Can a quarry that mines raw material and ships it to a separate manufacturing plant get its own Tennessee industrial-machinery sales-tax exemption?

Plain-English summary

A company runs a vertically integrated mining-and-manufacturing operation in Tennessee at two separate sites: Plant A, a quarry where it mines raw material, and Plant B, a manufacturing plant that processes that material into a finished product for sale. Plant B already holds a Tennessee industrial-machinery (IM) sales-tax exemption. Nearly all of the quarry's output goes to Plant B; occasionally raw material is sold directly to a third party. The company asked whether Plant A — the quarry — can get its own industrial-machinery exemption. In this advisory Revenue Ruling, the Department said yes, under these facts — but Plant A has to register and apply on its own.

Mining and extraction machinery counts as "industrial machinery." Tennessee exempts industrial machinery — broadly, machinery necessary to and primarily for fabricating or processing tangible personal property for resale, by someone whose principal business is that fabrication or processing (manufacturing is the "principal business" when more than 50% of a location's revenue comes from processing TPP for resale). Tennessee courts have long held that equipment used to mine and extract materials can qualify, and a 1986 amendment spelled out that mining machinery, equipment, and materials — for removal and extraction, handling overburden and spoils, and reclamation — are included. So the quarry's mining and extraction equipment can qualify for the exemption.

But the exemption is granted location by location. This is the practical heart of the ruling. A taxpayer with multiple Tennessee locations must separately register each location for sales and use tax — even when the locations are part of one integrated manufacturing process — and the registration certificate is not transferable between locations. Likewise, each location must separately apply for an industrial-machinery exemption authorization, which the Department grants or denies on a location-by-location basis. So Plant B's existing exemption does not cover Plant A.

What the quarry has to do. To get the exemption for Plant A, the company must (1) make sure Plant A is registered as a location for sales and use tax, and (2) complete and submit the Application for Industrial Machinery, Energy Fuels and Water Sales and Use Tax Exemption for Plant A. The Department reviews it and, if the facts support it, issues Plant A its own IM exemption certificate with an exemption number — which the company then presents (or supplies on a Streamlined Certificate of Exemption) to make exempt qualifying purchases for the quarry.

What this means for you

Quarries, mines, and extraction operations

You don't have to manufacture a finished product on site to claim the industrial-machinery exemption. Mining and extraction equipment — including associated parts and necessary repair or installation labor — can qualify as industrial machinery in Tennessee. If you run a quarry or mine, your extraction machinery is a candidate for the exemption.

Multi-site manufacturers — one exemption does not cover them all

If you operate more than one Tennessee location (a quarry and a plant, a raw-materials site and a finishing site), each location needs its own sales-and-use-tax registration and its own industrial-machinery exemption authorization. Holding an exemption at one plant doesn't extend it to another, even within a single integrated process. Register and apply for each site separately.

Process matters as much as eligibility

Being eligible isn't the same as being exempt — you have to register the location and file the IM exemption application, then receive the certificate before making exempt purchases. Keep the certificate (or the exemption number on a Streamlined Certificate of Exemption) for each location's qualifying purchases.

Accountants and tax professionals

The exemption is § 67-6-206(a); the definition (including the mining/extraction language from the 1986 amendment) is § 67-6-102(46)(A)(i); the more-than-50% principal-business test traces to Tennessee Farmers' Cooperative v. State, 736 S.W.2d 87 (Tenn. 1987), with mining-machinery eligibility supported by Shearin v. Woods, 597 S.W.2d 895 (Tenn. 1980) and Jersey Miniere Zinc Co. v. Jackson, 774 S.W.2d 928 (Tenn. 1989). The separate-registration-per-location requirement is § 67-6-601(a); the application procedure is Rule 1320-05-01-.106. Note this is a Revenue Ruling — advisory, and not binding on the Department.

Common questions

Q: Can a quarry or mine get the Tennessee industrial-machinery exemption without manufacturing anything itself?
A: Yes. Mining and extraction machinery, equipment, and materials can qualify as industrial machinery — Tennessee's definition has expressly covered mining since a 1986 amendment, and courts have long agreed.

Q: My plant already has an industrial-machinery exemption. Does that cover my quarry at another site?
A: No. The exemption is granted location by location, and registration certificates aren't transferable. Each Tennessee location must register and apply for its own exemption authorization, even within one integrated manufacturing process.

Q: What's the process to get the exemption for a new location?
A: Register the location for sales and use tax, then complete the Application for Industrial Machinery, Energy Fuels and Water Sales and Use Tax Exemption for that location. If the Department approves, it issues an exemption certificate with a number you use for qualifying purchases there.

Q: Is this Revenue Ruling binding?
A: No. Revenue Rulings are advisory and are not binding on the Department, and no taxpayer can rely on this as binding. It shows the Department's interpretation; confirm your own facts with a tax professional.

Citations and references

Tennessee statutes and rules:
- Tenn. Code Ann. § 67-6-206(a) (industrial-machinery exemption from sales and use tax)
- Tenn. Code Ann. § 67-6-102(46)(A)(i) (definition of "industrial machinery"; the 1986 amendment includes mining machinery, equipment, and materials for extraction, overburden handling, and reclamation)
- Tenn. Code Ann. § 67-6-601(a) (a taxpayer with multiple Tennessee locations must separately register each location; certificates are not transferable)
- Tenn. Code Ann. § 67-6-201 (imposition of sales tax on tangible personal property and enumerated services)
- Tenn. Comp. R. & Regs. 1320-05-01-.106 (Application for Industrial Machinery, Energy Fuels and Water Sales and Use Tax Exemption)

Tennessee cases:
- Tennessee Farmers' Cooperative v. State ex rel. Jackson, 736 S.W.2d 87, 91-92 (Tenn. 1987) (manufacturing is the principal business when more than 50% of a location's revenue is from processing TPP for resale; exemption granted location-by-location)
- Shearin v. Woods, 597 S.W.2d 895 (Tenn. 1980); Jersey Miniere Zinc Co. v. Jackson, 774 S.W.2d 928 (Tenn. 1989) (machinery used to mine and extract materials can qualify as industrial machinery)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/21-12.pdf

Original ruling text

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.

The applicability of the Tennessee sales and use tax industrial machinery exemption to a quarry where
raw [MATERIAL] is mined.

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.

The Taxpayer operates a vertically integrated mining and manufacturing operation in Tennessee. The
Taxpayer operates Plant A,1 the mining operation/quarry, and Plant B, the manufacturing operation,
at two separate locations. The two locations are [DISTANCE] apart. The Department has issued Plant
B a sales and use tax industrial machinery exemption authorization.
At Plant A, the Taxpayer mines raw [MATERIAL]. The Taxpayer transfers the mined [MATERIAL] from
Plant A to Plant B where it is processed and manufactured into [FINISHED PRODUCT] that is sold to
third parties. Nearly all2 of the raw [MATERIAL] extracted from the quarry is processed into [FINISHED
PRODUCT] at the manufacturing facility and is for ultimate resale and use or consumption off the
premises of the Taxpayer’s quarry and [FINISHED PRODUCT] manufacturing facility.

Does Plant A qualify for a sales and use tax industrial machinery exemption authorization?
Ruling: Under the facts provided, Plant A can qualify for a sales and use tax industrial
machinery exemption authorization. To obtain an exemption, the Taxpayer must ensure that
Plant A is registered as a location for sales and use tax purposes, and it must complete the
Application for Industrial Machinery, Energy Fuels and Water Sales and Use Tax Exemption
form for Plant A and submit such application for review by the Department.
1

Plant A is a mining quarry. [REDACTED].

There are occasional times where mined [MATERIAL] is sold to a third party without being transferred to Plant B for processing
and conversion into [FINISHED PRODUCT].
2

1

Under the Retailers’ Sales Tax Act,3 the retail sale in Tennessee of tangible personal property and
specifically enumerated services is subject to the sales tax, unless an exemption applies. 4 TENN. CODE
ANN. § 67-6-206(a) (Supp. 2021) exempts “industrial machinery” from the sales and use tax. In general,
“industrial machinery” is defined as “machinery . . . 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.”5 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.6
Tennessee courts have long held that equipment, machinery, and materials used to mine/extract
materials may qualify as industrial machinery. 7 In 1986, the definition of “industrial machinery” was
amended to include the following language:
…mining machinery, apparatus equipment and materials, with all associated parts and
accessories, including repair parts and any necessary repair or installation labor, that
is necessary to and primarily for:
(i) The removal, extraction or detachment of coal from land by surface,
underground or other lawful methods of mining and the construction or
maintenance of necessary ingress and egress from the mine;
(ii) The removal, handling and replacement of overburden and spoils
materials; or
(iii) The reclamation of mined areas reclaimed under state or federal laws,
rules or regulations[.]8
In the Taxpayer’s case, because Plant A is a mining operation, it can qualify for the industrial machinery
exemption for equipment, machinery, and materials necessary to or primarily used to mine/extract
the raw [MATERIAL]. If Plant A is not registered for sales and use tax, it must first become registered
because a taxpayer with multiple locations in the state must separately register each location even if
the multiple locations are part of the same manufacturing process.9 The registration certificate is not
transferable and cannot be used at a location different from the location for which the certificate was
3

Tennessee Retailers’ Sales Tax Act (codified at TENN. CODE ANN. §§ 67-6-101 to -907 (2018 & Supp. 2021)).

4

TENN. CODE ANN. § 67-6-201 (Supp. 2021).

5

TENN. CODE ANN. § 67-6-102(46)(A)(i).

6

Tenn. Farmers’ Coop v. State ex rel. Jackson, 736 S.W. 2d 87, 91-92 (Tenn. 1987).

7

See Shearin v. Woods, 597 S.W.2d 895 (Tenn. 1980) and Jersey Miniere Zinc Co. v. Jackson, 774 S.W.2d 928 (Tenn. 1989).

The Compiler’s Notes following this statute provide the following information about the addition of this exemption: “Acts 1986,
ch. 924 § 2 provided that it was the intention of the 1986 amendment by that act to clarify the original intention of the General
Assembly in enacting Acts 1984 ch. 762 that industrial machinery involved in extracting minerals is exempt from the sales and
use tax imposed by this chapter. It is also the intention of the General Assembly that nothing in Acts 1986 ch. 924 be construed
to limit or remove any exemption previously granted in regard to industrial machinery used in mining.”
8

9

TENN. CODE ANN. § 67-6-601(a) (Supp. 2021).

2

issued. Likewise, each location must separately apply for an industrial machinery exemption
authorization because such authority is granted or denied on a location-by-location basis.10
Once Plant A is registered for sales and use tax, to obtain the exemption, the Taxpayer must complete
the Application for Industrial Machinery, Energy Fuels and Water Sales and Use Tax Exemption form
for Plant A.11 Once received, the Department will review the Taxpayer’s application and determine
whether, based on the information provided, Plant A qualifies for the industrial machinery exemption.
If the facts support issuance of an exemption, the Department will issue Plant A a sales and use tax
industrial machinery exemption certificate authorization that includes an exemption number. If Plant
A is issued the industrial machinery exemption certificate, the Taxpayer must present the certificate
issued by the Department12 to make sales and use tax exempt qualified purchases for Plant A.

10

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

12/20/2021

Tennessee Farmer’s Co-Op v. Jackson, 736 S.W.2d 87 (Tenn. 1987).

See TENN. COMP. R. & REGS. 1320-05-01-.106 (2016). The Application for Industrial Machinery Exemption can be found on the
Department’s website at https://www.tn.gov/content/dam/tn/revenue/documents/forms/sales/f1303101fillin.pdf.
11

Alternatively, the Taxpayer may issue a fully completed Streamlined Certificate of Exemption, which must include the
exemption number on the certificate issued to Plant A by the Department.
12

3