not be properly completed—line stoppages would be required to implement corrections to
processes, machinery, or ingredients. The servers and PCs used in MLO are primarily for
manufacturing because their purpose is to collect data and correct issues on the production line. Thus,
the MLO hardware qualifies for the industrial machinery exemption from sales and use tax.
The [REDACTED] software qualifies as apparatus because it is designed to accomplish a specific
purpose—maximizing production line efficiency. The [REDACTED] software is necessary because
without it, the MLO system will not function, and the Taxpayer’s current manufacturing processes
could not be properly completed—line stoppages would be required to implement corrections to
processes, machinery, or ingredients. The [REDACTED] software is primarily for manufacturing
because it is used to automate production line processes. Thus, the [REDACTED] software qualifies
for the industrial machinery exemption from sales and use tax.
The production scales qualify as apparatus because they are designed to accomplish a specific
purpose—measuring ingredients in the production process and electronically providing data to the
MLO system. The production scales are necessary to manufacturing products because without them
there would be no way for the MLO system to monitor the ingredients going into the products,
resulting in defective products. The production scales only measure ingredients and interface with the
MLO system; therefore, they are primarily used for manufacturing. Thus, the production scales qualify
for the industrial machinery exemption from sales and use tax.

7

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

9

The Strongarms, steel enclosures that house and protect the hardware, do not qualify as industrial
machinery for purposes of the exemption because they are not necessary to the manufacturing
process, and they are not primarily used for manufacturing—they are designed to protect the
hardware elements of the MLO system.
The programmable logic controller (the “PLC”), which is essentially a rugged computer, qualifies as
equipment because it is a physical resource that connects all the various automated systems. It is
necessary to the manufacturing process because without it, the MLO system would not function, and
the Taxpayer’s current manufacturing processes could not be properly completed—line stoppages
would be required to implement corrections to processes, machinery, or ingredients. It is primarily
for manufacturing because it acts as a bridge connecting all the various automated systems. Thus, the
PLC qualifies for the industrial machinery exemption from sales and use tax.
Supervisory Control and Data Acquisition (SCADA)
The SCADA hardware qualifies as equipment because servers and PCs are physical resources that
allow a person to use software in manufacturing activities. The SCADA hardware is necessary because
without it there would be no way to manage the inputs and outputs (oven or freezer temperatures
and product specifications) related to the products on the production line. Without the hardware, the
SCADA system will not function, and the Taxpayer’s current manufacturing processes could not be
properly completed—line stoppages would be required to implement corrections to processes,
machinery, or ingredients. The servers and PCs used in SCADA are used primarily for manufacturing
because their purpose is to monitor and correct production line issues. Thus, the SCADA hardware
qualifies for the industrial machinery exemption from sales and use tax.
The [REDACTED] software qualifies as apparatus because it is designed to accomplish a specific
purpose—maximize production line efficiency. The [REDACTED] software is necessary because
without it, the SCADA system will not function, and the Taxpayer’s current manufacturing processes
could not be properly completed—line stoppages would be required to implement corrections to
processes, machinery, or ingredients. The [REDACTED] software is primarily used to automate
production line processes. Thus, the [REDACTED] software qualifies for the industrial machinery
exemption from sales and use tax.
The Strongarms, steel enclosures that house and protect the hardware, do not qualify as industrial
machinery for purposes of the exemption because they are not necessary to the manufacturing
process, and they are not primarily used for manufacturing—they are designed to protect the
hardware elements of the SCADA system.
The programmable logic controller (the “PLC”), which is essentially a rugged computer, qualifies as
equipment because it is a physical resource that connects all the various automated systems. It is
necessary to the manufacturing process because without it, the SCADA system would not function,
and the Taxpayer’s current manufacturing processes could not be properly completed—line
stoppages would be required to implement corrections to processes, machinery, or ingredients. It is
primarily for manufacturing because it acts as a bridge connecting all the various automated systems.
Thus, the PLC qualifies for the industrial machinery exemption from sales and use tax.
Quality Data Management System (QDMS)
The tablets are equipment because they are physical resources that allow a person to use the QDMS
software in the manufacturing process to input product sample information (e.g., moisture content,

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viscosity, dimensions). They are necessary because without them, the QDMS system could not
function, and the manufactured product would be at risk of not meeting required product
specifications. Product testing is a necessary part of the manufacturing process, and the tablets are
essential to executing the product testing. The purpose of the tablets is to be used by workers to input
the product sample information. The tablets are not assigned to an individual worker; rather, they are
allocated based on function. Thus, the tablets qualify for the industrial machinery exemption from
sales and use tax.
The QDMS software qualifies as apparatus because it is designed to accomplish a specific purpose—
ensuring the manufactured product meets the required product specifications. The QDMS software
is necessary because without it, the QDMS system will not function, and the product testing could not
take place, resulting in a product that does not meet specifications. The QDMS software is primarily
for manufacturing because it is used to measure ingredients and other product qualities to ensure
that they meet specifications. Thus, the QDMS software qualifies for the industrial machinery
exemption from sales and use tax.
The programmable logic controller (the “PLC”), which is essentially a rugged computer, qualifies as
equipment because it is a physical resource that connects all the various automated systems. It is
necessary to the manufacturing process because without it, the QDMS system would not function,
and the Taxpayer’s current manufacturing processes could not be properly completed—line
stoppages would be required to implement corrections to processes, machinery, or ingredients. The
PLC is primarily for manufacturing because it acts as a bridge connecting all the various automated
systems. Thus, the PLC qualifies for the industrial machinery exemption from sales and use tax.
Refrigeration Energy Management System (REMS)
The purpose of the REMS is to maximize production line efficiency by controlling the use of resources,
such as electricity, gas, and water. Maximizing efficient use of resources does not meet the necessary
to and primarily for requirements of the industrial machinery exemption because the REMS is not
directly connected to manufacturing a product. Thus, the REMS does not qualify for the industrial
machinery exemption from sales and use tax.
Packaging Labeling Software
“Industrial machinery” also includes “[m]achinery used to package manufactured items, where the use
of such machinery is by a person whose principal business is fabricating or processing tangible
personal property for resale.”8 As has already been established, each location qualifies as a
manufacturer.
In a previous ruling, we ruled that merely printing product labels to be affixed to product packaging
by another machine was too far removed from the manufacturing process to qualify for the industrial
machinery exemption.9 We explained:
The printers print the labels that accompany the product when sold to retailers. While
the labels may be applied during the manufacturing process, the printing occurs
outside of that process and is not essential to the manufacturing. Further, machinery
8

TENN. CODE ANN. § 67-6-102(46)(E)(i).

9

See Tenn. Dept. Rev. Ltr. Rul. No. 13-10, p. 10 (Aug. 27, 2013).

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used to apply the labels to the pallets may be exempt as machinery used to package
the product, but the printers are one step removed from this process and do not
perform the actual packaging of the product. 10
Here, the printers both print and affix the labels that accompany the product. Because the printers
affix the labels, they are the “machinery used to apply the labels.”11 The case printers print and affix
product labels after the product cases are sealed but before they are palletized. The timing of the
labeling indicates that the product labels are affixed to the outside of the product packaging as the
final step in the packaging of the product into cases. The printers are not one step removed from the
packaging process as they were in our previous ruling. Accordingly, the case printers are machines
that are used to package the manufactured product and thus qualify for the industrial machinery
exemption from sales tax.
The pallet printers also satisfy this temporal requirement of labeling the manufactured product during
the packaging process. The product cases are labeled as the final step in the process of packaging the
product into pallets. In our previous ruling, we indicated that the result would likely be different for
the machinery used to apply the labels to the pallets. Because the pallet printers are the machinery
used to apply the labels to the pallets, they qualify as industrial machinery.
The [REDACTED] software that is used to create case labelling does not qualify for the industrial
machinery exemption from sales and use tax because it is not used to package the manufactured
items. The creation of a label using the [REDACTED] software is too far removed from the packaging
process of affixing labels onto product packaging.12
Product Lifecycle Management (PLM)
PLM software, which is a part of the Taxpayer’s enterprise resource planning platform, is not
necessary to, or primarily for, manufacturing. Rather, as part of the enterprise resource planning
platform, the purpose of PLM is to assist in managing and integrating different elements of the
Taxpayer’s business. Without the PLM, there may be downstream production line stoppages due to
disruptions in supply chain, but the PLM software does not directly impact the manufacturing of the
product in the same way as the MLO, SCADA, and QDMS.
According to the facts, the Taxpayer utilizes PLM for quality assurance, research and development,
and production. TENN. CODE ANN. § 67-6-102(46)(M) provides that industrial machinery also includes:
machinery, 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 purpose of research
and development.
(emphasis added).13 Because the Taxpayer utilizes PLM for other purposes as well (i.e., quality
assurance and production), PLM is not clearly used primarily for research and development.
10

Id.

11

Id.

12

The product labels themselves may be exempt from sales tax under Tenn. Code Ann. § 67-6-329(a)(13).

13

See also TENN. COMP. R. & REGS. 1320-05-01-.128 (“Rule 128”).

12

Furthermore, Rule 128 describes the activities that constitute research and development and the
process for applying for authorization to purchase research and development machinery tax exempt.
On the facts presented, the Department is unable to determine whether PLM qualifies.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

7-29-2025

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