When a manufacturer expands a factory, which of the new machinery, structural components, electrical systems, and pollution-control equipment qualify for Tennessee's industrial machinery sales tax exemption -- and which count as part of the building instead?

Plain-English summary

A Tennessee manufacturer is expanding its plant with extensive new specialized machinery, plus all the supporting infrastructure that comes with it — foundations, electrical distribution equipment, ventilation systems, piping, pollution-control equipment, and structural supports. The company asked the Department to go through a long list of items, item by item, and determine which qualify for Tennessee's industrial machinery exemption (§ 67-6-206(a)). The Department's answer: nearly everything is exempt, except the items that become part of the building itself.

Five categories of exempt items. The Department grouped the exempt items into five buckets under the broad "industrial machinery" definition (§ 67-6-102(46)(A)(i)):

1. Machinery, apparatus, and equipment necessary to and primarily for fabrication — things like ventilation environmental control systems (a "set of equipment... designed for a particular use," per AFG Indus., Inc. v. Cardwell) and piping/tubing that conveys materials through the process (Eastman Chemical Co. v. Johnson).
2. Associated parts, appurtenances, and accessories attached to qualifying machinery — including concrete, rebar, pilings, and structural steel used specifically to build bases that support industrial machinery.
3. Machines that generate, produce, or distribute electricity (§ 67-6-102(46)(D)(i)) — drives, switchgear, motor control centers, transformers, and power sources.
4. Equipment that transports raw materials and finished goods (§ 67-6-102(46)(D)(ii)) — here, truck dock equipment used solely to move finished product onto delivery trucks.
5. Pollution control facilities (§ 67-6-102(46)(A)(ii)) — effluent piping, a grating trench, and vacuum stacks that collect/treat wastewater or clean exhaust air from the manufacturing process.

The big exception: the building itself. Pilings, concrete, rebar accessories, and structural steel that form the floor, walls, or roof of the facility building are taxable — even though the building was specially engineered to bear the weight of this heavy machinery. The Tennessee Supreme Court has held that a building is not itself "machinery, apparatus, or equipment," even when it houses qualifying machinery (Tibbals Flooring Co. v. Huddleston, addressing a specially insulated drying kiln that the court found was, structurally, just a building). The same goes for formwork (molds used to pour concrete, removed once it hardens), hanger and pipe supports, cable trays, conduits, and trays and supports — these provide useful safety, support, or organizational functions, but the Department found them only secondary or indirect to the actual manufacturing process, not "necessary to and primarily for" fabrication (similar to oil storage tanks held nonexempt in Woods v. General Oils, Inc. because they had only a secondary, indirect manufacturing role).

The key distinction. The same physical materials — concrete, rebar, structural steel — can be exempt or taxable depending on what they form: a foundation/base specifically supporting a piece of qualifying machinery is an exempt appurtenance; the same material forming the building's general structure is taxable.

What this means for you

Manufacturers planning a plant expansion or new facility

Separate your purchase order (and your tax analysis) into "what becomes the building" versus "what becomes, or directly supports, machinery." Structural materials dedicated to machine-specific foundations/bases can be exempt; the same materials used for the building's general floor, walls, or roof are taxable — even in a building custom-engineered around your equipment.

Engineers, contractors, and project planners on industrial builds

This ruling gives a useful checklist of common manufacturing infrastructure and how each is classified: environmental/ventilation systems, electrical distribution equipment, transport equipment, and pollution-control systems are generally exempt; generic structural/support items (cable trays, conduits, hanger supports, formwork) are generally taxable as secondary/indirect to the process.

Accountants and tax professionals

This reinforces and extends the industrial-machinery cluster (RR 12-02; LR 12-16; LR 13-06/13-10) with a detailed building-vs.-machinery analysis grounded in the Tibbals Flooring line of cases and AFG Industries' definition of "apparatus." Note this is a Revenue Ruling — advisory only, not binding on the Department for any taxpayer.

Common questions

Q: Does new machinery purchased for a plant expansion qualify for Tennessee's industrial machinery exemption?
A: Generally yes, if it's necessary to and primarily for fabrication, generates/distributes electricity, transports materials/finished goods, or controls pollution from the process.

Q: Is the building that houses new manufacturing equipment exempt too?
A: No. A building — even one specially engineered around heavy machinery — is not itself "machinery, apparatus, or equipment" under Tennessee law (Tibbals Flooring Co. v. Huddleston).

Q: Are concrete and structural steel ever exempt?
A: Yes, when used specifically to form a base or foundation supporting a piece of qualifying machinery (an "appurtenance"). The same materials forming the building's general structure are taxable.

Q: Why are conduits, cable trays, and similar support items taxable?
A: The Department found they have only a secondary or indirect role — providing safety/support rather than being necessary to and primarily for the actual fabrication process.

Q: Can I rely on this ruling?
A: No. It's a Revenue Ruling, which is advisory only and not binding on the Department for any taxpayer, including the one who requested it.

Citations and references

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

• §§ 67-6-101 to -907 (Retailers' Sales Tax Act)
• § 67-6-206(a) (industrial machinery exemption)
• § 67-6-102(46)(A)(i) (definition of "industrial machinery" — machinery/apparatus/equipment with associated parts/appurtenances/accessories, necessary to and primarily for fabrication); § 67-6-102(46)(A)(ii) ("industrial machinery" includes pollution control facilities); § 67-6-102(46)(D)(i) (machines generating/distributing electricity/utility services); § 67-6-102(46)(D)(ii) (equipment transporting raw materials/finished goods)
• § 67-6-102(78) (definition of "retail sale"); § 67-6-102(80)(A) (definition of "sale")

Cases cited by the ruling:

• AFG Indus., Inc. v. Cardwell, 835 S.W.2d 583 (Tenn. 1992) (definition of "apparatus" — a collection of component parts designed for a specific mechanical/chemical action)
• Eastman Chemical Co. v. Johnson, 151 S.W.3d 503 (Tenn. 2004) ("machinery, apparatus, and equipment" includes devices conveying materials/components from one part of the process to another)
• Woods v. General Oils, Inc., 558 S.W.2d 433 (Tenn. 1977) ("primarily" means first of all/principally/fundamentally; storage tanks with only a secondary/indirect manufacturing role don't qualify)
• Tibbals Flooring Co. v. Huddleston, 891 S.W.2d 196 (Tenn. 1994) ("Tibbals II") (a building, even one housing qualifying machinery, is not itself "machinery, apparatus, or equipment"); Tibbals Flooring Co. v. Olsen, 698 S.W.2d 60 (Tenn. 1985) ("Tibbals I") (pre-1984 definition excluded buildings; the 1984 expansion to "associated parts, appurtenances, and accessories" did not extend the exemption to buildings)
• Tenn. Farmers' Coop. v. State ex rel. Jackson, 736 S.W.2d 87 (Tenn. 1987); Beare Co. v. Tenn. Dep't of Revenue, 858 S.W.2d 906 (Tenn. 1993) (manufacturer = principal business is fabrication/processing for resale)
• Am. Airlines, Inc. v. Johnson, 56 S.W.3d 502 (Tenn. Ct. App. 2000); Rogers Group, Inc. v. Huddleston, 900 S.W.2d 34 (Tenn. Ct. App. 1995); United Canners, Inc. v. King, 696 S.W.2d 525 (Tenn. 1985) (taxpayer bears the burden of proving an exemption; well-founded doubt defeats the claim)

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/12-24.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 12-24
WARNING
Revenue rulings are not binding on the Department. 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.
SUBJECT
The applicability of the Tennessee sales and use tax industrial machinery exemption in the
expansion of a [REDACTED] manufacturing facility.
SCOPE
Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.
FACTS
Since [YEAR], the Taxpayer has operated an industrial facility in [CITY], Tennessee (the
“Facility”). The Facility, used for manufacturing, is being expanded to accommodate the
manufacturing of [REDACTED] products for resale and consumption off the premises (the
“Expansion Project”). The Expansion Project will include the purchase of new, specialized
machinery, the installation of supporting facilities, and the creation of an energy and cost
efficient environment to reduce any potential impact of the process on the environment. The
Taxpayer states that the weight of the new machinery necessitates a unique design of the
infrastructure of the manufacturing facility by specialized engineering firms. The expanded
Facility will contain the machinery, equipment, appurtenances, and other items listed in the table
below. These items are purchased and installed by the Taxpayer’s contractors.
In general, the operations and activities at the manufacturing plant consist of the procurement of
[TYPE OF] materials [REDACTED] and the transformation of these materials into large
[BATCHES OF] products. Machinery in this phase of production is located in [AREA 1] of the
manufacturing facility. Once the large [BATCHES OF] products are produced, the machinery
and appurtenances transform the large [BATCHES] into consumer usable [REDACTED]
products, and are subsequently packaged for delivery. Machinery in this phase of the production
is located in [AREA 2] of the manufacturing facility.

1

RULING
Are the items that will be purchased in conjunction with the Expansion Project (and listed in the
table below) exempt for purposes of the Tennessee sales and use tax under TENN. CODE ANN.
§ 67-6-206(a) (2011)?
Ruling: All of the items listed in the table below and purchased in conjunction with the
Expansion Project are exempt from the Tennessee sales and use tax under TENN. CODE
ANN. § 67-6-206(a) (2011), except for the following: all pilings, concrete, rebar
accessories, and structural steel that become a part of the Facility building; formwork;
hanger and pipe supports; cable trays; conduits; and trays and supports.
ANALYSIS
The following table lists the items purchased in conjunction with the Expansion Project, states
whether a particular item is exempt, and references an enumerated explanation as to the item’s
taxability. The enumerated explanations appear after the table. A description of each particular
item is set forth in Appendix A.
Table of Items
Item

Exempt When
Purchased for the
Expansion Project?

Pilings that become part of the Facility building

No

6

Pilings that become part of a base for industrial machinery

Yes

2

Underground Piping (Effluent)

Yes

5

Truck Dock Equipment

Yes

4

Ventilation Environmental Control Systems

Yes

1

Process Piping

Yes

1, 4, 5

Insulation of Piping and Ducts

Yes

2

Interior Wall Environmental Controls

Yes

1, 2

Environmental Process Louvers

Yes

1, 2

Vacuum Stacks

Yes

5

Medium Voltage Drives

Yes

3

Low Voltage Switchgear

Yes

3

Low Voltage Drive Control

Yes

3

Medium Voltage Motor Control Center

Yes

3

Low Voltage Motor Control Center

Yes

3

Unit Power Source

Yes

3

2

Explanation

Item

Exempt When
Purchased for the
Expansion Project?

125-Volt Direct Current Power Source

Yes

3

Concrete that becomes part of the Facility building

No

6

Concrete that becomes part of a base for industrial machinery Yes

2

Formwork

No

6

Rebar Accessories that become part of the Facility building

No

6

Rebar Accessories that become part of a base for industrial
machinery

Yes

2

Grating Trench

Yes

5

Structural Steel that becomes part of the Facility building

No

6

Structural Steel that becomes part of a base for industrial Yes
machinery

2

Hanger and Pipe Supports

No

6

Lube & Hydraulics

Yes

2

Cable Trays

No

6

Conduits

No

6

Electrical Cable Connections

Yes

2

Grounding Wire

Yes

2

Transformers

Yes

3

Instrument Stands

Yes

1, 2

Tubing & Valves

Yes

1, 2

Trays & Supports

No

6

3

Explanation

Explanations
Under the Retailers’ Sales Tax Act, TENN. CODE ANN. §§ 67-6-101 to -907 (2011), the retail
sale1 of tangible personal property in Tennessee is generally subject to the Tennessee sales and
use tax, unless an exemption from taxation applies. TENN. CODE ANN. § 67-6-206(a) (2011)
exempts “industrial machinery” from the sales and use tax, providing that “[a]fter June 30, 1983,
no tax is due with respect to industrial machinery.”
In order for an item to qualify as exempt industrial machinery, the Taxpayer must qualify as a
manufacturer. A manufacturer, for purposes of the industrial machinery exemption, is “one who
engages in … fabrication or processing as one’s principal business.” TENN. CODE ANN. § 67-6102(46)(A)(i) (2011); cf. TENN. CODE ANN. § 67-6-206(b)(2). Manufacturing is a taxpayer’s
principal business if more than fifty percent of its revenues at a given location are derived from
fabricating or processing tangible personal property for resale. Tenn. Farmers’ Coop. v. State ex
rel. Jackson, 736 S.W.2d 87, 91-92 (Tenn. 1987); see also Beare Co. v. Tenn. Dep’t of Revenue,
858 S.W.2d 906, 908 (Tenn. 1993).
Under the facts presented, the Taxpayer qualifies as a manufacturer. The Taxpayer has indicated
that its only business at the Facility in [CITY], Tennessee, is the manufacturing of
[REDACTED] products for resale and consumption off the premises. Thus, it follows that more
than fifty percent of the Taxpayer’s revenues at that location derives from fabricating or
processing tangible personal property for resale. The Taxpayer is therefore a manufacturer for
purposes of the industrial machinery exemption.
The term “industrial machinery” is generally defined in pertinent part2 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.
TENN. CODE ANN. § 67-6-102(46)(A)(i).
The term “industrial machinery” includes “[m]achines used for generating, producing, and
distributing utility services, electricity, steam, and treated or untreated water.” TENN. CODE ANN.
§ 67-6-102(46)(D)(i). Also included in the definition is “[e]quipment used in transporting raw
1

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

Note that the definition of “industrial machinery” is extensive; this revenue ruling will discuss only those portions
of the definition that are applicable in the context of the Expansion Project.
4

materials from storage to the manufacturing process, and transporting finished goods from the
end of the manufacturing process to storage.” TENN. CODE ANN. § 67-6-102(46)(D)(ii).
Finally, “industrial machinery” includes “pollution control facilities,” which is defined in
pertinent part as
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.
TENN. CODE ANN. § 67-6-102(46)(A)(ii).
1.

Machinery, Apparatus, and Equipment

Each item listed in the table above with a (1) in the explanation column qualifies for exemption
from the Tennessee sales and use tax pursuant to TENN. CODE ANN. § 67-6-206(a).
TENN. CODE ANN. § 67-6-102(46)(A)(i) defines “industrial machinery” in pertinent part as
“machinery, apparatus and equipment … that is necessary to, and primarily for, the fabrication or
processing of tangible personal property for resale and consumption off the premises.”
An item of tangible personal property will therefore be exempt from the Tennessee sales and use
tax as industrial machinery if the following requirements are met: 1) the item is properly
considered machinery, apparatus or equipment; 2) the item is necessary to the fabrication or
processing of the products sold by the Taxpayer; and 3) the item is primarily for the fabrication
of the products sold by the Taxpayer.
First, each item listed in the table above with a (1) in the explanation column qualifies as
machinery, apparatus, or equipment. In particular, several such items are properly considered an
apparatus.
The Retailers’ Sales Tax Act does not define the term “apparatus” for purposes of Tennessee
sales and use taxation. The Tennessee Supreme Court has stated that when a statute does not
define a term, it is proper to look to common usage to determine the term’s meaning. See, e.g., Tenn.
Farmers Assur., 197 S.W.3d at 782-83; Beare Co., 858 S.W.2d at 908. The Tennessee Supreme
Court in AFG Indus., Inc. v. Cardwell, 835 S.W.2d 583, 585 (Tenn. 1992) in fact looked to
various dictionaries for the meaning of “apparatus” in the context of the industrial machinery
exemption, noting that the term is defined as the “totality of means by which a designated
function is performed or a specific task executed,” and as “a set of materials or equipment
designed for a particular use.” The court added that the term “contemplates a collection of

5

component parts ‘designed for a specific mechanical or chemical action or operation.’”3 See, e.g.,
AFG Indus., Inc., 835 S.W.2d at 585 (holding that a tin bath constituted an exempt apparatus that
was “an integral part” of a glass manufacturing process). For example, the Taxpayer’s ventilation
environmental control system is properly considered an apparatus because the system is a set of
equipment, materials, and component parts designed for a particular use, i.e., to create a stable
and sterile environment by controlling and monitoring the temperature, humidity, and
environmental conditions in the Facility.
Additionally, the Tennessee Supreme Court has interpreted the phrase “machinery, apparatus,
and equipment” 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, 509-510 (Tenn. 2004). With respect to the Expansion Project, the court’s
interpretation extends to the tubing and a portion of the process piping,4 resulting in these items
being considered industrial machinery.
Finally, the facts indicate that each item listed in the table above with a (1) in the explanation
column is necessary to and primarily for the manufacturing process.
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 the term “necessary” is
“absolutely needed; required.” MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 828 (11th ed.
2007). Thus, in order for a piece of machinery, equipment, or apparatus to be “necessary” to the
manufacturing process, it must be absolutely needed for that process to work. Stated conversely,
for the machinery, equipment, or apparatus to be considered “necessary,” the manufacturing
process must not be able to function in the item’s absence. The facts indicate that each item listed
in the table above with a (1) in the explanation column is necessary to the Taxpayer’s
manufacturing or fabricating process.
The Tennessee Supreme Court, in applying the industrial machinery exemption, found that the
term “primarily” means “first of all; principally; or fundamentally.” Woods v. General Oils, Inc.,
558 S.W.2d 433, 436 (Tenn. 1977) (citing WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY
(1961)). The court also noted that the term has been held to mean “first in rank or importance,
chief, principal, basic or fundamental.” Id. (citing Breen v. Indus. Acc. Bd., 436 P.2d 701 (Mont.
1968); Twentieth Century Mfg. Co. v. United States, 444 F.2d 1109 (Ct. Cl. 1971)). The
machinery, equipment, or apparatus satisfies the requirement that it be “primarily for” the
fabrication of the taxpayer’s products if more than fifty percent of its use is in the manufacturing
operation. The facts indicate that each item listed in the table above with a (1) in the explanation
column is primarily for the Taxpayer’s manufacturing or fabricating process.

3

The court’s citations are from the AMERICAN HERITAGE DICTIONARY (1969); WEBSTER’S NINTH NEW COLLEGIATE
DICTIONARY (1990); and WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY (1976).
4

Depending on its use, a particular piece of process piping will qualify for the industrial machinery exemption under
TENN. CODE ANN. § 67-6-102(46)(A)(i), (A)(ii), or (D)(ii).
6

2.

Associated Parts, Appurtenances and Accessories

Each item listed in the table above with a (2) in the explanation column qualifies for exemption
from the Tennessee sales and use tax pursuant to TENN. CODE ANN. § 67-6-206(a).
“Industrial machinery,” as defined in pertinent part under TENN. CODE ANN. § 67-6102(46)(A)(i), includes “[m]achinery, apparatus and equipment with all associated parts,
appurtenances and accessories.” (Emphasis added.) Therefore, items that are not necessarily
machinery themselves, but become a part of, or are attached to, qualifying machinery, apparatus,
or equipment are also exempt as industrial machinery.
The majority of the items listed in the table above with a (2) in the explanation column are
attached to and have become a part of a larger, more integral piece of machinery, apparatus, or
equipment that itself qualifies for the industrial machinery exemption. Such items (i.e., those
with a (2) in the explanation column) are properly considered associated parts, appurtenances, or
accessories for purposes of the exemption.
Additionally, with respect to the Expansion Project, a portion of the pilings, concrete, rebar
accessories, and structural steel is used to create bases that are built specifically to hold up or
support large items of industrial machinery. All pilings, concrete, rebar accessories, and
structural steel used in this manner are properly considered appurtenances, and are exempt as
such.5
3.

Machines used to generate, produce, and distribute electricity

Each item listed in the table above with a (3) in the explanation column qualifies for exemption
from the Tennessee sales and use tax pursuant to TENN. CODE ANN. § 67-6-206(a).
The term “industrial machinery” includes “[m]achines used for generating, producing, and
distributing utility services, electricity, steam, and treated or untreated water.” TENN. CODE ANN.
§ 67-6-102(46)(D)(i). With respect to the Expansion Project, the drives, switchgear, drive
controls, motor control centers, power sources, and transformers all work together to distribute
electricity to the machinery and thus are exempt as industrial machinery.
4.

Equipment used to transport raw materials and finished products

Each item listed in the table above with a (4) in the explanation column qualifies for exemption
from the Tennessee sales and use tax pursuant to TENN. CODE ANN. § 67-6-206(a).

5

Importantly, the pilings, concrete, rebar accessories, and structural steel that become part of the Facility building
(i.e., that form part of the Facility’s floor, ceiling, walls, and so on) are not properly considered associated parts,
appurtenances, or accessories. As discussed in greater detail under Explanation #6, below, the pilings, concrete,
rebar accessories, and structural steel that become part of the Facility building fail to qualify for the industrial
machinery exemption. Additionally, the formwork is not properly considered an associated part, appurtenance, or
accessory. The formwork, which functions as a frame or mold for concrete, is used solely in the construction of the
Facility and is removed once the concrete hardens.
7

Equipment used to transport raw materials from storage to the manufacturing process and to
transport the finished product to storage after completion of the manufacturing process is treated
as industrial machinery, pursuant to TENN. CODE ANN. § 67-6-102(46)(D)(ii).
Note that the Taxpayer’s truck dock equipment is exempt as industrial machinery because it is
used solely for this purpose. Under a different factual scenario, truck dock equipment may not
qualify for the industrial machinery exemption.
5.

Pollution Control Facilities

Each item listed in the table above with a (5) in the explanation column qualifies for exemption
from the Tennessee sales and use tax pursuant to TENN. CODE ANN. § 67-6-206(a).
The definition of “industrial machinery” includes pollution control facilities. “Pollution control
facilities” is defined in pertinent part as “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.”
TENN. CODE ANN. § 67-6-102(46)(A)(ii).
With respect to the Expansion Project, the underground piping for effluent, a portion of the
process piping, and the grating trench are part of the Taxpayer’s system for collecting and
treating the waste water generated in the manufacturing process. The vacuum stacks are part of
the Taxpayer’s vacuum system, which cleans and releases the air from the manufacturing
facility. Thus, each of these items qualifies as pollution control facilities and, as such, is exempt
as industrial machinery.
6.

Taxable Items

Each item listed in the table above with a (6) in the explanation column fails to qualify for
exemption from the Tennessee sales and use tax under TENN. CODE ANN. § 67-6-206(a). As a
result, with respect to the Expansion Project, the following items are subject to the sales and use
tax: all pilings, concrete, rebar accessories, and structural steel that become a part of the Facility
building; formwork; hanger and pipe supports; cable trays; conduits; and trays and supports.
As discussed above, an item of tangible personal property will be exempt from the Tennessee
sales and use tax as industrial machinery if it is properly considered “machinery, apparatus and
equipment with all associated parts, appurtenances and accessories” that is “necessary to, and
primarily for, the fabrication or processing” of the products sold by the taxpayer. TENN. CODE
ANN. § 67-6-102(46)(A)(i).
Importantly, none of the items listed in the table above with a (6) in the explanation column are
both necessary to and primarily for the fabrication of the Taxpayer’s products. Rather, such items
have only a secondary or indirect use with respect to the manufacturing process.

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 the term “necessary” is
“absolutely needed; required.” MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 828 (11th ed.
2007). Thus, in order for a piece of machinery, equipment, or apparatus to be “necessary” to the
manufacturing process, it must be absolutely needed for that process to work. Stated conversely,
for the machinery, equipment, or apparatus to be “necessary,” the manufacturing process must
not be able to function in the item’s absence. For example, in the Taxpayer’s case, conduits
(which are pipes) protect cables from fire and other damage, and are used to support the cables
between the cable trays and the monitors. While the conduits are certainly useful as a safety and
support device, it is extremely doubtful that the Taxpayer would be unable to manufacture its
products in the absence of the conduits.
The Tennessee Supreme Court has held in the context of the industrial machinery exemption that
the term “primarily” means “first of all; principally; or fundamentally.” Woods, 558 S.W.2d at

436. The court also noted that the term has been held to mean “first in rank or importance, chief,
     principal, basic or fundamental.” Id. In applying these definitions, the court denied the industrial
     machinery exemption to an oil processing company, holding that tanks used to store oil awaiting
     processing had “at most, only a secondary and indirect use” in the manufacturing process. Id.
     Applying these definitions to the example of the Taxpayer’s conduits, the conduits’ principal
     function is to provide safety and support to cables. While this function is certainly important, as
     with the tanks in Woods, the function is nevertheless only secondary or indirect with respect to
     the manufacturing process.
     Additionally, items that become part of a building generally do not qualify for the industrial
     machinery exemption. In the Taxpayer’s case, this includes all pilings, concrete, rebar
     accessories, and structural steel that become a part of the Facility building.
     In Tibbals Flooring Co. v. Huddleston, 891 S.W.2d 196, 199 (Tenn. 1994) (“Tibbals II”), the
     Tennessee Supreme Court upheld a use tax assessment on parts that composed a specially
     insulated dry kiln, holding that the industrial machinery exemption did not apply. In denying the
     exemption, the court observed that the dry kiln was ultimately simply a building composed of a
     concrete floor, metal walls, a roof, and insulation. Id. The court found that the dry kiln could not
     be characterized as “machines functioning as a unit,” although the kiln did house such machines.
     Id. Similarly, the court also found that the kiln, while housing a collection of component parts
     designed for a specific mechanical purpose, was not itself such a collection of parts. Id. The
     court also rejected the characterization of the kiln as “equipment,” noting that the term was
     “specifically defined” to exclude buildings. Id. (likely referring to Tibbals Flooring Co. v. Olsen,
     698 S.W.2d 60 (Tenn. 1985) (“Tibbals I”),6 where the court defined the term “equipment” in this
     manner).
     6

In Tibbals I, the Tennessee Supreme Court applied the definition of “industrial machinery” as it existed prior to
1984 to a pre-dryer, which was a large building in which lumber was stacked for drying. The pre-1984 definition
allowed only “machinery, including repair parts” and “equipment primarily used for air pollution control or steam
pollution control” to qualify as industrial machinery. The court held that the pre-dryer was not industrial machinery,
stating that, although it contained “certain mechanical appurtenances,” the predominant characteristic of the predryer was that “it is a structure rather than ‘machinery’ as commonly understood.” Tibbals, 698 S.W.2d at 62. The
“industrial machinery” definition was expanded in 1984 to include “machinery, apparatus and equipment with all
associated parts, appurtenances and accessories.” Significantly, however, the extension of the definition to
associated parts, appurtenances, and accessories did not result in the exemption of buildings and similar structures,
9

Like the nonexempt parts that composed the specially insulated dry kiln in Tibbals II, all pilings,
concrete, rebar accessories, and structural steel that become part of the floor, walls, or roof of the
Facility building are excluded from the definition of industrial machinery. While the Facility
building requires specialized engineering due to the large size and weight of the Taxpayer’s
industrial machinery, it is ultimately a building whose primary function is to house that
machinery. The Facility’s housing function, while important, is nevertheless only secondary or
indirect with respect to the manufacturing process. Like the dry kiln in Tibbals II, the Facility
building is not itself machinery, equipment, or an appurtenance; rather, it is the structure that
houses these items.
The burden is on the taxpayer to establish entitlement to an exemption from taxation. The
Tennessee Supreme Court has stated that “[a]lthough the rule is well-established that taxing
legislation should be liberally construed in favor of the taxpayer and strictly construed against
the taxing authority, it is an equally important principle of Tennessee tax law that ‘exemptions
from taxation are construed against the taxpayer who must shoulder the heavy and exacting
burden of proving the exemption.’” Am. Airlines, Inc. v. Johnson, 56 S.W.3d 502, 506 (Tenn. Ct.
App. 2000) (quoting Rogers Group, Inc. v. Huddleston, 900 S.W.2d 34, 36 (Tenn. Ct. App.
1995)). The Tennessee Supreme Court has also stated that the burden is on the taxpayer to
establish the exemption, and any well-founded doubt is sufficient to defeat a claimed exemption
from taxation. Am. Airlines, 56 S.W.3d at 506 (citing Tibbals Flooring Co., 891 S.W.2d at 198;
United Canners, Inc. v. King, 696 S.W.2d 525, 527 (Tenn. 1985)).
With respect to the items listed in the table above with a (6) in the explanation column, sufficient
doubt exists so as to defeat the application of the industrial machinery exemption to such items.

Kristin Husat
General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

10/31/12

as demonstrated by the holding in Tibbals II. In its discussion of that holding, the Tennessee Supreme Court in
Eastman Chemical Co., 151 S.W.3d at 509, stated that Tibbals II (as well as AFG Indus., 835 S.W.2d 583)
established that “all components integral to manufacturing or processing are exempt under the definition of
industrial machinery.” Because Tibbals II did not extend the exemption to buildings, it is evident that the Tennessee
Supreme Court generally does not view buildings, however specialized their design, as a component that is integral
to manufacturing or processing.

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REVENUE RULING 12-24
APPENDIX A
ITEMS PURCHASED IN CONJUNCTION WITH THE EXPANSION PROJECT
ITEM
Pilings

DESCRIPTION/FUNCTION
Located underground. Serve as support. Used to create a foundation for
the building or for the machinery used in [AREA 1] and [AREA 2].
Underground Piping
Channels and removes effluent from the machinery located in [AREA 1]
(effluent)
and [AREA 2] and transports the effluent to the waste containment area
where it is further processed.
Truck Dock Equipment
Engineered equipment used to load the finished product straight from
processing onto trucks that deliver the product to the storage area.
Ventilation Environmental Control and monitor the temperature, humidity, and related
Control Systems
environmental conditions in [AREA 1] and [AREA 2]. Create a stable
and sterile environment and are necessary for strict quality control and
environmental parameters.
Process Piping
Channels and removes effluent from the machinery located in [AREA 1]
and [AREA 2].
Insulation of Piping and
Installed on piping and air ducts in [AREA 1] and [AREA 2]. Used to
Ducts
control the temperature of steam within the pipes that is used in the
manufacturing process.
Interior Wall
Made of thick insulated panels; serves as insulation and thermal
Environmental Controls
regulation for machinery located in [AREA 1]. Functions as a unit to
facilitate proper climate and environmental conditions for the production
of [MATERIALS] into the intermediate product, similar to a cleanroom.
Separate from (i.e., not attached to) the interior walls of the building.
Environmental Process
Part of the Ventilation Environmental Control System. Control the intake
Louvers
and outtake of air available for use by machinery in [AREA 1].
Vacuum Stacks
Attached to and part of the Facility’s vacuum system, which removes
moisture from the [MATERIALS] being processed. Located at the
vacuum pump outlet. Ensure the minimization of damaging pipe
vibrations and noise control at the pumps located in [AREA 1].
Medium Voltage Drives
Used exclusively to drive large process equipment located in [AREA 1].
Low Voltage Drive Control Runs the motors driving the large manufacturing equipment.
Medium Voltage Motor
Exclusively used to run the motors that drive the larger process
Control Center
equipment located in [AREA 1].
Low Voltage Motor
Exclusively used to run the motors that drive small process equipment
Control Center
located in [AREA 1].
Unit Power Source
Electrical control aperture that protects equipment and the control system
during power outages.
125 Volt Direct Current
Part of the unit power source. Used to protect equipment and the control
Power Source
system during power outages.
Concrete
Used in the formation of the building structure as well as in specifically
designed concrete foundations used to support machinery in [AREA 1]
and [AREA 2]. The separate foundations directly support and touch the
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ITEM
Formwork
Rebar Accessories

Grating Trench

Structural Steel
Hanger and Pipe Supports
Lube and Hydraulics
Cable Trays
Conduits
Electrical Cable
Connections
Grounding Wire
Transformers
Instrument Stands
Tubing and Valves
Trays and Supports

DESCRIPTION/FUNCTION
machinery.
Includes wooden forms or molds for the concrete used as a foundation
for the machinery in [AREA 1] and [AREA 2].
Permanent fixtures that reinforce bars that run through the building
structure as well as the concrete foundations used to support the
machinery in [AREA 1] and [AREA 2].
Controls pollution and collects any process surge and overflows that
occur during operations in [AREA 1] and [AREA 2]. Draws off process
water toward the process water recovery system, which is located on the
ground floor and allows wastewater and spills to be sent to a fiber
recovery system. Once filtered, the process water is sent directly to the
city’s effluent treatment facility.
Used to create the building or used to form the support for manufacturing
equipment.
Provide support for the process piping throughout the Facility.
Ensure that the machinery and equipment perform at capacity. Used in
the machines and consumed in the manufacturing process.
Provide support for the electrical and instrument cables throughout the
Facility.
Pipes that protect the cables from fire and other damage. Used to support
the cables between the cable trays and the motors.
Located at all cable connection points throughout the Facility and used to
connect the cables to the motors and control centers.
Prevents electrical discharge from the manufacturing systems, maintains
a safe environment, and ensures the proper functioning of the machinery.
An electrical component used to change the voltage level to
accommodate manufacturing equipment.
Support manufacturing equipment throughout the facility. Attached to
the equipment.
Located on the pipes throughout the Facility. Regulate the pressure and
volume within the pipes.
Support the tubing in the trays and help connect instruments to the main
control.

12