Does a conveyor that moves wet concrete aggregate from inside a plant to outdoor stockpiles, where it continues drying before sale, qualify for New York's production-equipment sales tax exemption?

Plain-English summary

Frey Concrete, Inc. produces graded concrete aggregate products. Inside its plant, the aggregate is washed in vats of water as part of cleaning. From there, a conveyor system carries the very wet aggregate (roughly 70-80% moisture) out of the plant to outdoor stockpiles, dropping it into conical piles that promote further drying. Industry standards require the aggregate to have under 5% moisture before it's acceptable to customers, and some material needs additional days in the stockpile to reach that level — plus quality-control inspection and sometimes a return trip through the plant if it doesn't meet grade. There's no way to load a delivery truck with acceptable product straight from the plant; the product isn't "finished" until it has dried in the stockpile.

New York exempts machinery and equipment used directly and predominantly in production (Tax Law § 1115(a)(12)), but that exemption stops once the product is finished and moves into "distribution" (storing, displaying, selling, loading, shipping). The Department's regulations treat conveying/handling of materials as part of production if it happens during the production phase, and treat drying/dewatering as a production activity in its own right, citing two earlier decisions on point. Because Frey's aggregate is still actively drying — an unfinished, in-process condition — while it travels on the outdoor conveyor and while it sits in the stockpile, the Department held the product isn't yet "finished" when it leaves the plant. That makes the conveyor's job part of the production process, not mere post-production distribution, so the conveyor qualifies for the § 1115(a)(12) exemption.

What this means for you

Aggregate, concrete, and other bulk-materials producers

If your product genuinely continues an essential production step — like drying, curing, or dewatering — after it physically leaves your building, the equipment carrying it during that continued processing can still count as exempt production equipment, even though it's technically "outdoors" and headed toward a stockpile rather than staying inside the plant.

Manufacturers evaluating conveyor, stockpile, or in-process storage equipment

The dividing line isn't "inside vs. outside the building" — it's whether the product is "finished" yet. If material still needs a documented, functional processing step (drying to a specific moisture percentage here) before it's ready for sale, equipment used during that step is production equipment, not distribution equipment.

Accountants and tax professionals

The key regulatory hook is 20 NYCRR 528.13(b), which defines production as running "through the last step of production where the product is finished," with distribution starting only after that. Look for a genuine, functional, ongoing process step (not simply storage or staging) to support treating post-plant equipment as still "production."

Common questions

Q: Does moving a product outside my plant automatically make the handling equipment taxable "distribution" equipment?
A: No. If the product genuinely isn't finished yet — because it's still undergoing an essential production step like drying — equipment used to move or store it during that step can still qualify as exempt production equipment.

Q: What made the drying here count as "production" rather than just storage?
A: The aggregate had a specific, documented moisture-content problem (70-80% wet vs. an under-5% sale standard) that the stockpiling process functionally solved, plus ongoing quality inspection and occasional reprocessing — not passive storage of an already-finished product.

Q: Can another manufacturer rely on this exact ruling?
A: No. This Advisory Opinion binds the Department only as to Frey Concrete, Inc. and the facts it described. A business whose product is already finished when it leaves the plant, with equipment used only for storage or shipping, would likely reach a different result.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(12) (production machinery and equipment exemption)
• 20 NYCRR 528.13 (machinery and equipment used in production)

Prior decisions cited:

• Matter of Albert H. Mast, St Tax Comm, September 3, 1982, TSB-H-82(97)S
• Matter of National Fuel Distribution Corporation et al., Dec Tax App Trib, March 14, 1991, DTA Nos. 801047 and 801048

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_9s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-08(9)S
Sales Tax
February 14, 2008

Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S070313A

On March 13, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Frey Concrete, Inc., 3949 Forest Parkway, Suite 400, North Tonawanda,
NY 14120. Petitioner, Frey Concrete, Inc., provided additional information pertaining to the
Petition on March 29, 2007, and February 5, 2008.
The issue raised by Petitioner is whether the conveyor used to move product outside of
Petitioner’s plant qualifies for the production exemption under section 1115(a)(12) of the Tax
Law for equipment used directly and predominantly in the production process.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner produces various grades of concrete aggregate products. Petitioner’s
customers choose the grade of aggregate based on the intended use and the applicable industry
standards. Petitioner has aggregate conveyors running inside and outside of its plant. The
conveyors move Petitioner’s products from inside its plant to stockpiles located outside of the
plant. The conveyor run includes a series of screens that allow the products to be separated by
the size or grade of the materials. The stockpiles are located by type of product at the end of
each outside conveyor run. There is no way to load the product for delivery to the customer
directly from the plant.
While the aggregate products are in the plant, they are placed in vats of water as part of
the cleaning process. At the point where the aggregate products begin travel on the outside
conveyor run they are very wet, having approximately a 70-80% moisture content. All
Petitioner’s products are sold by weight. The industry standards for an acceptable amount of
moisture content are in a range below 5%. Loading the products directly from the plant onto a
delivery truck would result in water content that would be unacceptable to the customer. The
conveyors drop the products into the stockpiles in such a manner as to create conical shaped piles
that promote additional dewatering of the products. Prior to being ready for purchase by
customers, some of the aggregate needs an additional couple of days to drain. When the
products are retrieved from the stockpile for delivery the outside layer of the stockpile must first
be removed to assure that dry products are being loaded for delivery.
While in the stockpile, the product can be inspected by quality control monitors and
tested for grade. It is necessary for Petitioner to determine that the product will meet the
specifications required for the intended use. Some of the product, because of size, type, or grade,
has to be returned to the plant for further processing. For example, product that has not been
thoroughly cleaned or product that is too fine and needs to have coarser material added to bring it
up to the industry specifications may have to go through the plant processing system again. If

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the product had been loaded directly onto a delivery truck from the plant, there would be no way
to prevent material contamination and to assure customers that the load was the quality, grade,
and amount of material they were promised.
Staff monitors the product as it is moved on the conveyors to the stockpiles. The range of
materials may also be viewed in the stockpile with the coarser materials on the outside of the pile
and the finer grades on the inside of the pile. Samples from the stockpiles are analyzed to
determine quality and grade rating to compare product to specifications. Petitioner is an
approved New York State Department of Transportation source of aggregate. New York
inspectors take quality control samples from the stockpiles and send them to Albany for testing.
Testing samples cannot be taken from product that is still in the plant.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. On and after June first, nineteen hundred seventy-one,
there is hereby imposed and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
Section 1115 of the Tax Law provides, in part:
(a) Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating use
tax imposed under section eleven hundred ten:
*

*

*

(12) Machinery or equipment for use or consumption directly and predominantly
in the production of tangible personal property, gas, electricity, refrigeration or steam for
sale, by manufacturing, processing, generating, assembling, refining, mining or
extracting. . . .
Section 528.13 of the Sales and Use Tax Regulations provides, in part:
Machinery and equipment used in production; telephone and telegraph
equipment; parts, tools and supplies. [Tax Law, § 1115(a)(12)]
(a) Exemption. (1) Exemption from statewide tax. An exemption is allowed from
the tax imposed under subdivisions (a) and (c) of section 1105 of the Tax Law, and from

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the compensating use tax imposed under section 1110 of the Tax Law, for receipts from
sales of the following:
(i) Machinery or equipment (including parts with a useful life of more than one
year) used or consumed directly and predominantly in the production for sale of tangible
personal property, gas, electricity, refrigeration or steam, by manufacturing, processing,
generating, assembling, refining, mining or extracting. . . .
*

*

*

(ii) (a) Parts with a useful life of one year or less, tools or supplies for use or
consumption directly and predominantly in the production of tangible personal property,
gas, electricity, refrigeration or steam for sale by manufacturing, processing, generating,
assembling, refining, mining or extracting.
*

*

*

(iv) The services of installing, repairing, maintaining or servicing the exempt
machinery, equipment, apparatus, parts, tools or supplies identified in subparagraph (i),
(ii) or (iii) of this paragraph.
*

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*

(b) Production. (1) The activities listed in paragraph (a)(1) of this section are
classified as administration, production or distribution.
(i) Administration includes activities such as sales promotion, general office work,
credit and collection, purchasing, maintenance, transporting, receiving and testing of raw
materials and clerical work in production such as preparation of work, production and
time records.
(ii) Production includes the production line of the plant starting with the handling
and storage of raw materials at the plant site and continuing through the last step of
production where the product is finished and packaged for sale.
(iii) Distribution includes all operations subsequent to production, such as storing,
displaying, selling, loading and shipping finished products.
(2) The exemption applies only to machinery and equipment used directly and
predominantly in the production phase. Machinery and equipment partly used in the
administration and distribution phases does not qualify for the exemption, unless it is
used directly and predominantly in the production phase.

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*

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(c) Directly and predominantly. (1) Directly means the machinery or equipment
must, during the production phase of a process,
(i) act upon or effect a change in material to form the product to be sold, or
(ii) have an active causal relationship in the production of the product to be sold,
or
(iii) be used in the handling, storage, or conveyance of materials or the
product to be sold, or
(iv) be used to place the product to be sold in the package in which it will enter
the stream of commerce.
*

*

*

(4) Machinery or equipment is used predominantly in production, if over 50
percent of its use is directly in the production phase of a process.
Opinion
Petitioner is in the business of producing various grades of concrete aggregate products.
Petitioner uses aggregate conveyors to move products to conical stockpiles outside of the
production plant.
Section 1115(a)(12) of the Tax Law provides an exemption from sales and use tax for
machinery or equipment used or consumed directly and predominantly in the production for sale
of tangible personal property. Section 528.13(b) of the Sales and Use Tax Regulations provides
that production continues up until the product is finished and packaged for sale and that
distribution includes all operations subsequent to production, such as storing, displaying, selling,
loading, and shipping finished products. Section 528.13(c)(1)(iii) of the Sales and Use Tax
Regulations provides that machinery or equipment is used directly in production if, during the
production process, it is used in the handling, storage, or conveyance of materials or the product
to be sold. Machinery or equipment is used predominantly in production if over 50% of its use is
directly in the production phase of a process. See 528.13(c)(4) of the Sales and Use Tax
Regulations.
Petitioner states that when the aggregate products are moved from within the plant to be
stockpiled outside the plant, the products begin a dewatering process that continues until after the
products are dropped in the stockpiles. The products cannot be loaded for delivery directly from

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the plant and are not ready for sale or delivery as they leave the plant on the conveyor system. In
order to be ready for sale, the product must have a moisture content in a range below 5%. The
process of drying a product or removing water from a product is considered to be a production
activity. (See Matter of Albert H. Mast, St Tax Comm, September 3, 1982, TSB-H-82(97)S;
Matter of National Fuel Distribution Corporation et. al., Dec Tax App Trib, March 14, 1991,
DTA Nos. 801047 and 801048.) While Petitioner does not appear to “package” its products,
based on the facts in this Opinion, the aggregate is not a finished product at the time it is placed
on the conveyor and moved outside to the stockpile. Petitioner’s conveyor system is used to
transport the aggregate from the plant to the outside stockpile, during which time the drying
process continues. Thus, the conveyor system is used directly and predominantly in production
activities and qualifies for exemption from sales and use tax pursuant to section 1115(a)(12) of
the Tax Law.

DATED: February 14, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.